Mr Mohamed Rakha Definitions Section 1 definitions Business activity Factors of production: are the resources needed to produce goods and services ‘Scarcity: is the lack of sufficient products to fulfill the total wants of the population Opportunity cost: is ‘the next best alternative that was given up due to choosing another item Specialization: occurs when people and business concentrate on what they are best at. Division of labor: is when the production process is split up into different tasks and each worker performs one task only. \Value added: is the difference between the selling price of the product or service and the cost of bought in materials, such as oil and copper ore Primary sector: firms whose business activity involves the extraction of natural resources. Such as. mining and fishing Secondary sector: business that process and manufacture goods and services using raw materials provided by primary sector Tertiary sector: business that provides services to consumers and other business. Private sector: business owned by individual or group of individuals, not owned by the government or state. Their aim is usually profit. Public sector: business owned and controlled by government and not but private individuals. Their main objective is public services Mixed economy: economic resources are owned and controlled by both private and public sectors. Entrepreneur: is a person who organizes, operates and takes the risk for a new business enterprise. A business plan: a written document that describes a business, its objectives and important details about the operations, finance and owners of the business. Merger: is when a the owners of the business agree to join their firms together to make one business ‘Takeover or acquisition: is when one business buys another business from the owners Internal growth: involves a firm expanding its scale of production through the purchases of additional equipment, increasing the size of the premises or hiring more labor. Horizontal integration: when one firm merges with or takes over another one in the same industry at the same stage of production Vertical integration: when one firm merges with or takes over another one in the same industry but at a different stage of production 161 Scanned with CamScannerPdovedesssoeed’ vad \ vod SHHVHSHSSSsgdygsgs Mr Mohamed Rakha Conglomerate integration: when one firm merges with or takes over a firm in a completely different industry. Limited liability: the liability of shareholders in a company is only limited to the amount they invested. Unlimited liability: the owners of the business can be held responsible for all the debt of the business they own. Their liability is not limited to the amount they invested in the business. Unincorporated business: a business that does not have a separate legal identity from their owners. Incorporated business: a business that has a separate legal identity from the owners. Sole trader: itis an unincorporated business form that is owned and controlled by one person who has unlimited liability. Partnership: is an un-incorporated business form where a group of people (2 to 20) agree to own and run a business together. They will share the capital the risk, responsibility and profits of the business. Private limited company: an incorporated business, where ownership is in form of shares sold to family and friends who have limited liability. ‘Shareholders: people who invested and buy shares in the company and gain dividends as a return at the end of the year. Public limited company: itis an incorporated business form where ownership is in form of shares which are sold to general public and the shareholders have limited liability. ‘Annual general meeting: is when the shareholders of the business meet every year to vote for who to be in board of directors, to vote for the company's strategy, and to announce the distribution of dividends. Dividends: payments made to shareholders from profits of a company. They are the return of. shareholders for investing in the company, A oint venture: is when two or more business agree to start a new project together, sharing the capital, and the profits Franchising: a franchise is a business based upon the use of the brand names. Promotional logos and trading methods of an existing successful business. ‘The franchisee: the person who buys the license to operate the business from the franchisor. This is Now an extremely widespread form of business operations. ‘The franchisor: the owner of the franchise that can sell the license of franchise to franchisee Social enterprises: are operated by private Individuals in the private sector, they have social objectives as well as an aim to make profit. 162 Scanned with CamScannerMr Mohamed Rakha ‘Stakeholder: is any person or group of individuals with a direct interest in the performance of a business. They are affected by the business and the business is affected by them. 163 Scanned with CamScanner‘Mr Mohamed Rakha Section 2 definitions People in business Motivation: desire to achieve a goal Job satisfaction: the pleasure, enjoyment or sense of achievement that employees get from their work. Bonus system: a payment in addition to the basic wage for reaching targets ‘Commissions: a payment based on the value of sales, usually a percentage of sales made Performance related pay: a payment system designed for non-manual workers where pay increases are given if performance targets are met Time rate: a payment system based on the amount of time employees spend at work Piece rate: a payment system where workers receive an amount of money for cash unit produced. Profit sharing: where workers are given a share of the profits usually as part of their pay Salary: pay, usually for non-manual workers, expressed as a yearly figure but paid monthly Fringe benefits: benefits given to employees above the normal wage or salary Job enrichment: making workers jobs more challenging by giving them opportunities to take on responsibility Job rotation: allowing workers to change jobs from time to time Chain of command: the route through which orders are passed down the hierarchy Delegation: authority to pass down from supervisor to subordinate Formal organization: the internal structure of a business as shown by an organization chart Hierarchy: the number of levels of responsibilty in an organization from the lowest to the highest level Span of control: the number of people a person is directly responsible for in a business Subordinates: people in the hierarchy who work under the control of a senior worker External recruiting: recruiting workers or employees from outside the business Internal recruiting: recruiting employees from within the business Job description: a document that shows clearly the tasks, duties, and responsibilities expected of a worker for a particular Job Person specification: a personal profile of the type of person needed to doa particular job Unfair dismissal: where a worker is dismissed illegally by the business Induction training: training given to new employees when they first start a new job 164 Scanned with CamScannerMr Mohamed Rakha Off-the job training: training that takes place away from the workplace by watching a more experience employee On-the job training: training that takes place while doing the job, by watching more experienced employees work Communication: sending and receiving of information Communication barrier: things that get in the way of communication Formal communication: the use of recognized channels of communication Informal communication: the use of non-approved channels of communication External communication: communication between the business and those outside such as customers, investors or government Internal communication: communication between people inside the business 165 Scanned with CamScannerDVIOSOPOSSISTTCS sss soe sd0bd dd ddso04004 Mr Mohamed Rakha Section 3 definitions Marketing Market: the total number of buyers and sellers ofa particular good or service. ‘Mass market: very large number of sales and standardized product. Products are designed to appeal to the whole market and therefore advertising and promotions are intended to appeal to most customers. Niche market: some products. Usually specialized products, are only sold to a very small number of customers who form a very small segment of a much larger market ‘Market share: the number of sales of a business as a percentage from the total sales of the market ‘Marketing strategies: a set of plans of the 4 marketing mix elements to achieve marketing objectives. Product orientation: where the business focuses on the design of the product itself than the customer needs ‘Market/customer orientation: is one which carries out market research to find out customer wants before a product is developed and produced. ‘Market budget: isa financial plan or forecast of the marketing of a product for a special period of time ‘Market segment: segmentations is when the market is broken down into smaller groups each having similar characteristics and traits ‘Market research: the collection, presentation and analysis of information relating to the marketing and consumption of goods and services. Primary/ field research: the gathering of new information which does not already exists ‘Sample: a small group of people which must represent a proportion of a total market when carrying out market research Secondary/desk research: the collection of data that is already in existence Marketing mix: the elements of a firms marketing that are designed to meet the needs of customers. Often called the 4Ps (product, price, place, promotion) Consumer goods: these are goods that are consumed by people. They can be goods that do not last long. ‘Some can last for along time such as furniture and computers. Producer/capital goods: there are goods that are produced for other business to produce goods and services. Product life cycle: the level of sales at the different stages through which a product passes over time Brand name: is the unique name of a product that distinguished it from other brands Brand loyalty: is when consumers keep buying the same brand again and again and not buying from the competitor 166 Scanned with CamScannerMr Mohamed Rakha Brand image: is an image or identity given to a product which gives it a personality of its own and distinguishes it from its competitor's brands. Cost plus or cost based pricing: adding a percentage (markup) to the costs of the producing a product to get the price. Penetration pricing: setting a low price to start with to get established in the market and increase market share. Skimming pricing: setting a high price initially when it is an invention or there is no direct competition in the market Price elasticity of demand: measure responsiveness of demand to change in price Price elastic demand: where a price change will result in a much bigger change in demand Price Inelastic demand: where a price change will result ina much smaller change in demand Informative advertising: is to give full information about the product. Persuasive advertising: is trying to persuade the consumer that they really need and should buy it from the business and not the competitor Distribution channel: the route taken by a product from the producer to the consumer Retailer: a business which buys goods from manufacturer and wholesalers and sell them in small quantities to the consumers ‘Wholesalers: a business buys goods from manufactures and sells them in smaller quantities to retailers E-commerce: the buying and selling of goods and services on the internet A marketing strategy: is a plan to combine the right combination of the four elements of the marketing mix for a product or service to achieve a particular marketing objectives 167 Scanned with CamScannerMr Mohamed Rakha Section 4 e Operation management definitions Production: is the process of converting raw materials or components into finished products to satisfy consumer wants and needs. The process involves firms adding value to a product. Productivity: Quantity of output / Quantity of inputs Output (over a given period of time) Labor productivity = Number of employees Labor intensive: implies that labor resource input is the key resource used in the business. Capital intensive: implies that capital resource input is the key resource used in the business. Lean production: It covers a variety of techniques used by businesses to cut down on waste and therefore increase efficiency. It tries to reduce the time it takes for a product to be developed and become available in the shops for sale, so that it is as quick as possible. Kaizen: is a Japanese term means continuous improvement and its focus is on the elimination of waste. The improvement does not come from investing in new technology or equipment but through the ideas of the workers themselves. Batch production: This is where similar products are made in blocks or batches. A certain number of ‘one product is made, then a certain number of another product is made, and so on. Flow production: This is a capital-intensive method where large quantities of a similar product are produced in a continuous process. It is sometimes referred to as mass production because of the large quantity of a standardized product that is produced Job production: It is where a single product is made at a time. This is where products are made specifically to order, each order is different, and may or may not be repeated. Just -In-time or JIT is a production method whose focus is on reducing or almost eliminating the need to hold stocks of raw materials or components and on reducing work-in-progress and stocks of the finished product. 168 Scanned with CamScannerMr Mohamed Rakha The total costs of a business, during a period of time, are all fixed costs added to all variable costs of production. An average cost is the total cost of production divided by total output. Fixed costs are costs which do not vary with the number of items sold or product in the short time. They have to be paid whether the business is making any sales or not. They are also known as overhead costs Variable costs: are costs which vary with the number of items sold or produced. They are often called direct costs as they can be directly related to or identified with a particular product. Economies of scale occur when the cost of producing a unit falls as the firm increases its scale of production. Diseconomies of scale: They are the factors that lead to an increase in average costs as a business grows beyond a certain size. Break-even charts: are graphs which show how costs and revenues of a business change with sales. They show the level of sales the business must make in order to break even. Total fixed cost Break-even level of production = — Contribution per unit Contribution = selling price per unit - variable cost per unit Revenue: is the income during a period of time from the sale of goods or services Quality: means to produce a good or service which meets customer expectations. Quality control: is the checking for quality at the end of the production process, whether it is the production of a product or service. Quality assurance: is the checking for quality standards throughout the production process, whether it is the production of a product or service. Total Quality Management (TQM); Its the continuous improvement of products and processes by focusing on quality at each stage of production, It tries to get it right first time and not have any defects. It aims to involve all employees in the quality improvement process 169 Scanned with CamScanner — - a BR AKAMA AHRAAAHRAANAAnRA HRA."4 ( ‘os9\e\s's'5 & S's'9'9'9'9'9'0'9 000000054 00000 Mr Mohamed Rakha Section 5 ¢ Finance definitions Capital expenditure: money spent on fixed assets which will ask for more than one year. these fixed assets are needed at the start of a business and as it expands. Revenue expenditure is money spent on day-to-day expenses which do not involve the purchase of a long-term asset for Example, wages or rent. internal finance: This is money which is obtained from within the business itself. Retained profit: is profit kept in the business after the owners have taken their share of the profits. External Finance: is obtained from sources outside of and separate from the business. Cash is a liquid asset. This means that immediately available for spending on goods and services. Cash flow: is the cash inflows and cash outflows over a period of time. Cash inflows: are the sums of money received by a business during a period of time Cash outflows: are the money paid out by a business during a period of time. Profit: is an accounting surplus that is calculated after cost is subtracted from sales Revenue, Opening cash or bank balance: is the amount of cash held by the business at the Start of the month, Closing cash or bank balance: is the amount of cash held by the business at tine end of each month. This becomes next month's opening cash balance Accounts: are the financial records of a firm's transactions. ‘Accountants:,are the professionally qualified people who have responsibilty for keeping accurate accounts and for producing the final accounts. The income statement records the income and expenses of a business, and the profit or loss it makes, over a period of time - usually one year. 170 Scanned with CamScannerMr Mohamed Rakha © Ratios Net profit margin = Gross profit margin = Gross profit Net profit = Sales revenue = Sales revenue Net profit = ROCE Return on Capital Employed = ————-—-———-— Capital employed Current assets = Current Ratio = ——————-—-— Current liabilities Current assets — inventory - Acid test ratio = Current liabi im Scanned with CamScannerMr Mohamed Rakha Section 6 external influences on the business Inflation: is the increase in the average price level of goods and services over lime. Unemployment: When people want to work but cannot find a job. Economic growth: An economy is said to grow when the total level of output of goods and services in the country increases. Exports are goods and services sold by one country to people and businesses in another country. Imports are goods and services bought in by one country from other countries. Growth: the stage in the economy where unemployment is generally falling, higher living standards and GDP is rising. Boom: the stage in the economy where rate of inflation increases, Business costs will be rising, firms will become uncertain about the future and there will be shortages of skilled workers Recession: the stage in the economy where GDP actually falls, most businesses will experience falling demand and profits and workers may lose their jobs. Slump: the stage in the economy where unemployment will reach very high levels and many businesses will fail to survive this period Income tax: This is a tax on people's incomes. Usually, the higher a person's income the greater will be the amount of tax they have to pay to the government. Profit tax (corporation tax): This isa tax on the profits made by businesses usually companies. Indirect taxes (Value Added Tax (VAT): are added to the prices of the products. This makes goods and services more expensive for consumers. ‘Supply side policies: policies by the government to improve the efficient supply of goods and services Social responsibility: when a business decision benefits stakeholder other than shareholders, for ‘example a decision to protect the environment by reducing pollution by using the latest and greenest production equipment. ‘Sustainable development: means trying to achieve economic growth but without damaging the environment and society for future generations. A pressure group: is made up of people who want to change business (or government) decisions and they take action such as organizing consumer boycotts. m Scanned with CamScannermr monamed Rakha Multinational businesses: Multinational are those with factories production or service operations in more than one country. ‘The exchange rate is the price of one currency in terms of another for example Currency Appreciation: when the value of the currency increased Currency depreciation: when the value of the currency decreased Globalization: the term now widely used to describe increases in worldwide trade and movement of people and capital between countries. 173 Scanned with CamScanner