Business Revision Notes: Key Concepts (Gearing, Policy, GDP, Inflation, Ratios, Production, Exchange, Inventory, Shares)

A set of 30 practice flashcards covering key concepts from the notes on gearing, fiscal and monetary policy, GDP, inflation, subsidies, liquidity ratios, production methods, exchange rates, inventory management, and shares.

What does gearing measure?

The proportion of capital raised from long-term borrowing (loan capital) relative to shareholders’ funds (equity).

What gearing level is considered highly geared?

Above 50%.

Why is high gearing risky?

It increases dependence on loans and leads to higher interest repayments, raising financial risk.

What is the gearing ratio formula?

Gearing ratio = (Loan Capital ÷ Total Capital Employed) × 100.

What is expansionary fiscal policy?

Lower taxes and increased government spending to boost demand and economic growth.

When is expansionary fiscal policy typically used?

During a recession.

What is contractionary fiscal policy?

Higher taxes and reduced government spending to reduce demand and control inflation.

Who controls monetary policy in the UK?

The Bank of England.

What happens when interest rates are lowered?

Encourage borrowing and spending; boosts economic activity.

What happens when interest rates are raised?

Discourage borrowing and spending; slows demand and helps reduce inflation.

What does GDP measure?

The total value of goods and services produced within a country in one year.

What does rising GDP indicate?

Economic growth, higher incomes, and greater consumer demand.

What does falling GDP suggest?

A recession, reduced spending, and higher unemployment.

What is inflation?

The sustained rise in the general price level of goods and services.

What are the two main types of inflation?

Demand-pull inflation and cost-push inflation.

What is a government subsidy?

Financial support given to businesses to reduce costs and encourage production.

What does the current ratio measure?

A business’s liquidity and ability to pay short-term debts.

What is the formula for the current ratio?

Current assets ÷ Current liabilities.

What is the ideal current ratio range?

Approximately 1.5:1 to 2:1.

What does a very low current ratio indicate?

Risk of not meeting short-term obligations.

What does a very high current ratio indicate?

Possible poor use of resources; excess current assets.

What is labour-intensive production?

Relies heavily on workers (e.g., restaurants, hotels); more flexible but higher wage costs.

What is capital-intensive production?

Relies on machinery and technology; efficient with economies of scale but high investment and less flexibility.

How does a stronger pound affect imports and exports?

Imports become cheaper while exports become more expensive.

How does a weaker pound affect imports and exports?

Imports become more expensive while exports become cheaper, benefiting UK exporters.

What does inventory turnover measure?

Cost of Sales ÷ Average Inventory; high turnover implies efficient stock management, low turnover implies overstocking or weak demand.

What are inventory control charts used for?

Monitoring stock levels to ensure efficiency; key concepts include buffer stock, reorder level, and lead time.

What are shares?

Ownership in a company; issued by PLCs; shareholders may receive dividends and benefit from selling shares; share prices depend on performance, investor confidence, and economic conditions.

What factors influence share prices?

Company performance, investor confidence, and overall economic conditions.

What is the difference between job production and mass production?

Job production creates one-off, customized items (high quality, high cost, time-consuming); mass production creates large quantities of identical products (lower unit costs, less flexible, potentially capital intensive).