section 8 topic 1 and 2

Large Business

A business with more than 250 employees that operates on a multinational/global scale.

Multinational

A firm that operates in more than one country (not "many" — two countries is enough).

Public Limited Company (PLC)

A company whose shares are available to the public and are traded on a stock exchange.

Limited Liability

Investors can only lose the amount of their investment — not personal assets.

Unlimited Liability

Owners are fully responsible for all business debts (applies to sole traders and traditional partnerships).

Monetary Policy

Economic policy involving changes to interest rates and money supply in the economy.

Fiscal Policy

Economic policy involving changes in government taxation and expenditure.

Indirect Taxation

Tax on goods and services (e.g., VAT), not on income.

Horizontal Communication

Communication between people at the same level in an organization (e.g., departmental heads meeting).

Vertical Communication

Communication between people in different layers of the hierarchy (e.g., manager to employee).

Market Segmentation

Dividing the market into different parts/segments (e.g., by age, income, gender) to target promotional activities.

Productivity

Output in relation to input — a measure of efficiency (not the same as output or production).

Output / Production

The number of items produced (effectively the same thing).

Mark-up

The amount added to the cost of manufacture to determine selling price.

Above-the-line Promotion

Paid advertising through media (TV, radio, billboards).

Below-the-line Promotion

Non-media promotion (e.g., sponsorship, direct mail, public relations).

Product Orientation

Focusing on making the product rather than customer needs.

Deregulation

Releasing an industry from government or other controls.

Disney Founded

1923 by brothers Walt and Roy Disney in Burbank, California.

Disney's Core Business

Multimedia, multinational entertainment company — movies, theme parks, cable/network TV, sports channels.

Disney's Subsidiaries

Includes Pixar, Walt Disney World, shopDisney, and many others.

Disney's 2017 Valuation

Valued at $160 billion (2017).

Disney's Major Acquisition

Bought large portions of 21st Century Fox for $66 million, gaining control of Sky TV (European satellite broadcaster).

Disney's Vision

A commitment to excellence, creativity and innovation" — delivering stories and experiences to millions of families worldwide.

Percentage Increase Formula

Change in price ÷ Original price) × 100%

Disney Share Price Example

Before: $107.66 → After: $110.57 (rise of $2.91)
Percentage increase = (2.91 ÷ 107.66) × 100 = 2.7%

Mark-up Calculation Example

Cost = $8, Mark-up = 150%
Mark-up amount = (8 × 150) ÷ 100 = $12
Selling price = $8 + $12 = $20

Benefit 1: Diversification

Reduces risk — fall in demand for one product compensated by rise in demand for another.

Benefit 2: Larger Market Share

Wider range of products = greater revenue opportunities from different customer groups.

Disney Example

If fewer people go to cinema, more watch on-demand TV — Disney owns both, so balances changing demands.

Growth Benefit 1: Solves Saturated Market

Diversification into different product markets opens new opportunities.

Growth Benefit 2: Economies of Scale

Bulk buying, specialist managers, cheaper finance, extensive advertising — all reduce average costs.

Growth Benefit 3: Increased Market Share & Revenue

Larger size = more power, higher sales, potentially higher profit.

Growth Benefit 4: Reduced Competition

Buying former competitors eliminates rivalry.

Growth Drawback 1: Diseconomies of Scale

Firm may become too large to manage effectively.

Growth Drawback 2: Lack of Experience

Entering new markets without expertise — e.g., Disney controlling Sky TV but lacking European satellite TV experience.

Barriers to Communication

• Wide spans of control

• Long chains of command

• Over-use of electronic conversation

• Diverse cultures and languages

• Insensitive or unskilled managers

Recruitment Documents

• Job description

• Person specification

• Application form

• Curriculum vitae (CV)

Seasonal/Casual Employees — Benefit

Cope with fluctuations in demand without sustaining employment costs during low-demand periods.

Seasonal Staff Advantage

Better meet demand promptly and avoid customer dissatisfaction during peak times.

Minimum Wage — Disadvantage

Significantly increases wage costs — must pay legal minimum regardless of skills or duties.

Disney Context

Theme parks employ many young, low-skilled, casual/seasonal workers who would previously have earned very low wages.

Job Rotation — Benefit

Moving employees between tasks prevents boredom, reducing slowness or carelessness.

Job Rotation — Safety & Quality

Prevents boredom that could lead to safety issues or affect product/service quality.

Job Rotation — Flexibility

Employees learn multiple responsibilities — useful during staff shortages or absences.

Option 1: Wide Span of Control + Short Chain

• Many departments = wider scope for specialisation

• Short chain = quicker communication, less distortion

• Risk: senior managers may struggle to supervise effectively

Option 2: Narrow Span of Control + Long Chain

• Few departments = greater supervision possible

• Long chain = weaker communication, dispiriting for lower staff

• Risk: slow communication, hierarchical barriers

Exam Tip for "Justify" Questions

Choose one option clearly — don't suggest a combination. Outline pros and cons of both, then state your conclusion with reasons.

Liquidity

The cash available for use by a business to pay wages, suppliers, and meet unexpected circumstances.

Current Ratio

A measure of liquidity — Disney's 2017 current ratio was 81% (or 0.81:1).

Fixed Costs

Costs that do not change with output — e.g., loan repayments, insurance, advertising, permanent staff wages, rent.

Variable Costs

Costs that change with output/usage — e.g., power bills, temporary staff wages, equipment maintenance.

Gross Profit

Gross Profit Margin Formula

(Gross Profit ÷ Revenue) × 100

Disney 2017 Gross Profit Margin

Disney 2017 Gross Profit Margin

Net Profit

$8,890,000,000 for Disney in 2017 (profit after all expenses).

Cash-Flow Forecast

Estimates expected incomes and expenditures for future periods (usually monthly).

Why Cash-Flow Forecasts Matter

Profitable firms can fail due to cash-flow problems — profit may not arrive when needed.

Disney's Seasonal Cash-Flow

• Theme parks: peak in school holidays

• Cinema: peak in summer

• Merchandise: peak before Christmas

• Costs incurred before revenue comes in

Cash-Flow Forecast Value

Identifies negative discrepancies early, enabling planning to access liquid funds for contingencies.

Option 1: Retain Profit

Use profit for expansion, product development, acquisitions — e.g., buying Star Wars rights.

Retain Profit — Why?

Disney faces heavy competition — must keep pace with or move ahead of competitors.

Option 2: Distribute as Dividend

Shareholders expect dividends — their share of profits.

Dividend Benefits

• Maintains share appeal

• Shareholders retain shares

• Attracts new investors

• Keeps share price higher

• Enables cheaper borrowing and preference share issues

Exam Tip for "Justify"

Choose one option — the decision depends on circumstances (e.g., expansion year = retain profits).

Market Share Formula Application

(Total market revenue × Company's % share) ÷ 100

Disney Box Office Revenue 2017

Total cinema revenue = $105.7 billion
Disney market share = 22.4%
Disney revenue = (105.7 × 22.4) ÷ 100 = $23.68 billion

Primary Research

First-hand data collection — interviews, questionnaires, test audiences, focus groups.

Secondary Research

Existing data — box office performance of other films, audience composition, actor popularity.

Disney's Research Approach

"Get them on the way up or the way down" — launching new stars or rescuing careers.

Good Analysis Includes

Consider costs of research types and sampling methods used.

Product

The nature of the product itself — e.g., animated films with feisty heroines (Frozen) targeted at young girls.

Price

Admission to theme parks, ticket prices, pricing strategy.

Place (Distribution)

Where products are available — theme park locations, cinema priorities, streaming platforms.

Promotion

How advertised — which media, to which target audience.

Marketing Mix Effectiveness

Need appropriate mixture of all four elements — no single P works alone.

Disney Example — Sports TV Channel

Is the content (which sports are shown) the most important element? Context matters.

AO1 — Knowledge

Recall, select and communicate business terms, concepts, and theories.

AO2 — Application

Apply knowledge using appropriate terms, concepts, theories, and calculations in specific contexts.

AO3 — Analysis

Select, organise and interpret business information to investigate and analyse.

AO4 — Evaluation

Evaluate information to make reasoned judgements and draw conclusions.

"State" / "Define"

One sentence — precise, clear definition. Don't write extra.

"Explain" (3 marks)

Statement of fact (1 mark) + two expansion points (1 mark each).

"Analyse" (6 marks)

Extended answer exploring all sides — pros and cons, causes and effects.

"Justify" (9 marks)

Extended answer using information to recommend one option — outline both, choose one, explain why.

"Evaluate" (12 marks)

Extended answer using specification knowledge to reach a conclusion with supporting evidence.

Paper 2 Format

Four compulsory questions, each worth 20 marks = 80 marks total.

Paper 2 Timing

1 hour 30 minutes in exam (practice allowed more time).

Question Types

Mixture of multiple-choice, short-answer, data-response, and open-ended questions.

Question 1(a)

Six multiple-choice questions — 1 mark each (6 marks total).

Questions 1(b)–(d)

Short definition/state questions — 1 mark each.

Show Your Workings

Even if answer is wrong, correct method = marks. Calculators allowed.

Read Questions Carefully

Don't rush — specific wording matters (e.g., "targeting advertising" ≠ "advertising").

Give Just One Answer

If asked for one barrier/one benefit/one cost — only write one. Extra answers waste time, no extra marks.

Make Your Choice Clear

In "justify" questions, state your chosen option clearly — don't sit on the fence.

Use the Case Study

Apply answers to Disney specifically — generic answers score lower.

Formula Sheet Provided

Key formulas (gross profit margin, etc.) given in exam — but know how to use them.

Revisit Weak Topics

After practice, list areas needing revision — revisit relevant course sections.

Pre-Assignment Quizzes

Use Sections 1–6 quizzes to check knowledge and recall.

IAS Terminology

Exam uses International Accounting Standards terminology — check Appendix 2 of specification.