Introduction to Business + costs, profits and revenues

Fixed costs

Costs that don't change w/ the level of output (Eg. rent)

Variable costs

Costs that change directly w/ the level of output

Total costs

Sum of all costs (Fixed costs + variable costs)

Average cost

Total costs/output

Marginal cost

Change in total cost/change in output

Revenue

Total income a business earns from selling g&s

Average revenue

Revenue earnt per product sold

Marginal revenue

Extra revenue earn from selling more units (change in total revenue/change in units sold)

• Vary depending on monopoly, oligopoly, monopolistic, etc.)

Profits

• Types: GONR (Gross => Operating => Net => Retained)

• Costs deducted : COI (Cost of goods sold => Operating expenses => Interests, tax)

Gross profit

Shows efficiency in production and sales

Operating profit

Shows efficiency in day-to-day operations how well management controls costs (including overheads)

Net profit

Reflects overall financial performance and Sustainability

Any profit margin (GPM, OPM, NPM)

That profit/Revenue x 100

Return on capital employed (ROCE)

Operating profit/Capital employed x 100 (capital employed = total liabilities-current assets)

• How efficiently a business uses its long-term capital to generate profit

• Used by inve stors to assess performance of investments

Liquidity ratio

Current assets/Current liabilities

• Ability to pay debts

Acid-test (quick) ratio

(Current assets - Inventory) Current liabilities

• Ideal range 1:1

• Assessing if the business can pay its short-term debts immediately

Added value

Increased utility (usefulness) of a product as it passes through different stages of production

OR

Extra worth a company provides to a product or service beyond its base cost (selling costs-input costs)

5 methods to add value

convenience, branding, design, quality, USP

Intrapreneur

An employee who takes direct responsibility for turning an idea into a profitable product

Advantages of an intrapreneur

• Less risks, safety net

• Available resources (support, financial backing, team support, marketing clout)

• Higher employee morale, motivation, loyalty

Disadvantages of an intrapreneur

• less credits, recognition

• less glory, personal satisfaction

• less financially rewarding (profits go to company)

• owners / Bosses can reject idea

• Discredit for failure

Business

Any organisations that work to fulfill a common purpose: Seeking to meet the needs & wants of the population by trading/selling

Enterprise

Describes actions of someone who shows initiatives to take a risk, set up, invest in and runs a business

Entrepreneur

someone who starts & runs business

Equity

Shaves, ownerships of a business

Royalty

Money paid on-top to suppliers per product a retailer sells

Turnover

Revenue

Punt (slang)

To equivocate/delay (E.g: If they ask for exact sales figures, you'll have to punt)

Fruition

something begins to happen, or become successful

Bottom line

Net profit

Top line

Revenue

went into liquidation

closes company

Licensing deal

Licensor grants the licensee the legal right to use the licensor's intangible assets (brand, trademark, patented technology, IP, copyrighted work) under defined terms & conditions in return for royalties or fees

Role of entrepreneurs

• Show initiatives, risk-taking

• opportunity identification

• Lead Imanage

• Strategic planning for the future

• Securing funding

• Resource mobilisation (identify, acquire, utilise

Motives for an entrepreneur

1. Financial

• Profit

• Lack of employment opportunities

• Government incentives (grants, subsidies)

2. Non-financial

• Independence, flexibility

• personal satisfaction

• prefers to work by themselves > work as a part in an organisation

Barriers of an entrepreneur

• Finance: start-up capital (can seek internal/external sources of finance)

• Competition: when joining/ penetrating the market

• Lack of knowledge, experience

• Market research imperfect/perfect market knowledge (Is there a demand?Cheapest supplier?)

Why are SMEs (Small- to-medium sized enterprise) important

• Innovations

• wealth creators: boost economy's growth

• Create jobs

• Society builders: give smith back to society (tax, charitable giving, collaborate w/local community)

• Exports: Contribute to GDP, trade surplus

• Taxes: income tax (soletraders, partnerships), corporate tax (limited)