This is a summary of Edexcel Business A level paper 2 for the 2022 pre-release information. As a result of this, it will not include every part of each module, as some I never had to learn, however it is easily 2/3 full. I used this as the last bit of revision before I entered the exam hall and it ...
Quantitative skill Equation Value wanted
Break even Positive number
Contribution per unit Selling price - variable cost per unit
Types of profit Gross = Total revenue - Total costs Larger the better
Operating = Gross profit - cost of sale Larger the better
Theme 2 Managing Profit margins
Gearing
Liquidity
Net = Operating profit - interest payments & tax
Current ratio =
Acid test =
Larger the better
Larger the better
<50%
1.5:1
1:1
Business Activities
Profitability ROCE = Larger the better
Capacity utilisation 80%
Margin of safety Larger the better
Variance Actual - forecast positive
Margin of safety = Current output minus breakeven output over current output
2.2 Financial Planning 2.3 Managing Finance
2.3.1 Profit
2.2.3 Break Even Analysis Cost/revenue Break even is TR = TC Total revenue
Gross profit:
Total costs Total Revenue - Total Costs
Improving profits
Gross profit margin: • Reduce costs
• Increase revenue
Operating profit:
Margin of safety
Gross profit - Cost of Sale
Orrrrrrr Net profit:
Fixed costs Statement of comprehensive income Operating profit - tax & interest payments Cost of sales is things like material
(Contribution per unit x units sold)-fixed costs = profit
Every PLC legally has to publish this at the end of each financial
Q1 Q2 Output year
Disadvantages of break even: Shows every type of profit for the company
• Variable costs do not increase linearly Q2 represents the actual output of the firm
• Firms are unlikely to sell all output
• Break even analysis is based only on a firm selling only 1 product at 1 price 2.3.2 Liquidity
How to improve liquidity
2.2.4 Budgets Statement of financial position (balance sheet)
• Sell under-used assets
• Raising more share capital
• Shows what the business owes and owns • Increase borrowing
• Avoid big investments
January February March What are budgets for ?
• They focus spending on main objectives Acid test Current ratio
Income
• Prevents overspends Working capital
Variable costs • Performance yardstick The money needed for the day
Fixed costs • Motivation to day running of the business
Total expenditure 1:1 is what you need
1.5:1 is what you need
Profit Types of budgets:
0 based - resets every year
Variances: Historical - based of off last years budgets
Adverse: Bad
Favourable: good Disadvantages of budgeting:
• Who knows what it should be
• Should budget holder have a say (motivation)
• Why is their a variance
• Costs of setting up budgets for small business
2.4 Resource Management
2.4.2 Capacity utilisation
Under capacity utilisation
• Fixed cost per unit high
• Morale + job security
• Reputation
Over capacity utilisation
• Inflexible for new orders
• No time to maintain capital or train staff
Ways to improve capacity utilisation
• Increase the current output
• Reduce maximum capacity
Theme 3
3.1 Business Objectives
& Strategy
3.3 Decision making
Techniques 3.1.3 SWOT
S W
Lobbying is all a firm can do about
government based external influences O T
What is SWOT
SWOT for
for ??
Comparing
Comparing aa businesses
businesses strength
strength to
to that
that of
of the
theoutside
outsideworld
worldallowing
allowingpeople
peopleto
tounderstand
understandwhat
whatititisis
good
good and
and bad
bad at
at
Consultative approach - bosses who walk around and talk to underlings to understand the Top down approach
approach -- used
used by
by external
external consultants
consultants
3.3.1 Quantitative Sales Forecasting business Advantages
Advantages Weaknesses
Advantages Weaknesses
• Unbiased
Unbiased way to discover weaknesses Staff may feel disconnected with
More perspectives Staff may not be willing to point out problems • New
New perspective as not involved with the company management
Sales forecasting is for the forward planning needed to run a business
culture
culture
Data 3 month total 3 month average
January 48 3.1.4 Impact of External Influences
Moving averages: February 57 52
Meant to identify a trend in the data March 51 156 49 Political
April 39 147 477
Economic What can a firm do about external influences ??
May 53 143 463
Social Maximise
Maximise favourable influences & minimise adverse influences
June 47 138 453
Technological
July 36 136
Legal
Business Page 1 Business Page 2
Data 3 month total 3 month average
January 48 3.1.4 Impact of External Influences
Moving averages: February 57 52
Meant to identify a trend in the data March 51 156 49 Political
April 39 147 477
Economic What can a firm do about external influences ?
May 53 143 463
Social Maximise
Maximise favourable influences & minimise adverse influences
June 47 138 453
Technological
July 36 136
Legal
Extrapolation on graphs Environmental
Extrapolating on long
term trend
Units Extrapolation Units
using past data
Extrapolating on short
term trends
Actual sales Actual sales
Time Time
Limitations of quantitative forecasting
I) Past does not predict the future
INSERT SCATTER GRAPH HERE
TALK ABOUT CORRELATION
3.5 Analysing competitiveness
3.5.2 Ratio Analysis
Ratio can show 1 of 3 things: Liquidity Ratios
• Profitability
• Liquidity
• Gearing
Ideal ratio is 1.5:1
Gearing
Ideal value is 1
Should be no more than 50% Profitability ratios:
ratios:
Gearing can be improved by:
• Issuing more shares
• Retaining of profits
• Repaying some loans
The
The higher
higher the
the better
better
If the
the ROCE
ROCE were
were to
to fall
fall below
belowthe
theinterest
interestrate,
rate,then
then
operating
operating isis questionable
questionable as as return
return would
wouldbebebetter
betterin
inaa
bank account
account
Limitations of
of ratio
ratio analysis:
analysis:
Ways
Ways to
to boost
boost ROCE:
ROCE:
• Provide no detail on the financial accounts • Boost operating profit
• IfIf stock goes out of fashion, current ratio is useless • Reduce capital employed without decreasing profit
Business Page 3 Business Page 4
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