Edexcel Business A Level Paper 2 (Theme
2 & 3)
Absenteeism equation - ANS - number of staff absent / number employed x 100
\Acid test ratio - ANS - adjusts the current ratio to eliminate certain current assets that are not
already in cash, less than 1 is bad
\Acid test ratio - ANS - current assets - inventory / current liabilities : 1
\Acid test ratio equation - ANS - current assets - stocks / current liabilities
\Activist shareholders - ANS - shareholders who are more proactive in putting executive
management under pressure, for financial or non financial goals
\Advantages of batch production - ANS - reduces unit costs
can still vary for specific customer needs
use of specialist machinery/skills can increase output and productivity
\Advantages of critical path analysis - ANS - reduces risk/cost of complex projects
encourages careful assessments of a projects requirements
better allocation of resources using the float time
decision making and planning tool
\Advantages of extrapolation - ANS - A simple method
Not much data required
quick / cheap
\Advantages of horizontal integration - ANS - exploit internal economies of scale
diversification - reduces risk
reduces competition by removing key rivals
buying an existing/well known brand can be cheaper than organically growing a brand
\Advantages of job production - ANS - products usually high quality
producer meets individual customer needs
greater job satisfaction - involved in all stages of production
\Advantages of just in time - ANS - holding less stock reduces storage space and therefore
rent/insurance costs
less working capital is tied up in stock
smaller chance of stock perishing, becoming obsolete or going out of date
\Advantages of payback - ANS - simple and easy to calculate
focuses on cash flows - good for businesses with little cash
straightforward to compare competing projects
\Adverse variances - ANS - Actual worse than budget
Costs higher than expected
Profit lower than expected
\Ansoff matrix - diversification - ANS - marketing new products in new markets
most risky because the business has little/no market experience
\Ansoff matrix - market development - ANS - a growth strategy where the business seeks to sell
existing product in new markets
,new geographical markets
new product dimensions/packaging
new distribution channels
different pricing policies
more risky due to new markets
\Ansoff matrix - market penetration - ANS - a business focuses on selling existing products into
existing markets
seeks to maintain/increase the market share of current products
secure dominance of growth markets
restructure a mature market by driving out competitors
increase usage by existing customers
likely to be low risk - focused on products/markets it knows
\Ansoff matrix - product development - ANS - introducing new products into existing markets
research/development/innovation
insights into customer needs
first mover advantage
risky due to new products
\Average rate of return - ANS - Looks at the total accounting return for a project to see if it meets
target return
\Backward vertical integration - ANS - an integration happening earlier in the supply chain
(manufacturer buying a raw material)
\Balance sheet - ANS - a snapshot of the business' assets and it's liabilities on a particular day,
usually the last day of the financial period
\Barriers to entry - ANS - investment cost
economies of scale available to existing firms
regulations/restrictions
access to suppliers/distributers
retaliation by established products
\Batch production - ANS - where many similar item are produced and each batch goes through
one stage of the production process before moving onto the next stage
\Benefits of ARR - ANS - Simple to understand / easy to calculate
Focuses on the overall profitability
Easy to compare with other targets
Uses all returns generated by the projects
\Benefits of cell production - ANS - closeness of cell members should improve communication,
avoiding confusion
workers become multi skilled through job rotation
greater worker motivation from variety, team working and responsibility
quality improves
\Benefits of flow production - ANS - capital intensive
low unit cost
economies of scale
24/7 production
\Benefits of high gearing - ANS - Less capital required to be invested
, Debt relatively cheap vs dividends
Easy to pay interest with good cash flow
\Benefits of improving quality - ANS - Improved image & reputation, which should result in
Higher demand, which may in turn mean
Greater production volumes (possibly providing better economies of scale)
Lower unit costs because of less waste and rejected output
Fewer customer complaints (& more satisfied customers)
Potentially higher selling prices (less need to discount)
\Benefits of mass production - ANS - faster rate of production
economies of scale
automated as much as possible - 24/7 production
no wages for robots
\Benefits of NPV - ANS - Considers all future cash flows
Reflects the risk that money loses value
Different levels of risk can be shown by adjusting the discount rate
Creates a straightforward decision, positive or not
\Benefits of organic growth - ANS - less risky than external growth
can be financed through internal funds
builds on a business' strengths
allows the business to grow at a more sensible rate
\Benefits of owners funds - ANS - Avoids interest on loans
Owners keep complete control
\Benefits of time based management - ANS - Quicker response times (reduced lead times) to
meet changing market and customer needs
Faster new product development
Reduction in waste, therefore greater efficiency
\Breakeven output - ANS - fixed costs / contribution per unit
\Budget - ANS - a financial plan for the future concerning the revenues and costs of a business
\Budget as a motivator - ANS - Provide specific targets and standards
Attaining or surpassing these targets
Fear of not achieving can act as an incentive
\Budget uses for management - ANS - Set targets
Motivate staffs
Improve efficiency
Forecast outcomes
Monitor performances
Assign responsibilities
Allocate resources
\Capacity utilisation % - ANS - actual output / maximum possible output x100
\Capital employed formula - ANS - total equity + non current liabilities
\Cash flow equation - ANS - cash inflows - cash outflows = net cash flow
\Causes of disruptive change - ANS - A form of step change that arises from changes in the
external environment
Disruptive change impacts the market as a whole, challenging the established 'business model'
2 & 3)
Absenteeism equation - ANS - number of staff absent / number employed x 100
\Acid test ratio - ANS - adjusts the current ratio to eliminate certain current assets that are not
already in cash, less than 1 is bad
\Acid test ratio - ANS - current assets - inventory / current liabilities : 1
\Acid test ratio equation - ANS - current assets - stocks / current liabilities
\Activist shareholders - ANS - shareholders who are more proactive in putting executive
management under pressure, for financial or non financial goals
\Advantages of batch production - ANS - reduces unit costs
can still vary for specific customer needs
use of specialist machinery/skills can increase output and productivity
\Advantages of critical path analysis - ANS - reduces risk/cost of complex projects
encourages careful assessments of a projects requirements
better allocation of resources using the float time
decision making and planning tool
\Advantages of extrapolation - ANS - A simple method
Not much data required
quick / cheap
\Advantages of horizontal integration - ANS - exploit internal economies of scale
diversification - reduces risk
reduces competition by removing key rivals
buying an existing/well known brand can be cheaper than organically growing a brand
\Advantages of job production - ANS - products usually high quality
producer meets individual customer needs
greater job satisfaction - involved in all stages of production
\Advantages of just in time - ANS - holding less stock reduces storage space and therefore
rent/insurance costs
less working capital is tied up in stock
smaller chance of stock perishing, becoming obsolete or going out of date
\Advantages of payback - ANS - simple and easy to calculate
focuses on cash flows - good for businesses with little cash
straightforward to compare competing projects
\Adverse variances - ANS - Actual worse than budget
Costs higher than expected
Profit lower than expected
\Ansoff matrix - diversification - ANS - marketing new products in new markets
most risky because the business has little/no market experience
\Ansoff matrix - market development - ANS - a growth strategy where the business seeks to sell
existing product in new markets
,new geographical markets
new product dimensions/packaging
new distribution channels
different pricing policies
more risky due to new markets
\Ansoff matrix - market penetration - ANS - a business focuses on selling existing products into
existing markets
seeks to maintain/increase the market share of current products
secure dominance of growth markets
restructure a mature market by driving out competitors
increase usage by existing customers
likely to be low risk - focused on products/markets it knows
\Ansoff matrix - product development - ANS - introducing new products into existing markets
research/development/innovation
insights into customer needs
first mover advantage
risky due to new products
\Average rate of return - ANS - Looks at the total accounting return for a project to see if it meets
target return
\Backward vertical integration - ANS - an integration happening earlier in the supply chain
(manufacturer buying a raw material)
\Balance sheet - ANS - a snapshot of the business' assets and it's liabilities on a particular day,
usually the last day of the financial period
\Barriers to entry - ANS - investment cost
economies of scale available to existing firms
regulations/restrictions
access to suppliers/distributers
retaliation by established products
\Batch production - ANS - where many similar item are produced and each batch goes through
one stage of the production process before moving onto the next stage
\Benefits of ARR - ANS - Simple to understand / easy to calculate
Focuses on the overall profitability
Easy to compare with other targets
Uses all returns generated by the projects
\Benefits of cell production - ANS - closeness of cell members should improve communication,
avoiding confusion
workers become multi skilled through job rotation
greater worker motivation from variety, team working and responsibility
quality improves
\Benefits of flow production - ANS - capital intensive
low unit cost
economies of scale
24/7 production
\Benefits of high gearing - ANS - Less capital required to be invested
, Debt relatively cheap vs dividends
Easy to pay interest with good cash flow
\Benefits of improving quality - ANS - Improved image & reputation, which should result in
Higher demand, which may in turn mean
Greater production volumes (possibly providing better economies of scale)
Lower unit costs because of less waste and rejected output
Fewer customer complaints (& more satisfied customers)
Potentially higher selling prices (less need to discount)
\Benefits of mass production - ANS - faster rate of production
economies of scale
automated as much as possible - 24/7 production
no wages for robots
\Benefits of NPV - ANS - Considers all future cash flows
Reflects the risk that money loses value
Different levels of risk can be shown by adjusting the discount rate
Creates a straightforward decision, positive or not
\Benefits of organic growth - ANS - less risky than external growth
can be financed through internal funds
builds on a business' strengths
allows the business to grow at a more sensible rate
\Benefits of owners funds - ANS - Avoids interest on loans
Owners keep complete control
\Benefits of time based management - ANS - Quicker response times (reduced lead times) to
meet changing market and customer needs
Faster new product development
Reduction in waste, therefore greater efficiency
\Breakeven output - ANS - fixed costs / contribution per unit
\Budget - ANS - a financial plan for the future concerning the revenues and costs of a business
\Budget as a motivator - ANS - Provide specific targets and standards
Attaining or surpassing these targets
Fear of not achieving can act as an incentive
\Budget uses for management - ANS - Set targets
Motivate staffs
Improve efficiency
Forecast outcomes
Monitor performances
Assign responsibilities
Allocate resources
\Capacity utilisation % - ANS - actual output / maximum possible output x100
\Capital employed formula - ANS - total equity + non current liabilities
\Cash flow equation - ANS - cash inflows - cash outflows = net cash flow
\Causes of disruptive change - ANS - A form of step change that arises from changes in the
external environment
Disruptive change impacts the market as a whole, challenging the established 'business model'
