3.1 What is business?
Ordinary Share Capital – Money given to a company by shareholders in return for a share certificate that gives them part ownership of the company. This term is used in relation to private and public limited companies. Ordinary shares are also known as risk capital or equity capital. It does not have to be repaid.
Market Capitalisation (market cap) – the value of outstanding shares in a public limited company. Outstanding shares are the total of all ordinary shares issued and fully paid up. This is the value the stock market places on the whole business by multiplying the share price by the number of shares issued. The market capitalisation is influenced by the number of shares issued and the market price of shares. Market capitalisation is often used as an indication of investors’ opinion of a company’s net worth or its overall value.
Dividend - A payment made to a company to its shareholders out of profits earned. It can either reinvest in the business or it can distribute it to its shareholders or give some reinvestment and a proportion as dividends.
Real Income – Measures the amount of disposable income available to consumers (e.g. households & individuals).
Unlimited Liability – situations in which the owners of a business are liable for all the debts that the business may incur.
Limited Liability – situations in which the liability of the owners of a business is limited to the fully paid up value of the share capital.
If a business goes into liquidation (turning assets into cash to pay creditors) because it cannot pay its creditors, the shareholders (owners) have no responsibility for further payments as long as they have paid in full for the shares they have purchased.
PESTLE – Political, Economic, Social, Technological, Legal, Environmental
GDP – Measures the value of output in the economy and assesses the change in economic growth.
Demand – How much of a good/service a consumer wants/ is capable to buy. This turns into revenues.
Sole Trader – Owned, financed and controlled by one individual. They can employ other staff. They make a profit to provide a ‘comfortable’ lifestyle. They are responsible for all debts of the business (unlimited liability). Normally a Small businesses. They usually work on a local scale serving the local area. Common in local building firms, small shops, restaurants, butchers, hairdressers, plumbers, window cleaners etc.
The benefits include being motivated by the power to make your own decisions, quicker decision time due being owner. Direct contacts to the market. They are easily set up.
The Challenges include sources of finance being limited. Reliant upon own abilities to make decisions. Long hours which leave limited holidays with low rewards making it stressful. Unlimited Liability.
PLC – Shares are bought and sold publically – anyone can buy them. This means they have a market value and this can change daily. The share price indicates how popular a business is. Initial sale of shares...
