the role of business
DESCRIPTION
The Role Of Business section Preliminary HSC Business Studies courseTRANSCRIPT
The Role of Business
The Economic and Social Importance of Business
Producing Goods and Services Prime Function – core
activity of business for profit
Inputs + outputs = value added
Supply and demand Production must
work with legal frameworks
Accountability and ethics important
Profit
Sales revenue>operating costs = profit
Profitability crucial to long term survival of business to meet business expensesReturn on investment Rewarding investor for the risk
of possibly losing money by starting a business.
May take a while to generate profit after start up.
Profit
Return on investment – level of profit investor received based on the amount they invested.
Example One Don puts in $200,000
into a cafe and receives a net profit of $50,000 in the first year.
Don’s return on his investment is 25%
Example Two Cheryl invested
$100,000 in a children’s clothing store and earned a net profit of $50,000.
Cheryl’s return on her investment is 50%
Business expenses > sales revenue = negative profit
Profit
For example: Cafe businesses
usually have a net profit return of 12%pa
Don achieved double that amount at 25% which is an excellent return on investment for this industry.
For a true indication of profitability you must compare return on investment with that of competing business.
This is known as a comparative ratio analysis
Activity
Calculate which of the
following businesses made a profit Sally’s pet shop:
expenses $2000/wk
revenue $3500/wk
Ben’s gardening supplies:
revenue: $6000/wk = $24000/mth (4 weeks)expenses: week 1: $7000
week 2: $8000 week 3: $8000 week 4: $3000
Wealth Creation
Increasing sales + brand awareness = increases in production, income and return on investment for businesses.
Generates wealth for the community through taxes and then government funded projects
Long term wealth creation does not always happen.
Distribution of Wealth
Employment
Generated by business 11 million jobs
annually Small to medium
enterprises (SMEs) provide 64% of private sector employment = 5.3 million people.
Competition and demand for product will drive or reduce employment
Employment
Globalisation is having a detrimental impact on employment
Increased competition will drive down unemployment to maintain profitability = downsizing, retrenchment and redundancy
Example: 2000 Telstra
reduced it staff by 35000 because of increasing competition from Vodafone and Sing tel Optus
Incomes
Individuals: income is the return or
amount of money for an employee’s productivity or labour.
need income to buy goods and services for quality of life
Wage or salary
Incomes
Business Owners: sales revenue =
money from sales or return on investment or profit
sales > operating costs = increased income
Generates wages, salaries, profits and dividends
Shareholders: People who invest
money into a company
Dividend= a payment that is a share of a business’s profit that is divided amongst shareholders.
IncomesGovernment: Employers and
employees pay taxes
Taxes used to fund essential services and to create business opportunities
In 2010-2011 the Federal government received approximately $60 billion in company tax alone and then spent $210 billion on services.
Choice
Freedom of choice = being able to select from a range of alternative products and services
Ability to “shop around” Increased competition =
greater choice and reduced prices
Encourages innovation to remain competitive
Innovation and Invention
Innovation = an improvement on an established product
Invention = creating a new product to meet a need that is not being satisfied
Research and development key process in designed more cost effective and efficient products
Innovation and Invention
Example: Music distribution
Phonograph
Cylinders
Phonograph
Discs
331/3rpms
Albums:LP’s
331/3rpm
EP’s/Singles45rpm
8 Track Tapes
Cassette Tapes
Compact Discs and
Laser DiscsWalkman
Digital - MP3
Players, iPods and
iTunes
Quality of Life
Overall well being of an individual and is a combination of material and non material benefits
High standard of living
Entrepreneurship and Risk
Entrepreneurs = people who starts, operates and assumes the risk of starting a business in the hope of making a profit
Must take risks of turning dream into reality
Usually going into unchartered areas of business eg: Steve Job and Apple, Mark Zuckerberg and Facebook
Mark Zuckerberg Interview
Assess your entrepreneurial abilityEntrepreneurial Ability Ye
s No
Are you willing to take moderate risks?
Are you easily motivated?
Do you get on well with people?
Is your health excellent?
Do you set realistic goals?
Can you tolerate failure?
Do you have a positive self-image?
Are you well organised?
Are you a hard worker
Structured Responses
Complete the importance of Social and Economic Roles of Business structured response sheet.