The Role Of Business section Preliminary HSC Business Studies course

1. The Economic and Social Importance of Business

2.  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

4.  Sales revenue>operating costs =
profit
 Profitability crucial to
 long term survival of business
 to meet business expenses
 Return 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.

5.  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%
ExampleTwo
 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

6. 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

7. 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

8.  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.

10.  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

11.  Globalisation is having
a detrimental impact
on employment
 Increased competition
will drive down
unemployment to
maintain profitability =
downsizing,
retrenchment and
redundancy
Example:
 2000Telstra reduced it
staff by 35000 because
of increasing
competition from
Vodafone and Sing tel
Optus

12. 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

13. 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.

14. Government:
 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.

15.  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

16.  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

17. Example: Music distribution
Phonograph
Cylinders
Phonograph
Discs
331/3rpms
Albums:
LP’s
331/3rpm
EP’s/Singles
45rpm
8 Track
Tapes
Cassette
Tapes
Compact
Discs and
Laser Discs
Walkman
Digital -
MP3
Players,
iPods and
iTunes

18.  Overall well being of an
individual and is a
combination of
material and non
material benefits
 High standard of living

19.  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

20. Entrepreneurial Ability Yes 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

21. Complete the importance of Social and
Economic Roles of Business structured
response sheet.