A-AS Level (CIE) Business Studies Paper-1: Specimen Questions with Answers 35 - 36 of 50

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Question 35


Write in Short

Short Answer▾

Explain the reasons how profitability of a business is affected


The Profitability of a Business is Affected By

  • Market Share: A reduction in the market value of shares leads to a reduction in the profit margin whereas, increase in market share is likely to have higher profitability margin or purchases to sales ratio.
  • Brand image: Brand image leads to increase in the brand equity of a business which leads to lesser cost of production causing higher profits.
  • Competition: Competition between business in a market affects the innovation, risk takin, capacity, and profitability. One percent increase in profit reduces the risk by 0.542 percent.
  • Cost of production: Cost of production are the expenses of the business-like labor, material etc. The lower is the cost of production of goods the higher is the profit margin of a firm.

Question 36


Describe in Detail


With reference to the business environment explain PESTEL analysis.


PESTLE analysis refers to audit of an organization՚s macro environment which influences the purpose taking decisions and using this information to make strategic decision for the organization. The purpose of PESTLE analysis is that if an organization can forecast its present environment and assess potential future changes, it will be in a better position than its competitors to respond to changes. PESTLE is an acronym standing for- Political, Economic, Sociological, Technological, legal, and Environmental.

It is a useful tool for understanding the “big picture” of the environment in which you are operating. Having a clear picture of the organization՚s environment, a business can take advantage of the opportunities and minimize the threats to an organization. Thus, an organization can take full advantage of the competitive environment of the business.

Importance of PESTLE analysis are:

  • While entering new horizons of business.
  • Helps to break free of uncertainties assumptions.
  • Effectively helps to adapt to the realities of the new business environment
  • It is useful for identifying advantages and disadvantages of business.

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