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COVERS ALL MAJOR EXAM BOARDS

Teaching Business

Public Limited Companies

A clear guide to public limited companies, covering stock market flotation, shareholders, limited liability, finance, control and suitability.

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Created by an experienced Head of Business and examiner

AQA | Edexcel | Cambridge | Eduqas | WJEC | OCR | GCSE

KEY POINTS

A public limited company can offer shares to the general public, usually through a stock market listing.
Shareholders normally benefit from limited liability, so their personal loss is limited to their investment.
A PLC can raise large amounts of share capital, supporting major expansion, acquisitions or investment.
Public listing can increase status and access to finance, but it brings extra regulation, scrutiny and pressure from shareholders.
The structure suits large businesses needing substantial finance, but may be less suitable when owners want privacy and tight control.

KEY DEFINITION

Public limited company

A public limited company is an incorporated business that can offer shares to the general public and usually has limited liability for shareholders.

Main Explanation

A public limited company, or PLC, is an incorporated business that can sell shares to the general public. Many PLCs list their shares on a stock market, which allows investors to buy and sell shares more easily.

Like a private limited company, a PLC has a separate legal identity from its owners. Shareholders usually have limited liability, meaning their personal financial risk is limited to the amount they invested.

The main advantage of PLC status is access to large amounts of finance. Selling shares to the public can raise capital for expansion, research and development, acquisitions, new sites or international growth. A stock market listing can also raise the profile and credibility of the business.

However, becoming a PLC can reduce the original owners’ control. Shares may be bought by many investors, and directors may face pressure to increase dividends, share price and short-term financial performance.

PLCs also face greater regulation, reporting requirements and public scrutiny. Financial results, director decisions and strategic plans may be closely watched by investors, analysts, competitors and the media. Flotation can also be costly and time-consuming.

The share price can affect business reputation and investor confidence. A falling share price may make it harder to raise finance, increase takeover risk or create pressure for strategic change.

Overall, PLC status is most suitable for larger businesses with strong growth ambitions and a need for substantial finance. It is less suitable for businesses that value privacy, founder control and flexibility more than public access to share capital.

✎ EXAMINER TIP

Do not write that every large business is a PLC. The key is whether public share ownership and stock market finance suit the business objectives and ownership priorities.

KEY FORMULAS(s)

Profit and Profitability Formulas

These key formulas help you calculate different profit measures and profitability ratios used in business.

Gross Profit

Gross profit = Revenue − Cost of sales

The profit made after deducting direct costs.

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Remember: profit shows how much money has been made, while profitability shows how efficiently revenue is being turned into profit.

DATA TABLE

Income Statement for North Coast Coffee Ltd

This statement shows how revenue is converted into gross profit, operating profit and net profit.

Revenue

£250,000

Output

Fixed Costs

Variable Costs

Total Costs

Revenue

Profit / Loss

0 candles £1,200 £0 £1,200 £0 -£1,200

Net profit is the final profit remaining after all costs and expenses have been deducted from revenue.

WORKED EXAMPLE

Worked Example: North Coast Coffee

How many coffees must be sold to break even?

Fixed Costs

£1,800

equity + long-term debt

Break-even output = Fixed costs ÷ Contribution per unit

Contribution per unit = Selling price − Variable cost

£3.50 − £1.10 = £2.40

Step 1: Calculate contribution

£3.50 − £1.10 = £2.40

Contribution per unit is the amount each coffee contributes towards fixed costs.

BREAK-EVEN OUTPUT:

750 coffees per month

EXAM TIP

Always explain what the number means for the business. Do not just calculate the break-even point.

Create a 5 pointed blue outlined star ic

PLC Trade-Off: Finance Versus Control

This diagram shows how PLC status can support major finance and growth while increasing shareholder pressure, scrutiny and loss of control.

APPLICATION

Ocado Group

Ocado Group provides a useful context for analysing PLCs because technology-driven and logistics-heavy businesses may need large amounts of capital for warehouses, software, automation and expansion.

A public listing can help a business raise funds from a wide investor base and increase visibility. This can support long-term projects that require major investment before returns are fully realised.

However, public companies are exposed to shareholder pressure and share price movements. Investors may expect growth, evidence of profitability and clear strategic progress.

This shows the trade-off in PLC status: greater access to finance can support ambitious expansion, but ownership becomes more dispersed and managers face more external scrutiny.

This independent educational case study is not affiliated with, endorsed by or sponsored by Greggs plc. Any financial figures used alongside this example should be treated as simplified or hypothetical estimates created for teaching purposes.

ANALYSIS

EXAM FOCUS

Analysis questions require you to examine a business concept or issue in detail, breaking it down into its component parts. You should explain how and why something happens and consider its impact on the business.

How to Approach Analysis Questions

1

Identify the key issue or concept

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Break it down

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Explain how and why

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Reach a reasoned conclusion

Read the question carefully and highlight the focus of the analysis.

Consider the different factors, causes or impacts related to the issue.

Provide clear explanations using business terms and links points to context.

Evaluate the overall implications for the business.

Example Analysis Question

North Coast Coffee is considering using break-even analysis before opening a second café.

Advantages

• Sales forecasts may be inaccurate.

• Assumes costs and revenue remain constant.

• External factors may reduce reliability.

• Ignores qualitative business factors.

Disadvantages

• Sales forecasts may be inaccurate.

• Assumes costs and revenue remain constant.

• External factors may reduce reliability.

• Ignores qualitative business factors.

Key Exam Tip

If you find it difficult to expand your answer and show the type of depth that an examiner is looking for in a top response, consider using the 'so what' approach.

Tesco carry out market research - so what? - this allows them to better understand customer needs - so what? as a result Tesco can provide goods more likely to sell - so what? - this will increase Tesco profit and ensure higher levels of customer satisfaction - so what? this means that customers are likely to become more loyal to Tesco.

Avoid These Exam Traps

Students often lose marks on calculation and analysis questions by making these mistakes. Watch out for them in your exam!

1

Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.

Tip:

Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.

2

Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.

Tip:

Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.

3

Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.

Tip:

Helvetica Light is an easy-to-read font, with tall and narrow letters, that works well on almost every site.

Be precise. Read the question carefully. Show your working.

Small mistakes can cost big marks.

EXAM PRACTICE

Practice Question

Apply your knowledge of profit and profitability to answer this exam-style question.

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MINI CASE STUDY

North Coast Coffee Ltd is a premium coffee business which sells freshly roasted coffee beans through its online store and a small chain of independent cafés. The business has experienced strong sales growth due to increasing demand for high-quality speciality coffee products.

The business generates annual revenue of £250,000. Its cost of sales, including coffee beans, packaging and direct production costs, totals £100,000. North Coast Coffee Ltd also faces operating expenses of £80,000, including marketing, employee wages, rent and administration costs. In addition, the business pays £20,000 in interest and taxation each year.

The owner, Mia Thompson, is reviewing the company’s profitability because rising wage costs and increased competition in the premium coffee market have started to place pressure on operating profit margins. She is considering increasing prices slightly in order to protect profitability while still maintaining customer demand.

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EXAM QUESTION

Analyse the possible reasons for BrightBite’s falling profit margins and evaluate strategies it could use to improve profitability.

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HOW TO ANSWER

P

Point

E

Explain

A

Apply

C

Consequence

H

However...

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MODEL ANSWER

P

Point

Increasing prices could improve the profitability of North Coast Coffee Ltd because each sale would generate a larger amount of revenue and potentially increase profit margins.

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EXAMINER TIP

For full marks, make sure you analyse causes rather than just listing them, and evaluate realistic strategies with clear judgement. THINK: Which strategy would have the biggest impact and why?

CALCULATOR

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