BA100 Final Exam Review

BBA Milestones

Equity Centered Knowledge

Compassion and Empathy

Intercultural and Global Perspectives

BBA Learning Goals

College Transition

Self Understanding

Business Knowledge

MACRO Factors

Political

• Government stability

• Tax policy

• Subsidies

• International trade or security agreements

Economic

• Economic growth

• Interest rate

• Inflation rate

• Unemployment rate

• Exchange rates

Sociocultural

• Lifestyle preferences and trends

• Influence of religion, cultural norms, and national identity

• Policies affecting working age, equality, social support

• Consumerism v. saving

Technological

• R&D

• Maturation of existing technology

• Intellectual property protection

• Disruptive future technologies

Environmental

• Environmental protection and laws

• Individual perspectives and norms on the envi

• Regulations on materials, waste, recycling

• Influence of organizations

Legal

• Strength of rule of law

• Court systems

• Consumer protection laws

• Labor laws

• Health and welfare laws

Cultural Environment

Social

Power

Uncertainty

Goal

Time

Stakeholders

Internal: Employees, managers, owners
External: investors, creditors, government, society, suppliers, consumers

Types of Organizational Form:

Sole Proprietorship

• Pros:

  • Single taxed

  • Full ownership, control, and profits

  • Relatively inexpensive to operate/begin

• Cons:

  • Lifetime ends when owner passes away

  • Difficulty raising capital

  • Unlimited personal liability

Partnership

• Pros:

  • Single taxed (profits taxed at partners’ earnings level)

  • Greater capital resources compared with SP

• Cons:

  • Shared profits

  • Difficulty transferring ownership

LLC/L3C

• Pros:

  • Limited liability for protection of members

  • Pass-through taxation, members taxed on their individual incomes

• Cons:

  • More complex and expensive to setup

  • Can have limited life spans depending on the regulations

Corporation

• C Corp:

  • Pros:

    • Unlimited number of shareholders

    • Can issue different shares of stock

  • Cons:

    • Double taxation, first on the corporation, then on dividends received by shareholders

• S Corp:

  • Pros:

    • Single taxation

    • Slightly less complex regulations

  • Cons:

    • Limited to 100 shareholders

    • Can only have one class of stock

Cooperative

• Business owned and operated by its members, who benefit from using or buying their products

  • Pros:

    • Democratic vote (1 person, 1 vote)

    • Limited liability

    • Focused on benefit of its members

  • Cons:

    • Harder to raise capital

    • May have lower profits because focused on member needs

Nonprofit Organization

• Pros:

  • Tax exempt

  • Serves a social purpose

  • Eligible for grants

• Cons:

  • Ongoing compliance and reporting requirements

  • Financial instability from relying on donors and grants

Characteristics and Functions of Money

Portable

Divisible

Durable

Stable

Exchange of currency

Store of value

Measure of worth

M1 v. M2

M1:

• Cash

• Travelers checks

• Demand deposits

• Check deposits

M2:

• M1+

• Time deposits

• Savings

• Certificates of Deposit

• MMFs

Functions of the Federal Reserve:

• Conducting the nation’s monetary policy

• Maintaining stability of the financial system

• Supervising and regulating financial institutions

• Payment and settlement system (between banks) safety and efficiency (protection against fraud)

• Promoting consumer protection and community development (preventing discriminatory practices)

Models for Valuing Equity Securities:

• Dividend Discount Model

  • Value of all future dividends discounted back to present value

• Free Cash Flow Model

  • Sum of future free cash flows discounted back to present value

    • Free cash flows: Cash of a business after taking out costs for maintaining capital and operating expenses

• Earnings Multiple Model

  • Take current earnings per share X price/earnings ratio

    • Not particularly precise

• Residual Interest Model

  • The difference between the profits a company actually makes and how much investors expect them to make, added to the book value of the company (all the startup costs added together), discounted to the present value

Valuing Debt Securities

Step 1: Calculate the Present Value of Interest Payments

• The bond pays $50 annually for 10 years.

• Use the market interest rate (4%) to discount these payments.

The formula for the present value of an annuity (series of equal payments) is:
PVcoupons=C×(1−(1+r)−n)/r
where:

• C is the annual coupon payment ($50)

• r is the market interest rate (4% or 0.04)

• n is the number of years (10)

PVcoupons=50×(1−(1+0.04)−10)/0.04≈50×8.11=405.50

Step 2: Calculate the Present Value of the Face Value

• The face value of $1,000 must be discounted back to the present value.

The formula is:
PVface value=F/(1+r)n
where:

• F is the face value ($1,000)

• r is the market interest rate (4% or 0.04)

• n is the number of years (10)

PVface value=1,000/(1+0.04)10≈1,000/1.48=676.84

Step 3: Combine the Present Values

Bond Value=PVcoupons+PVface value
Bond Value=405.50+676.84=1,082.34

So, the current value of the bond, given a market interest rate of 4%, is approximately $1,082.34.

Present Value Calculation:

PV = FV /(1+r)^n

Types of Risk

• Systemic (market risk, affects all investments in the market)

  • Credit Risk

    • During times of financial crisis, depressions

  • Interest rate risk

  • Foreign currency risk

  • Climate risk

  • Prepayment risk

    • That a loan or mortgage is paid back early before maturation

  • Liquidity risk

    • That stocks won’t be able to be quick enough exchanged for cash, like a really rarely traded stock

  • Sovereign risk

    • Credit risk but for the government (bonds), defaulting on a loan

• Unsystematic (specific / idiosyncratic risk, affects a particular comp/industry)

  • Operational efficiency

  • Management decisions

  • Market expansion

  • Mergers and acquisitions

  • Industry risks (regulatory changes, competitive pressures from other industries, oil prices impacting the energy sector)

List stocks and bonds from least to most risky:

Treasury Bonds

Savings Account

Money Market Funds

Municipal Bonds

Corporate Bonds

Preferred Stock

Real Estate Investment Trusts

Convertible Bonds

Common Stock

Venture Capital

Cryptocurrency

Steps for calculating a Leverage Buyout:

1. Total debt

   1. Assets/Purchasing Price (1-(Equity Contribution%))

2. Debt in year 1

   1. Total Debt(Interest Rate%)

3. Pre-tax net income

   1. (pre-tax income - DiY1)

4. Post-tax net income

   1. Pre-tax net income(1-TR%)

5. Return on investment

   1. Post-tax net income / equity contribution (assets x EC%)

5 P’s of Marketing

• People

  • Those involved in creation process + customers

• Price

  • How much to sell for

  • Considering relation to competitors

• Place

  • Distribution channels (direct, wholesalers, retailers, online)

  • Logistics (transportation, storage)

  • Where sold (online, stores)

  • Market coverage (intensive, selective, exclusive)

• Promotion

  • Communicating the benefits of a product

    • Advertising, social media

• Product

  • Features, packaging, quality

6 Steps of a Marketing Research Process

1. Research Objectives

2. Research Design

3. Data Collection

4. Data Processing

5. Data analysis

6. Research Report/presentation

5 Stages of Consumer Decision Making Process

1. Need Recognition

2. Information Search

3. Alternatives

4. Decide to purchase

5. Evaluate

5 Steps of the Marketing Plan

1. Objectives

   1. Increase brand awareness, drive sales, grow SM following

2. Market Research

   1. Target audience, competitors, market trends

3. Strategy

   1. Determine which of the marketing mix (5 p’s) best reach your audience

4. Action Plan

   1. Tactics, timelines, resources

5. Adjust

   1. Use KPIs and monitor and adjust

What makes up Brand Equity/Reputation

AQLA

• Brand Awareness

• Brand Quality

• Brand Loyalty

• Brand Associations

What makes up Brand Positioning

• Target audience

• Competitive phrase of reference

• Unique selling proposition

• Brand promise

• Segmentation, targeting, positioning

Types of Market Segments

• Geographic

  • Where they live

• Demographic

  • Age, gender, ethnicity, income, marital status, race, social class

• Behavioral

  • Actions and usage patterns

• Psychographic

  • Lifestyles, interests, personalities, attitudes

7 Step Product Development Process

George needs CDs for his product development:

Generation
Screening
Concept Development
Strategy
Product Development
Marketing
Launch

Pricing Strategies

CVS’s PC has the best pricing strategies:

Cost based
Value based
Skimming
Penetration
Competitive

Swot Analysis

• Strengths

  • Special qualities that set apart

  • Strong internal resources like staff

  • Intellectual property/capital

• Weaknesses

  • Things competitors do better than you

  • Resource limitations

  • Unclear USP

• Opportunities

  • New markets

  • Few competitors

  • Press/media coverage of company

• Threats

  • Regulations

  • Negative press

  • Changing customer attitudes towards your company

  • Emerging competitors

Types of digital marketing

SEO

• Organic

SEM

• Paying

Social Media

Content Marketing

Email Marketing

Tools Companies use for Marketing

McKinsey has many tools for marketing:

Marketing metrics
Customer Relationship Management Software
KPIs

Unethical Decisions in Marketing

Fire the DEMMs for being unethical

False advertising (Volkswagen emissions)
Deceptive pricing (BigPharma price hikes)
Exploitation (Nestle baby formula)
Misleading health claims (tobacco)

Misleading impacts of Oxycontin

Digital Marketing Funnel

Marketing Funnel on the DIACC! Tornado funnel on the diag

Discovery
Interest
Appraisal
Confirmation
Conversion

Breakeven Point Calculation

TR = TC

P = MR for perfectly competitive industries

BP = TFC/(P-AVC)

Profit Maximizing Calculation

MR = MC

What makes Fixed and Variable Costs hard to distinguish

MiSTER SoCals are hard to distinguish

Mixed costs

• Hard to separate: utility bill that’s fixed at first and variable after

Step costs

• Fixed to a certain point, then variable: Labor is fixed for a certain amount of production, but increasing that production increases the amount of labor needed to hire

Time frame

• Salaries can be fixed in the short term, variable in the long term when considering changing business goals

Economies of scale

• As units increase, price decreases because of declining marginal fixed costs

Revenue linked costs

• i.e. sales commissions linked to revenue and not strictly volume of units sold

Semi-variable

• Mixed elements, such as machinery maintenance needs monthly fees + additional costs depending on number of breakdowns

Cost Allocation

• Unclear where to allocate indirect costs like office supplies or support services, not attributed to a specific unite of production

Discriminatory Pricing Behavior

F*ck pedagogies for being discriminatory:

Fixed pricing (collusion)
Predatory pricing
Discrimination
Gouging price

Types of Utility:

Form

• Raw goods into finished

Place

• Convenient selling places

Time

• When goods are sold

Possession

• Utility gained when you own a good, furniture, loans

Types of Planning:

Capacity

• Ensuring enough supply production to meet demand

• Ex. Calculating how much a factory can make in a certain time

Layout

• Optimizing flow of materials to minimize production costs

• Ex. Floor plan that streamlines assembly line processes

Quality

• Ensuring high quality of materials

• Ex. Quality control measures and benchmarks

Methods

• Ensuring efficiency in operations

• Ex. Implementing Standard Operating Procedures

5 V’s of Big Data:

Volume

• How much

Value

• How good the data is

Velocity

• How fast the data can be processed

Variety

• How differential the data is

Veracity

• How accurate the data is

Where can you find information for a public company:

• SEC Webpage

• Investor Relations Page

• Data consolidators

Profitability Ratios

Gross Profit Margin:

• Gross Profit/ Total Revenue x 100

Net Profit Margin:

• Net Income / Total Revenue x 100

Return on Assets:

• Net Income / Average Total Assets x 100

Liquidity/Solvency Ratios

Current Ratio:

• Current Assets/ Current Liabilities

Debt to Equity Ratio:

• Total liabilities / Total shareholder equity

Efficiency Ratios

Accounts Receivable Turnover:

• Net Credit Sales (Net Income) / Average Accounts Receivable

Inventory Turnover:

• COGS / Average Inventory

What are the Financial Statements

1. Balance Sheet

   1. Purpose: Assess org’s financial condition

   2. AKA Statement of Financial Position

   3. One point in time

   4. Assets, Liabilities, Equity

2. Income Statement

   1. Purpose: Financial performance and ability to generate profit

   2. AKA Profit and Loss Statement, Statement of Earnings, Statement of Performance

   3. Over a period of time, fiscal quarter or year

   4. Revenues, Expenses, Profits, Losses

3. Statement of Cash Flows

   1. Purpose: Ability to generate cash from operations, manage investing activities, maintain liquidity

   2. Period of time

   3. Cash inflows and outflows

Lesser used models:

1. Statement of Comprehensive Income

   1. Purpose: More complete picture of changes in equity

   2. AKA extended Income Statement

   3. Net income, other comprehensive income

2. Statement of Shareholders’ Equity

   1. Purpose: Shows changes in equity portion

   2. One point in time

   3. Changes in common stock, preferred stock, retained earnings, paid-in capital

5 Step Risk Management Process:

Identify

Analyze

Plan Mitigation

Implement

Review and track

Speculative vs. Pure Risk

Speculative involves possibility of gain or loss, like stocks.

Pure involves only loss or no loss.

Risk Retention vs. Risk Transfer

Retention: Take responsibility for a risk instead of transferring it

Transfer: Say insurance company

How many people in the branches of government?

Legislative: 32k

Executive: 4 mil

Judicial: 30k

What were the workers of General Motors on strike for?

• Healthcare

• Better wages

• Job security

• Temporary → Full time work opportunities

Steps to Build a Financial Plan

1. Assess Financial Condition

   1. Personal balance sheet

2. Goals

   1. How much you want to save, time goals

3. Plan of Action

   1. Source and amount of inflows

   2. Uses and timing of outflows

4. Implement

   1. Perform planned tasks

   2. Track spending

5. Re-evaluate and revise

   1. Reassess your personal situation

Credit Score Breakdowns

300-580 Poor

580-670 Fair

670-740 Good

740-800 Very Good

800-850 Exceptional

Tax Rate Breakdown

10% <11k

12% <45k

22% <95k

24% <182k

32% <231k

35% <578k
37% 578k+

Framework for Ethical Decision Making

Economic

• Role of corp in society

• How do actions impact corporate Strategy

Legal

• Legal obligations

• Actions to avoid civil and criminal liability

Ethical

• Issues with respect to affected stakeholder groups