Business Foundations Assessment 2 (copy)

5 stages of group formation

1. Forming

2. Storming

3. Norming

4. Performing

5. Adjourning

forms of capital

equity and debt

equity

ownership

shareholders

individuals or other businesses that have invested their money to provide capital for a company

debt

when a loan is taken out

dividends

Dividends are distributions of a corporations profits to its stockholders.

for profit

businesses that have a legal responsibility to make money for shareholders

not for profit

businesses' main goal is to fulfill a public good and do not work to make money; untaxed earnings

public sector

government regulated companies

private sector

non-government regulated companies; majority of companies; exist to make money

public ownership

anyone can buy shares/stocks of the company, better liquidity

private ownership

you cannot buy share/stock unless directly contacting the owner; liquidity premium

liquidity premium

can't convert to cash unless bought by company

double taxation

a company pays tax and then the owner also pays tax on distributed corporate profits

3 forms of ownership

sole proprietorship, partnership, corporation

sole proprietorship

a business owned and managed by a single individual; no double tax; owner has all liability

partnership

a business owned by two or more people; no double tax; liability on all partners; ie law firm

corporation

A business that is owned by many investors; YES double tax; liability is dispersed; exists to make money

types of corporations

C corp, B corp, S corp

C corp

exists to make money, double tax, no liability, ie Apple

B corp

makes money & benefits society, double tax, ie Patagonia

S corp

no double tax, similar to partnership, less than 100 people, no liability - owner not actively managing business and doesn't want liability

SEC

Securities and Exchange Commission

what does the SEC do?

protects investors, facilitates capital formation, ensures companies operate efficiently

public good

Goods that are neither excludable nor rival in consumption; ie parks or roads

private good

good for individuals

where does GM trade its stock?

NYSE - New York Stock Exchange

where does Meta trade its stock?

Nasdaq

IPO

Initial public offering, a corporation's first offer to sell shares to the public

market capital

share price x shares outstanding; money value of entire company

CFO

Chief Financial Officer

what is the language of business?

accounting

financial accounting

preparation of 3 financial statements: income statement, balance sheet, cash flow statement

managerial accounting

the area of accounting that focuses on reporting information to internal users

GAAP

Generally Accepted Accounting Principles. The standards and rules that accountants follow while recording and reporting financial activities.

FASB

Financial Accounting Standards Board; develops GAAP for public companies.

CPA

certified public accountant

accounting controls

designed to safeguard company assets and ensure reliable accounting records

1. segregation of duties

2. internal audit

3. external audit

4. legal department

5. employee hotline

6. SEC

7. employee code of conduct

8. Board

private accounting

providing accounting services to the company that employs you; ie a school

public accounting

working at an accounting firm

3 financial statements

income statement, balance sheet, statement of cash flows

balance sheet

A financial statement that reports assets, liabilities, and owner's equity on a specific date.

income statement

A financial statement that reports a company's revenues and expenses and resulting net income or net loss for a specific period of time.

cash flow statement

A financial statement that shows the flow of money in and out of the business.

Accounting Equation

Assets = Liabilities + Owner's Equity

inflation

depreciation of money over time

where is the safest place to invest your money?

US treasury

accounts payable

Amounts to be paid in the future for goods or services already acquired; liability

accounts receivable

Amounts to be received in the future due to the sale of goods or services; asset

what costs businesses the most money?

wages

board of directors

they are a group of persons elected by the stockholders. they provide governance of the company and select the CEO

example of a good turned into a service

phone, drive thru

business

trade products for dollars, competition between companies fighting for consumers' dollar

external factors that affect group formation

social, economic

what are the two ways companies make money

debt financing and equity financing

debt financing

creditors loan companies money (banks, credit unions); ex: taking a loan to buy a car

equity financing

raising funds by selling ownership shares in the company, publicly or privately; ex: putting $2,000 down on a car

How do creditors make money?

by charging interest and if debtors can't pay them back, taking collateral

How do stockholders make money?

Through dividends or an increase in stock price

How do social media companies make money

advertising, sharing data

Explain the tradeoff for investing and order these from lowest risk to highest: car loan, public equity investment, mortgage loan, credit card loan

High-risk, high reward

mortgage loan, car loan, credit card loan, equity investment

How does uncertainty impact financial institutions

forces them to diversify portfolios and mitigate risk because if institutions are uncertain, they are less likely to make an investment

would you rather have a dollar today or tomorrow

Yes, assuming inflation continues to increase overnight due to the time value of money

What is the cost of capital?

Cost of raising money through debt vs equity financing

accounting is a _____-_______ profession

self-regulated

Why would Unilever want to sell its ice cream business and buy back stock

To increase share price and EPS; eliminate liability of ice cream business not making money

pressures of being CEO

pressure of meeting targets of shareholders and directors

3 responsibilities of CFO

manage accounting, financial planning, and audit. helps ensure financial resources are efficiently allocated and that reports are accurate

when is revenue recognized?

when the good or service is provided; ex. an airplane ticket must be paid in advance of when the service is provided but the airline does not recognize the revenue until the trip is taken

depreciation

spreading cost over 'useful life' of the asset (ex. car, over the years it gets older and doesn’t work as well")

secured debt

loans backed by collateral that the bank can claim if the borrowers do not repay them (ex. car loan or mortgage)

unsecured debt

Where the lender has no protection if the borrower fails to repay the money owed (ex. credit card debt). Is much riskier for the owner

What is liquidity; rank these assets in order of liquidity: real estate, cash, public stock, private equity

how easily you can convert the asset to cash;

1) cash

2) public stock

3) real estate

4) private equity

why would a company go public?

to increase liquidity (convert stock into cash faster)

consumer decision process

cognitive, habit, emotion

what are the 5 P's that influence consumer's choice (brand building equation)

product, price, packaging, promotion, place

order entry

fundamental business process of customer purchasing something at the store and receiving money

critical path

the sequence of activities that determine the earliest date by which the project can be completed

consumer segmentation

biographic, ethnographic, demographics and psychological

financial planning analysis (FPA)

figure out where the company will go based on where they are today - handle budgets

what is a business model?

the way a corporation makes money

how do the business models of Amazon and Walmart differ?

Both Amazon and Walmart are general merchandise retailers, but Walmart focuses on in store sales to rural low-income consumers, while Amazon focuses on online sales to higher income rural consumers

how do companies raise capital

equity - selling ownership of the company to shareholders, profit made with dividends or stock appreciation

debt - loans to earn more money by charging interest, less risky bc paid before equity holders if company fails

list 2 advantages for a company to be for-profit publicly traded vs a private company

publicly traded companies have easier access to capital, can compensate employees with liquid stock, and provide more diversification options to owners

EPS

earning per share; calculated by net income of company divided by # of shares. ESP represents the shareholders share of earnings and want it to increase over time

why is the accounting equation important?

as assets increase and liabilities decrease, the amount of owners equity will increase, thus increasing the value of company to its owners

would you rather have a dollar today or tomorrow

today because the value of the dollar will likely be less tomorrow due to inflation and uncertainty

what is a brand and why is it important to a company?

It is a mark that is a position against a particular market segment, and it allows the company to distinguish its product from others and entice consumers to pick them

what is consumer market segment and what are the main types of consumer characteristics that define them?

a group of consumers that share ethnographic (race, gender, age, etc.), geographic or psychographic (religion, political party, etc.) characteristics.

what are the four ways a company can grow?

1. same product to same consumer

2. new product to same consumer

3. same product to new consumer

4. new product to new consumer

what is supply chain?

it is the sequence involved in the production and distribution of goods. managers must consider capacity planning, critical path, and inventory management

what is outsourcing?

having another organization do something for my organization

what is offshoring?

moving something similar to another country

define critical path; what was it for starbucks

part of the supply chain that takes the longest, for starbucks it was order entry prior to the apps implementation

what is productivity and why is it important to an organization?

converting inputs into outputs in the most efficient manner possible. it allows for the generation of increasing profits

what is a team?

a unit of people who share a common mission and are collectively responsible

what are advantages and disadvantages of being on a team?

advantages: increased creativity and accountability

disadvantages: different communication styles and lack of trust

what is motivation?

the combination of forces that drive individuals to take certain behaviors and avoid others

what is engagement?

the emotional and rational commitment someone has to their work

maslow’s hierarchy of needs

1. physiological

2. safety

3. social

4. esteem

5. self-actualization