Agribusiness Management Midterm

Operating Profit:

Gross Profit - Operating Expenses

1) Considering Idea Feasibility

a) 1. Strength of Business Idea - We do not want idea to have a fatal flaw

b) 2. Size of Target Market and Customers - Bigger is better! We must meet a definitive market need!

c) Industry and Competitive Advantage - Less competition is better!

d) Capability of Founders - Do our founders have the skills needed for the business to excel?

e) Capital Requirements - Lower capital requirements is better!

4Ps of Marketing

i) product (what you're selling), place (location), pricing (how you are pricing the product), promotion (how you are advertising)

Return on owners equity:

Net profits / Total Owners Equity

Debt ratio:

Total Liabilities / Total Assets

Total asset turnover:

Sales / Total Assets

Return on Assets:

Operating Profits / Total Assets

Debt-to-Asset Ratio:

Total Liabilities / Total Assets

Basis points:

100 basis points = 1%.

1) Definition of Small Business

a) No universal definition of small business

a) Typically categorize small businesses as

i) Microbusiness: provides minimal profits to owner

ii) Attractive Small firm: substantial profits to owner, but not scale-able.

iii) High Potential Venture: small firm with great prospects for growth.

1) Entrepreneurship process:

a) Identify an opportunity

b) Acquire critical resources

c) Execute the plan

d) Harvest the plan

1) Reasons for Starting Your Own Business

a) Personal Fulfillment - doing something for more than yourself

b) Personal Satisfaction - doing something that makes you feel good

c) Independence - being your own boss

d) Financial rewards - generating wealth

1) Entrepreneur Legacy

material assets and intangible qualities passed on to both heirs and society.

1) Types of Startup Ideas

a) New Market: start up idea focused around providing customers with a product not available in their market.

b) New Technology: startup idea focused around a new or relatively new technology.

c) New Benefit: startup idea focused on providing customers with a new or improved product

1) Sources of Startup Ideas

i) We use Porters 5 Forces to Analyze Industry Environment. 5 Forces Include

(1) Threat from New Competition

(2) Threat of Substitute Products

(3) Threat of Rivalry Among Existing Firms

Bargaining Power from Suppliers

Core competency

i) The capabilities that distinguish a firm competitively and reflects its focus and personality.

Cost-based Strategy:

: keeping costs down

Differentiation-based Strategy

a) Providing extra attributes that are valued by customer, so product can be sold for higher price and make profit.

Extensive

The full plan.

1) What is Marketing

a) Business activities that direct the creation, development, and delivery of a bundle of satisfaction from the creator to the targeted customer.

1) Market Research

i) Identify the informational need

ii) Search for secondary data

iii) Collect primary data

iv) Interpret the data gathered

Observational methods:

i) Collecting data while avoiding interpersonal contact with the subject and the researcher

Questioning methods

Collecting data via interaction with respondents

Single-segment approach:

a) A strategy that recognized the existence of several segments but focuses only on one segment. (example: Carters (only sells kids clothes)

B2B (Business to business)

) Hewlett Packard

B2C

Amazon

C2C

online auctions

Transaction based model

(1) website provides mechanism for buying/selling products online. (Amazon)

Operating Profit Margin:

Operating profits / Sales

Current Ratio:

Current Assets / Current Liabilities

Net Profits:

Profit Before Taxes - Income Tax Expense

Profit Before Taxes:

Operating Profit - Interest Expense

Gross Profit:

Sales - Cost of Goods Sold (sales is same thing as revenue

1) Steps in forecasting an income statement

a) Amount of sales

b) Cost of goods sold

c) Operating expenses

d) Interest expense

e) Taxes

Percentage of sales technique

a) a method to forecasting asset requirements using a ratio of assets to sales.

1) 5 C's of Credit

a) Character, capacity, capital, collateral, and conditions

1) Analyzing Business Ideas

i) Outside - In: First evaluate the marketplace and then determine how to use their ability to pursue an opportunity.

ii) Inside - Out: First evaluate their abilities and then identify new products that they might be able to offer the market.

short plan

: Best to make when market conditions are changing rapidly,

a) Bundle of satisfaction includes -

i) Core product - the benefit you get from the product/service.

ii) Actual product - physical commodity/service

iii) Augmented product - ex. Customer service

a) Market Analysis

i) Customer profile: a description of potential customers in target market

ii) Sales forecast: forecast of the volume of sales to expect for one firm (expressed in $)

a) Unsegmented approach:

defines the total market as the target market (example: coca cola)

a) Multi-segment approach:

strategy that recognized different preferences of indivdaul market segments and develops a unique market strategy for each (example: JCPenny selling men's and women's clothing)

information based

information only

content based

(1) provides information, with the hope of generating revenue through advertising (Facebook)

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