Lecture 3: How Understanding the Economy Helps Businesses Succeed

Economic Expert

A guide who helps businesses understand big economic changes and how they affect daily operations and long-term planning.

Liquidity

A measure of how much cash a company has available to pay its immediate short-term bills and expenses.

Profitability

The degree to which a business or activity yields profit or financial gain.

Leverage

The amount of debt a company has used to finance its assets and operations.

Current Ratio

A financial ratio used to check if a company has enough immediate cash to cover its short-term expenses.

Tariffs

Taxes imposed by a government on imported goods, which affect product pricing and supply chain decisions.

Market Risk

The risk of financial loss due to fluctuations in prices for things like oil, foreign currency, interest rates, and stocks.

Credit Risk

The likelihood that customers will fail to pay back the money they owe to a business.

Operational Risk

Potential weak spots in daily business operations, including supply chain disruptions or computer system failures.

Liquidity Risk

The risk of a business not having enough cash on hand to pay its bills, suppliers, or employees on time.

Fixed Costs

Business expenses that remain the same regardless of how much the company produces or sells, such as rent.

Variable Costs (Changing Costs)

Expenses that increase or decrease based on production volume, such as raw materials like flour or coffee beans.

Financial Modeling

The use of mathematical tools to turn business data into clear predictions about future money outcomes.

Sensitivity Analysis (What If Scenarios)

Testing what happens to profits if main guesses (like customer numbers or material costs) are wrong.

Monte Carlo Simulation

An advanced technique using random chance to predict a range of possible outcomes and the probability of different results.