Business Foundations Assessment 1

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

taxation of dividends both as corporate profit and as personal income

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 number of shares; 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. Accounting entry controls: controls so that one person alone cannot commit fraud, it takes a team

2. HR hotline: allowing people to report any misconduct

3. External audit: independent accountants granted free access financial information

4. internal audit - unfiltered check on internal org, meet independently w CEO and CFO with board of directors

5. CFO check on CEO: has access to Board and needs to not feel threatened by termination from CEO

6. SEC investigates suspicious organizations

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

a group of persons elected by the stockholders to manage a corporation

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 making a return by share price increasing

How do social media companies make money

advertising, sharing data

Explain the tradeoff for investing

High-risk, high reward

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

Is the dollar today worth more than 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

pressures of being CFO

pressure to appear financially healthy/growing and meet shareholder and director targets

Role of board of directors

hire CEO, look out for shareholders, check power of CEO, engage with company to the extent that would bring internal issues to attention

when is revenue recognized?

when the good or service is provided

depreciation

spreading cost over 'useful life' of the asset

secured loans

loans backed by collateral that the bank can claim if the borrowers do not repay them

unsecured loans

Where the lender has no protection if the borrower fails to repay the money owed

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

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