Bu111 Final Review F2020 (ALL PEST FACTORS)

What are the three pillars of the Canadian Financial System?

1. Banks and Alternate Banks
2. Specialized Lending and Insurance Companies
3. Investment Dealers

Why go with an investment dealer?

Possible answer: If you are a larger corporation looking to go public to raise capital.

i.e. Go on the stock exchange

Why stick with a specialized lender? (2-3 reasons)

1. Don't want to release public information
2. Cant afford to lose your money
3. you're a medium sized business

Why stay with a bank/alternate bank?

Everyone goes to banks! it's the easiest and most accessible. So if you're too small to be selling equity, or perhaps you don't have as much funding as you used to.

Debt Financing vs Equity Financing, which is better and in what situation?

As a company, since debt financing requires you to pay interest, its legally binding so its more risk.

With equity financing, you are giving up and thereby diluting ownership, must share profits and control

What are Bonds?

Represents debt for the issuing government or corporation. They are a legally binding agreement with a fixed annual return.

Interpret this bond: PepsiCo 4.6 of 2035 at 94.5

Company borrowing money: Pepsico
Coupon Rate: 4.6%
Face Value: $945
Maturity Date: 15 years

What are stocks? (list 3-5 characteristics)

1. Voting rights
2. No fixed return
3. Variable return
4. Discretionary payment (dividends)
5. Higher risk than a corporations bond from a consumers perspective

Common shares vs preferred shares?

Common shares: guaranteed vote, not first in line for dividends.

Preferred: no vote, first in line for dividends

What part of the Diamond-E would determine if dividends are pushed out?

The managerial preferences/ resources

Tax effects Stocks vs Bonds

Dividends are not tax deductible, interest paid on bonds is.

If a company goes under, who gets paid first?

Those who hold the Bonds

As a consumer, bonds vs stocks?

Bonds are less risk because it is a guaranteed payment

Stocks are higher risk but can result in higher reward. Stocks are also equity so you do get a vote in the company

What is yield? (the catchphrase)

what ya made / what ya paid

What is yield (the equation)

yield = risk-free return + risk premium

What is the formula for bonds? (we will have to memorize this)

coupon rate x face value + (face-value-price paid)/years to maturity) / price paid

If the interest rate in the Economy increases, what do you do as an investor when it comes to bonds?

You should decrease your price paid as an investor

What happens to the price of bonds when the interest rate goes down and why?

Bond prices go up because investors are expecting less yield than they were before.

What is leverage?

Borrowing money to get a larger return

Imaad's awesome company is trading at @ $35. You have $3500 to invest (a semester's tuition). Compare the return you would get if you went long vs buying on margin with a minimum margin requirement of %65 with an interest on margin of 5%. You are selling the stock at $55 in 4 months because Imaad's company is awesome.

Which one has a higher yield?

Discuss your answer :)

What happens if the stock price drops and you were buying on margin?

You need to repay back some of your loan (margin call)

What is the maximum profit you can make when you're buying on margin?

Infinity and beyond

What is the maximum loss you can make with margin buying?

the price you paid for the stock.

What is the Time Value of Money?

Provided that money can accrue interest Money today is worth more than money tomorrow because you can invest it.

Why is money tomorrow worth less than money today? (3 reasons)

1. Risk
2. Inflation.
3. Real Interest

What is the amortization period of a mortgage?

the total time it would take to completely pay off your mortgage

What is pre-approval for a mortgage?

It's when your bank tells you the maximum amount that they would be willing to lend you beforehand and they commit to that amount.

What's the key difference between the P in PEST with the E,S,T?

Political Factors can be easily influenced by corporations (lobbying) and by citizens (voting).

Why does Canada have the Bank Act?

To protect domestic consumers from shady foreign banks

What is the significance of Political Factors?

1. Protection of consumers
2. Support/Protection of domestic businesses
3. Opportunity creation in foreign markets.

How do businesses influence government? (3 ways)

1. Lobbying
2. Collaboration/Input (CRTC)
3. Advertising : companies influence voting

List the 4 roles the Government plays

1. Service Provider (Crown Corporations)
2. Business Support
3. Laws/Regulations
4. Taxation

Describe the gov role of being a Service Provider, their approach and its impact on the environment

Governments being service providers is when the government competes against private companies.

Their approach is through crown corporations or offering public services such as education, healthcare that kinda thing

The impact is competition and social goals

Describe the gov role of business support, their approach and its impact on the environment

Governments providing business support is things like co op, when the government incentivizes businesses to do something.

Their approach is through subsidies and trade agreements.

The impact is opportunity and protection for industries

Describe the gov role of laws and regulations, their approach and the impact on the environment

Gov implements laws and regulations that affect production and consumption.

Their approach is through consumer laws, poullution laws, IP rights

Their impact is barriers to entry/exit, social goals, innovations and consumer protection

Describe the gov role of taxation, their approach and the impact on the environment

Gov taxes corporations and citizens.

Their approach is through income taxes, sales taxes, property taxes, restrictive taxes

Their impact is customer spending, incentives and barriers

Select a role that the government plays and explain how it affects one of the Five Forces in an industry (don't need to give an example)

Discuss!

Identify a business that would view a tax on LCD screens used in a computer as an opportunity. What about one that would view it as a threat? Describe the impact precisely

Discuss.

Identify a business that would view a trade agreement with Mexico that allows skilled trade workers to come to Canada as an opportunity. What about one that would view it as a threat? Describe the impact precisely

Discuss

Identify a business that would view THE CRTC allowing two more mobile service providers into the Canadian Market as an opportunity. What about one that would view it as a threat? Describe the impact precisely

Discuss

Identify a business that would view a government subsidy on research on the causes of ADHD as an opportunity. What about one that would view it as a threat? Describe the impact precisely

Discuss

Identify a business that would view the government launching a mobile service as an opportunity. What about one that would view it as a threat? Describe the impact precisely

Discuss

For each of the E-S-T in PEST, identify an action that the government can take to influence that factor and explain why the action would have an impact

Discuss

List the 3 different kinds of ownership

1. Sole Proprietership
2. Partnership
3. Corporation

What are some of the similarities and differences between a Sole Proprietership and a Parntership?

Similarities:
1. Simple and inexpensive to set up
2. Few regulations
3. Unlimited Liability *

Differences:
1. Sole Ps have complete control, Partnerships gotta share
2. Sole Ps are limited to what the owner can bring, partnerships can leverage each others' talents.
3. Sole Ps are taxed as personal income

When would you make the decision to incorporate if you were originally a sole proprietor?

When your business is making a profit and you want to put money back into the business

Why do governments have a lower corporate tax rate?

Because they want to incentivize entrepreneurship

What is they key difference between corporations and sole proprieters/partnerships

Corporations are their own legal entity so there is limited liability

How do you go public as a corporation?

You go through an IPO

What are some of the similarities and differences between sole proprietorships and private corporations. (hint: there's only 1 similarity)

Similarities:
1. the resources and capabilities are still based on what the owner brings.

Differences:
1. Corporations are slightly harder to form with the paperwork.

2. Slightly more regulations for corporations
3. Profits and decisions are shared with shareholders

4. corporations are taxed separately and have limited liability

What are some of the similarities and differences between a public vs a private corporation

Similarities:
1. Taxation is about the same

Differences:
1. Public corporations have a BOD so there's much less control
2. Public corps are much more expensive and complicated
3. Many regulations for public
4. Public corps can afford to buy more resources and capabilities
5. Liability is limited to the investment you made in a public corp, thats it.

What is the key objective with a social enterprise?

Social value is the primary objective but financial sustainability is still important.

What are the implications of the objective of a social enterprise?

1. Economic value not required priority
2. Dual stakeholders: those served and those supporting. Only one or both pay.

List the five stakeholders in CSR

1. Environment
2. Investors
3. Society
4. Employees
5. Customers

What does the Environment expect from you?

Responsible business production and products

What does Society expect from you?

Education, Healthcare, Employment

What do investors expect from you?

Fair return on their investment
Financial honesty and transparency
Representation in the company that reflects their values

What do employees expect from you?

1. Fair pay
2. Respect
3. Development
4. Safety

What do customers expect from you?

1. Fair value
2. Safety
3. Respect

List the 4 levels of CSR and explain what they are

1. Proactive; you value a stakeholder without them asking you to
2. Accomadative: you adjust the balance of your stakeholders when one of them demands it from you
3. Defensive: You only do what is legally required of you when it comes to how you treat your stakeholders
4. Obstructionist: You do less than what's legally required, often finding loopholes to further treat your stakeholders poorly.

What is CSR?

1. How you treat your stakeholders individually
2. How you balance their needs altogether

Why focus on CSR? (Two reasons)

1. Makes the environment manageable
2. Meets KPIs

Explain how balancing your stakeholders could affect a specific KPI in a good way, and how could one affect a KPI in a bad way?

Sample answer:

1. Balancing your investors instead of the environment could increase your waste.

2. Balancing your employees by offering better benefits will increase their productivity.

Why study demographics?

Age is a really easy way to break things up and its an objective measure

What are the 4 things we look for in demographic study

1. Cohort Characteristics
2. Cohort Size
3. Participation Rates
4. Future Trends

What affects the size of a cohort?

Birth rate

Whats the difference between the birth rate and the fertility rate

The birth rate is. a measure of cohort size
The fertility rate is a measure of the participation rates of women in parenting

What are the 4 main cohorts we analyzed in class? (in chronological order from oldest to most recent)

1. Baby Boomers
2. Generation X
3. Millenials
4. Gen Z

What is activity participation rate?

How often a specific cohort engages in a behaviour

What are the 4 main demographic characteristics?

"Van Halen Likes Men"

1. Values
2. Habits
3. Lifestyle
4. Mindset

What 4 factors influence demographic characteristics?

"WET P"
1. World Events
2. Economic Situations
3. Technology
4. Parenting

Explain how one of the factors that influence demographic characteristics actually influences 2-3 characteristics

Sample answer:
Factor: Technology

Characteristics Affected:
1. Habits: if you grew up using technology you likely use it on a daily basis to the point where it integrates with your daily activities. For example if someone grew up on social media, it is likely that is the first thing they check in the morning.
2. Lifestyle: If you did not grow up using technology, it is likely that you would be more interested in going outdoors instead of staying inside as staying inside for fun would be a foreign concept to you

What are the 4 implications of demographic characteristics?

1. How to attract consumers
2. How much consumers spend on and what they spend on
3. What makes products appealing
4. How to attract, retain and motivate employees

Explain the key difference between Baby Boomers and GenXers when it comes to work

Baby boomers did not mind changing jobs as long as they stayed within the same company.

GenXers had the idea of the perfect career and so their loyalty was toward a specific job but definitely wanted to move companies

List 2-3 differences in Millenials and GenXers and list 2 demographic factors that affected a specific demographic characteristic that differs them and explain why.

Sample answer:
Differences:
1. Millenials are digital natives and are more likely to use social media
2. GenXers are more risk averse and more focused on security and stability

Demographic characteristics affected:
1. Habits: Gen Xers do not have as much technological integration into their habits so they would be less likely to check social media more often that they'd check the news or watch TV.

2. Values and priorities: Millenials value entrepreneurial opportunities and a greater work life balance

Influential factors:
1. Technology: Millenials were the first to start using technology more as they entered their teenager years whereas GenXers still do remember a time without the internet much more clearly
2. Economic situations: Millenials grew up in a more affluent time and so are more interested in freedom and do not care as much about security and stability. Gen Xers grew up during a large economic recession and so are a lot more frugal.

How would you attract Gen Zs to come work for you? (list 3 reasons)

1. Meaningful Work
2. Digital Natives
3. Work Life Balance
4. Career Advancement
5. Civid Minded/CSR
6. Several Careers
7. Feedback & Recognition

What is the key problem with Canadian demographics right now?

The labour force. There are fewer incoming than outgoing people which is leading to a bulge in the demographic distribution

Describe a business that would be negatively affected by the current trend in demographics in Canada?

Due to less and less people having children, a business that sells toys for kids would likely face difficulty because their target demographic is getting smaller and smaller with time.

What is the demographic trend with Canadian Households? list 2-3 reasons as to why its happening. And explain what demographic factors are influencing those reasons

Current demographic trend: More one-person households.

Reasons:
1. Older population leads to older seniors being widows
2. Millenials are having less children

Demographic factors:
1. Economic boom after WW2 leading to an influx of baby boomers that has now realized itself as many widows are left without their spouses as the Canadian population is primarily baby boomers
2. Economic freedom during the time that Millenials grew up causes them to be more interested in freedom and avoid stability and security which causes them to have less children in exchange for a more exciting and adventurous life.

What is the importance of Society in CSR?

Affect human capabilities and societal attitude shifts

What is the importance of the environment?

Provides resources in the business

What is the importance of investors?

Provide businesses with capital, avoid new regulations

What is the importance of customers?

Provide revenue, avoid increasing regulation

What is the importance of employees?

Provide business with talent, skills and labour

What actions can you take to treat society better?

1. Social entrepreneurship
2. Community partnerships
3. Contribute to social development

What actions can you take to treat the environment better?

1. Avoid greenwashing
2. Sustainable supply chain
3. Servicizing

What actions can you take to treat your investors better?

1. Focus on ROI
2. Responsible reporting
3. Transparency
4. No Insider trading

What actions can you take to treat your customers better?

1. Safe products
2. Fair pricing
3. Ethics in advertising

What actions can you take to treat employees better?

1. Responsible hiring
2. Safe working conditions
3. Opportunities for advancement

Identify and describe the 6 key technology concepts

"If Carl Takes No L'S

Installed Base - #of users
Complementary goods - add-ons that add value to the main product
Technology standards - enable compatibility of complementary goods
Network effect - the value increases as the # of users increase
Lock-in - the size of your initial investment
Switching costs-cost of moving to a different technology

What are the 5 characteristics of innovation

TVM is BS

T: Target Market
V: Value
M: Market Predictability

B: Business Methods
S: Speed

What are 3 ways that small firms compete?

1. Not mainstream
2. Not what they're good at
3. Small margins/market

What are 5 common opportunities that technology creates?

1. Products
2. Improved info use
3. Competitive advantage
4. Lower barriers to entry
5. Customization

What are the 5 common threats that technology creates?

1. Imitation
2) New tech/entrants
3) Info overload
4. Security
5) Disconnected employees/customers

Identify the two key technology concepts that lead to the virtuous/vicious cycle and give an example as to how those concepts caused a specific company to be stuck in the cycle

Sample answer:

Tech concepts:
1) Installed Base
2) Complementary Goods

Example: Blackberry grew to have a smaller installed base which caused less developers to develop complemantary goods which lead to less customers being interested in the product and thereby reducing the installed base.

Describe what an indirect network effect is and its impact on the KSF and KPI of your choice

Sample answer:

An indirect network effect is when an increase in complementary goods leads to a greater installed base.

An positive indirect network effect can directly link to your customer satisfaction and more specifically your market share because the greater your installed base, the greater the size of the market that you own.

Describe the 4 types of innovation and examples of those innovations

Disruptive: Slide Rule to Calculators
Modular: Film to Digital Cameras
Architectural: IBM Mainframes to PCs
Sustaining: Image stabilizing features to cameras

Describe the two parameters we use to identify the type of innovation we face

1. Structural Challenge: Have you had to change how you make your product, how you distribute and sell your product?
2. Knowledge/Capabilities Challenge: Do you need different skilled workers in order to manufacture your product or offer your service

Which kinds of innovation are difficult for large incumbents and why (list 1-2 reasons for each type)

Both Disruptive and Architectural are difficult for large incumbents for two reasons.1. Significant structural changes get more difficult as your supply chain becomes larger and more complex as it is more difficult to sustain2. Disruptive is most often avoided since you are mainly improving existing products in expected ways to maintain your customer base instead of achieving something completely different.

Which kinds of innovation are difficult for small firms and why (list 1-2 reasons for each type)

Both modular and sustaining innovation are difficult for small firmsModular: Significant challenges in knowledge are difficult to overcome for small firms as they do not have the resources to higher completely differnetly skilled workers.Sustaining: As small firms represent a small overall market share, without being able to have a distinct competitive advantage, they are often beat in price wars against large incumbents.