GB 490 Gentry :FINAL

Accounting

The language of business, provides quantitative info that enables managers to make informed business decisions

Balance sheet equation

Assets = Liabilities + Owner's Equity

Balance sheet

Financial report that presents a snapshot of the assets of the firm, and the claims upon those assets, at a particular point in time

Income statement

financial report that is a measure of the flows of business over a period of time expressed in terms of profit and loss

Cash flow statement

Specifies in detail how the cash on the balance sheet changes from period to period

There are _ steps to reading annual reports

seven

Maximize behavior by

happiness, profits, public awareness

____ are venues, physical or virtual, where buyers can come together to buy and sell products and services.

Markets

Markets are created by people interested in improving their own situation as they see fit and produce trades that both buyers and sellers agree to

True

Supply curve is ____ sloping and reflects the quantity of a good a producer is willing to supply at a price

upward

Demand curve is ____ sloping and reflects the quantity of a good that consumers are willing to buy at any given price

downward

Demand

At a very high price many consumers would be unwilling or unable to buy, whereas many would be willing to buy at very low prices.

Supply

The supply curve slopes upward because producers will be willing to sell more when the price they receive is higher

Equilibrium

The intersection of the supply and demand curve reflects the interaction of all the forces in the market for the particular good or service being examined

Factors that determine shape and position of demand curve

1. The level of income of consumers

2. The prices substitute goods or services

3. The prices of complementary goods or services

4. Tastes- the broad preference for a particular good or type of good.

Opportunity cost

The opportunity cost is the cost of the next best available use of those resources, i.e. the value you give up when you choose a particular use for some resource

Macroeconomics

provides tools and concepts that help us think about and predict: level of unemployment, rate of inflation, rates of economic growth, level of interest rates, policies governments pursue to influence these

Microeconomics

Focuses on understanding individual or firm-level choices: how much should our firm produce? what prices should we charge? how profitable will we be?

GDP equation

C+I+G+Trade

Fiscal policy

refers to the use of government expenditures and taxation to influence the level of aggregate demand

Monetary policy

determined by central bank - the federal reserve system

Policy is determined by the Board of Governors and the regional Federal Reserve Banks

Seven members of the board and five of the 12 presidents make up something called the Federal Open Market Committee

Two routes of Monetary policy

Changes in the level of interest rates in the economy, changes in the availability of credit to firms and individuals

Interest rates are the price of credit

True

If the Fed wanted to stimulate the economy by increasing aggregate demand, it would lower interest rates and increase the money supply.

True

Nominal rates

Real rate + expected inflation

the interest rate we observe in the market or see reported by the press

Balance of payments

a statistical record of all the cross-border transactions engaged in by the residents of a country

The current account balance

measures all the transactions involving goods and service trades and unilateral transfers or foreign aid

Ethical issues are usually concerned with

rights and duties, principles such as fairness, harms and benefits

There are usually two levels of ethical issues

Personal level, interpersonal or social level

Ethical relativism

the view that each person is the sole arbiter for right and wrong; it prevents us from reasoning all together

Principle of societal responsibility

a more modern view than the Carnegie ideas; view that business has an obligation to act in the interests of society

Successful marketing efforts focus on satisfying ____

customer needs

Market segmentation

dividing the full range of customers into groups based on key variables to the firm

Positioning

gives specific focus to a firm's strategic planning, delivering value to customers through tactical decisions

Four P's

Product, Price, Place, Promotion

Product

The value to the customers typically takes place in the form of a product or service. The tangible object is part of the overall product being offered. The larger offering, not just tangible, is the focus of marketing strategy and tactics in delivering value to customers.

Price

The price the customer pays for a product involves its purchase price in monetary units. Price represents the only direct control over revenues that the firm can yield

Place

Firms rarely single-handedly manufacture a good and take it to market, selling directly to the consumer. Instead, they rely on intermediaries in a marketing distribution channel for transport, stock, and redistribution of goods

Promotion

A great product will not sell unless a firm is able to communicate the product's value.

Investors

Individuals or institutions

Intermediaries

Firms that link issuers and investors. Banks, Investment banks, and Insurance companies

Issuers of securities (sellers)

Raisers of capital through the issuance of financial instruments, i.e. common stock

Valuation analysis is the core skill and is guided by five principles

1. Think like an investor

2. Invest when the intrinsic value of an asset equals or exceeds its cost

3. Sell securities when the cash received equals or exceeds the value of securities sold

4. Ignore options at your peril: they are pervasive and can strongly influence a decision

5. If you get confused, see principle #1

Time value of money

a dollar today is worth more than a dollar one year from now

Future values

future value of a dollar invested today. Investment ($) x(1+r)

Present values

today's value of some future value. ($) / (1+r)

Free cash flows

the value of the investment equals the discounted value of the future cash flows less the outlay amount

Weighted average cost of capital

a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.

Four factors determine the extent to which an investment creates or destroys value:

1. the internal rate of return on investment

2. the investor's required rate of return

3. the reinvestment in the project: what percent of the cash thrown off you plow back into the project each year

4. The length of the project's life

The five C's of Credit

Cash flow: Is the firm's expected cash flow large enough to meet the debt payments

Collateral: If we have to foreclose on the loan, are there sufficient assets in the firm that we could sell to repay the loan?

Conditions: Do the current economic conditions favor timely debt payments?

Course: Is the use to which these funds will be put appropriate? Is the general strategy of this firm on course?

Operations management

encompasses the activities and processes by which the firm creates and delivers value

Capacity

maximum output a process can generate over a given period

Bullwhip effect

Without thoughtful management, variability and uncertainty propagate along a supply chain, creating a _____ effect of increasing impact along the chain.

The purpose of business is to create ____ for people

value

Strategy

defines the purpose, intent, and mission of the firm

Three levels of strategy

corporate, business, functional

Corporate strategy

Concerns firm's values, and its financial and nonfinancial goals

Competitive strategy

How a firm competes in a given industry and creates a valuable position in the industry

Functional strategy

Reinforce the firm's competitive strategy and define activities and processes to enable the firm to achieve the benefit of its competitive position

Two sources of superior value creation

Low cost, differentiation

Cost leadership

performing activities and processes in less expensive ways than competitors, while matching quality

Differentiation

delivering nonprice value for which customers are willing to pay and is more than simply offering a different or better product

Common-size statement

expresses each significant line in the income statement in terms of percentage of sales

Liquidity

how much cash the company has generated and what can be quickly converted to cash

Solvency

refers to the company's ability to meet its obligations

Efficiency

how well a company uses its assets and liabilities

Profitability

a company's ability to generate earnings compared to expenses

Terminal value

the final year of the forecast period is added to reflect the present value of all cash flows occurring thereafter

Ideation stage

develop an idea that has a reasonable chance of producing a positive business opportunity

Concept development stage

explores a range of possible product or service concepts designed to meet the identified customer need

Design and build stage

shifts the focus of the project into execution

Launch stage

the actual rollout of the product, typically over some ramp-up period and perhaps regional rollout pattern

A well planned portfolio of products and shared architecture help to balance ______.

trade-offs

Platforms

define the major groupings of products in a product line

Modules

allow companies to mix and match components and subsystems to produce variety with limited complexity

Differentiators

components of the product architecture that are difficult to imitate

Entrepreneurship

creating a new enterprise with resources, tangible or otherwise, that are in your control

Primary sources

those that exist within us: experiences, knowledge, and information that are personal

Secondary sources

experiences of other people and institutions, and often involve deliberate search among sources outside of our own self and experience

Bootstrapping

the strategy of using commonly available resources to break out of the vicious cycle