Business Fundamentals Exam Review

A set of flashcards designed to help students review key concepts and vocabulary for their business fundamentals exam.

Willingness to Pay (WTP)

A concept signifying the maximum price a consumer is willing to pay for a good or service, reflecting their perceived value.

Income Statement

A financial document that shows a company's revenues, costs, and expenses during a specific period, used to calculate net profit or loss.

Uses Accrual Accounting

Revenue

The total income generated from the sale of goods or services before any expenses are deducted, forming a key component of the Income Statement.

Net Profit / Net Income

The final profit earned by a company after all expenses, including taxes and interest, have been deducted from revenue, as shown on the Income Statement.

Gross Profit

The profit a company makes after deducting the Cost of Goods Sold (COGS) from its total revenue, before operating expenses are factored in.

Breakeven Point

The number of units that must be sold to cover total fixed and variable costs, resulting in zero net profit and fully recovering all expenses.

(Fixed cost) / (Price per unit - variable cost per unit)

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, insurance, and administrative salaries.

Variable Costs

Expenses that fluctuate in direct proportion to the volume of goods or services produced, such as raw materials and direct labor.

Value utility - Business Value Creation

The process of enhancing the worth of a product or service to customers and capturing that value for the business, often leading to competitive advantage.

Accrual Accounting

An accounting method where revenue is recognized when earned and expenses are recognized when incurred, irrespective of when cash is exchanged.

Cash Flow Statement

A financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company, categorized into operating, investing, and financing activities.

Investing Activities

Cash flows related to the purchase and sale of long-term assets, such as property, plant, and equipment, and other investments.

Financing Activities

Cash flows from debt and equity transactions, including issuing stock, borrowing loans, repaying debt, and paying dividends.

Balance Sheet

A financial statement that provides a snapshot of a company's assets, liabilities, and equity at a specific point in time, following the accounting equation: Assets = Liabilities + Equity.

Equity

The residual value of assets after subtracting liabilities, representing the owners' stake in the company.

Operating Activities

Transactions related to the everyday core operations of a business, including revenue generation and expenses, directly impacting net income.

Supply Chain

The entire system of production, processing, and distribution of goods and services, from raw material suppliers to end customers.

Customer Lifetime Value (CLV)

is the total amount of money a firm stands to collect from a customer over time. 

Customer Acquisition Cost (CAC)

 is the sum of the money firms pay to buy customers. (sales, marketing, retention) 

Cost of Goods Sold (COGS)

The direct costs attributable to producing the goods sold by a company, including material costs, direct labor, and manufacturing overhead.

Consumer Price Index (CPI)

An economic indicator that measures changes in the average price level of a basket of consumer goods and services typically purchased by urban households, reflecting inflation.

Fiscal Policy

Government adjustments in spending levels and tax rates to influence a nation's economy, aiming to stimulate growth or control inflation.

Monetary Policy

Central bank actions that manage the money supply, interest rates, and inflation to control economic growth and maintain price stability.

Maslow's Hierarchy of Needs

A motivational theory comprising five tiers of human needs, often depicted as a pyramid, ranging from physiological survival to self-actualization. The tiers include Physiological, Safety, Love/Belonging, Esteem, and Self-Actualization.

Self-actualization is fufilled once lower levels are met

Economic system of the United States (Overview)

A mixed economy that combines elements of capitalism and government intervention. This means it encourages free markets and private enterprise while also allowing for government regulations and public services.

Key economic indicators

• GDP

• Inflation

• Unemployment

• Productivity

• Business Cycle

• Fiscal and Monetary Policy

GDP (Gross Domestic Product)

Measures the economic performance

Inflation (how it is measured and impacts)

Typically measured by the Consumer Price Index (CPI) and impacts purchasing power, cost of living, and economic stability.

Productivity and how it affects the economy

Refers to the efficiency of production in an economy, often measured by output per hour worked. Higher productivity leads to increased economic growth, improved living standards, and enhanced competitiveness.

Business Cycle and Fluctuations in economy

Describes the fluctuations in economic activity over time, including periods of expansion and contraction. Characterized by phases such as recovery, peak, recession, and trough.

Supply and Demand Curves (X-axis and Y-axis significance)

Supply and demand curves illustrate the relationship between price and quantity in a market. The X-axis represents quantity, while the Y-axis represents price, highlighting how supply and demand interact to determine market equilibrium.

Equilibrium on supply and demand curve

The intersection between the quantity supplied and the quantity demanded in a market resulting in a stable market price. Where supply meets demand sets the price.

Components of the income statement

• Revenue

• Cost of Goods Sold

• Gross Profit

• Fixed Expenses

• Net profit

Difference between legal and ethical behavior

Legal behavior refers to actions that comply with laws and regulations, while ethical behavior encompasses moral principles guiding one's actions, even if they may not be legally required.

Gut check questions for ethical dilemmas

1. Is it legal?

2. Is it balanced?

3. How will it make me feel about myself?

Leadership Styles

• Command-and-Control Leadership

• Transactional Leadership

• Transformational Leadership

• Consensus-Building Leadership

• Collaborative / Network Leadership

• Strategic (Value-Chain-Oriented) Leadership

Command and control leadership style

A leadership style characterized by clear top-down authority and decision-making, where leaders dictate policies and procedures with little employee input.

Consensus building leadership style

A collaborative approach to leadership that emphasizes participation and input from team members, fostering agreement and shared decision-making.

Metaphors for leadership

• Shepard (guiding)

• Sheepdog (protecting)

• Wolf (authoritarian)

Herzberg’s Motivators and hygiene factors

Hersberg's Two-Factor Theory distinguishes between hygiene factors that prevent dissatisfaction and motivational factors that promote job satisfaction in the workplace.

Motivators drive employees to be better, while Hygiene factors are dissatisfied when they are absent. 

Hawthorne

The Hawthorne studies demonstrated that employees' productivity increased when they felt valued and included in decision-making.

refers to individuals changing their behavior when they know they are being watched.

Porter

Porter's Five Forces framework outlines industry competitiveness by analyzing five key forces: competitive rivalry, threat of new entrants, threat of substitutes, bargaining power of suppliers, and bargaining power of buyers.

Frederick Taylor

The father of scientific management, Frederick Taylor developed principles that aimed to improve industrial efficiency by analyzing workflows and optimizing tasks. His methods emphasized standardization, time studies, and division of labor to enhance productivity.

Sole proprietorship (advantages and disadvantages)

A sole proprietorship is a business owned and operated by a single individual. Advantages include full control by the owner and tax simplicity, while disadvantages comprise unlimited personal liability and challenges in raising capital.

Partnership (Advantages and Disadvantages)

A partnership is a business structure where two or more individuals share ownership and management responsibilities. Advantages include shared resources and expertise, while disadvantages involve potential conflicts among partners and shared liability for debts.

LLC ( Advantages and Disadvantages)

A Limited Liability Company (LLC) is a flexible business structure that combines elements of partnerships and corporations. Advantages include limited personal liability for owners and pass-through taxation, while disadvantages may involve differences in state regulations and potential for self-employment taxes.

C corporation (Advantages and Disadvantages)

A C corporation is a legal entity separate from its owners, providing limited liability protection. Advantages include unlimited business growth potential and transferability of ownership, while disadvantages involve double taxation on profits and increased regulatory requirements.

S corporation (Advantages and Disadvantages)

An S corporation is a special type of corporation that allows income to be passed through to shareholders, avoiding double taxation. Advantages include limited liability and tax benefits for distributions, while disadvantages may consist of restrictions on the number of shareholders and additional IRS scrutiny.

Initial Business Structure Reccomendation

Start with Sole Proprietorship or LLC for liability protection and tax efficiency

Entrepreneurial Risks

refers to the potential for financial loss, business failure, or negative impacts on personal well-being that entrepreneurs may face when starting or running a business.

time and capital

Attributes of Successful entrepreneurs and their significance in the economy

Attributes of successful entrepreneurs include resiliency, adaptability, and risk tolerance. These traits contribute to economic growth by driving job creation, fostering competition, and enhancing productivity.

3 benefits of owning stock/ownership

include decision-making control, profit sharing, and realizing gains on selling shares.

Ex. Using a cow for all three benefits of ownership

Key financial Statements

• Income Statement

• Balance Sheet

• Statement of Cash Flows

Statement of Cash Flows

Cash movements represented in operating, financing and investing activities.

Working Capital

Current assets minus current liabilities

Emphasizes importance in operations

Assets

Resources owned by a business that are expected to provide future economic benefits. Assets include cash, inventory, property, receivables and equipment.

Sell Side of Risk

Companies (private and public) who want to grow, sell equity/debt risk to fund their growth.

Buy side of RIsk

Investors (professionals and individuals) buy equity/debt risk to achieve ROI (Return on Investment).

Risks on the buy side from leas to most (Asset Classes)

• Cash or cash like interests

• BONDS

• Securities

• Alternative assets - crypto, real-estate, private equity

  • Good one returns 25% or more

COW 3X : Facets of Ownership

A framework outlining the three key aspects of ownership in an investment context: Decisions, profits, and gains.

Pro rata and decisions

The amount of percentage you own the more say you have in a company

Profit

• Net profit

• Comes out bottom of income statement

Gain

• You can only gain once

• Ex. Buy stock for 260, sell for 300, make 40 but only once

Profit vs. gain

Profit refers to the net income earned after all expenses have been deducted, whereas gain typically refers to the increase in value of an asset when it is sold for more than its purchase price.

Profit is selling milk from the cow, gain is selling the cow

Publics vs. privates

• Public is on a stock exchange anyone can buy stock

• Private is on its own, more in United States

What is a loan (P + I)

A loan (principal + interest) is a sum of money that is borrowed and must be repaid with interest over a specified period. The principal is the original amount loaned, while interest is the cost of borrowing.

What does it mean to sell stock

Selling stock means offering shares of a company for sale to investors, allowing them to buy ownership in the company. The proceeds from the sale can provide capital for the company and returns for the seller.

Liabilities

Legal obligations or debts owed by a business, arising from past transactions or events that must be settled in the future.

Loans

What is the goal of assets

To turn it into revenue

Capital growth sources

Refers to the various ways a company can increase its assets over time, often through investments or reinvestments that enhance the value of its existing assets.

Debt financing

is a method of raising capital by borrowing funds, typically through loans or the issuance of bonds, which must be repaid with interest.

Equity Financing

is a method of raising capital by selling shares of ownership in the company, allowing investors to gain a stake in its future profits and growth.

Tall Operational structure

A type of organizational framework characterized by many hierarchical levels, where communication tends to flow vertically. This structure can lead to greater control but may slow down decision-making processes.

Flat organizational structure

A type of organizational framework characterized by fewer hierarchical levels, promoting a more horizontal communication flow. This structure encourages faster decision-making and greater employee involvement.

Operations

Actually delivering the good or service and deal with levers to raise revenue

Operating

the ongoing activities and processes involved in producing and delivering goods or services to customers.

Operations focus

on optimizing efficiency and effectiveness in the production and delivery processes to maximize profitability.

Revenue and cost levers informing business success and examples

• Sell more

• Raise price

• Reduce costs

• Reduce expenses

• Be smart about tax

Productivity enhancements influenced by technological advancements

Improvements in efficiency and output driven by technology, such as automation, software tools, and digital platforms that streamline workflows and reduce manual errors.

Value Creation Framework (CCD)

Create, Communicate, Deliver Value

Market analysis framework (STP)

• Segmentation

• Targeting

• Product Positioning

2 types of segmentation

• Geographic Segmentation

• Demographic segmentation

Creating

• 4 P’s of marketing

• STP

Four P’s of Marketing

• Product

• Price

• Place

• Promotion Strategy

Communicating

• Messaging

• Branding

• Advertising

• Marketing

Delivering

• Distribution channel

• Packaging

• Loyalty - CLTV

Conjoint analysis

• Which features of a product or service a business focus on

• Determine how consumers value different attributes of a product or service

Supply chains

move products, information, and money.

made up of suppliers, manufacturers, distributors, retailers and customers. One delay or chain in one area affects every other stage so effective coordination of the supply chain through innovative, technological solutions is required to keep inventory levels in check and profits flowing. 

The Bullwhip effect and its communication importance in the supply chain, and its amplification

• The phenomenon where small fluctuations in demand at the consumer level can lead to larger and larger fluctuations in demand at the wholesale, distributor, manufacturer, and raw material supplier levels.

• Effective communication within the supply chain is vital to minimize these distortions and enhance overall efficiency.

What are the global supply chain Participants

The various stakeholders involved in the global supply chain, including suppliers, manufacturers, distributors, retailers, and customers, each playing a critical role in the production and delivery process.

Stakeholders

involved in the supply chain process. They include anyone who has an interest or investment in the operations, resources, and outcomes of supply chain activities.

What are the roles of the participants in supply chain dynamics

suppliers provide raw materials, manufacturers create products, distributors move goods to retailers, and retailers sell to customers. Their collaboration ensures efficiency and responsiveness to market demands.

Tariffs

Taxes imposed on imported goods to regulate trade and generate revenue.

What are tariffs’ implications on consumers

Tariffs can lead to higher prices for imported goods, resulting in increased costs for consumers. They may also limit choices by reducing the availability of foreign products.

What are tariffs implications for producers

Tariffs can increase production costs for producers who rely on imported materials and components. This may lead to reduced profit margins, higher prices for domestic consumers, and potential shifts in production strategies.

What are tariffs implications on the government

Tariffs generate revenue for the government, providing funding for public services and infrastructure. They can also be used as a tool for trade policy to protect domestic industries.

What is the impact of AI and how does technology alter business fields

AI and technology can enhance productivity, streamline operations, and create new business models. They enable data-driven decision-making and can lead to job displacement while fostering innovation and competition.

What are the shifts in economic policy

Shifts in economic policy refer to changes in government strategies regarding taxation, spending, and regulation aimed at influencing economic performance. These changes can impact inflation rates, employment levels, and overall economic growth.

When faced with a potentially unethical action, this was not one of the 3 "gut check questions" we might ask ourselves:

1. Is this balanced

2. Is this legal

3. How will I feel about myself

4. Is this equitable 

4. Is this equitable

Based on total global wealth and the total global population the mathematical majority of rational humans should vote for wealth re-distribution.

1. True 

2. False

1. True