Global Business Exam 2

Goods produced domestically but sold to customers in foreign countries

Exports

Goods purchased domestically but produced in a foreign country

Imports

1. exports>imports

2. exports<imports

1- trade surplus

2- trade deficit

Specializing in the production of goods or services with the lowest opportunity cost

Comparative Advantage

Countries carry out a particular economic activity more efficiently than other countries

Absolute Advantage

Value of the next best alternative. Able to focus on areas/activities you excel, and trade with countries that have a comparative advantage elsewhere

Opportunity Cost

Negotiates trade rules, settles trade disputes, facilitates global trade

World Trade Organization

Barriers to International Trade + what do they include

1-Physical and Technical Barriers (transportation costs, geographic challenges, non-tradable goods/services)

2-Political Barriers (tariffs, quotas, non-tarrif barriers)

Allows for a foreign company to produce its products and utilize its trademarks for a royalty fee

International Licensing and FranchisingAl

allows companies to access international markets and avoid expensive startup costs by letting foreign factories produce its products

Contract Manufacturing

partnership between two or more companies in different countries

Joint Ventures and Strategic Alliances

Purchase of permanent capital goods such as a factory or business in another country

Foreign Direct Investment

When a parent company in a home country has ownership of a company in another country

Subsidiaryis a business entity controlled by a parent company, which holds a majority stake in its operations.

Advantages of Trade

1. Increases competition (lowers prices, encourages innovation)

2. Provides access to new markets

3. Diversifying across different markets

Disadvantages of trade

1. potential negative impact on some domestic firms

2. loss of jobs in some industries

   1. negative impact on the environment

The skills, knowledge, and experience possessed by an individual or population of an organization

Human capital

factors that attract top human capital

Compensation and benefits, location, intellectual challenge, company culture, reputation, corporate social responsibility, brand perceptions, impressions of coworkers, size

ways to attract external job candidates

1. advertising in various sources

2. hiring search firms or recruiters

3. recruiting on college campuses

4. using temp agencies

5. offering incentives to current employeessocial media recruiting

examples of selecting human capital

1. job applications

2. intelligence tests (cognitive)

3. personality tests

4. interviews

Types of interviews + what they are

1. Structured-all applicants are asked the same job-related questions

2. Unstructured-interviews that managers use to craft their own questions for each of the candidates

   1. Semi-Structured-combination of structured and unstructured interview questions

Legally defensible performance evaluations

1. objective, unbiased, reliable, valid

2. multiple raters who’ve been trained

3. inclusion of comments and the explanation of ratings

4. well-defined anchors of ratings or descriptions

5. means for filing an appeal

How does a legal structure affect the business?

1. how profits are distributed

2. types of taxes that will be paid

3. the owner’s levels of exposure to personal loss

4. sources of future financing

Sole proprietorship advantages + disadvantages

advantages: be your own boss, no sharing of profits, avoid double taxation, ease of formation/dissolution

disadvantages: unlimited liability, difficult to raise funds and attract human capitallimited growth potential, reliance on personal finances P

General partnerships vs limited partnerships

general: sharing of profits or losses, joint ownership, shared financial responsibility and running of the business, develop formal contract, unlimited liability

limited: share profits, joint ownership, no formal decision-making power, limited liability

partnerships advantages + disadvantages

advantages: combined skills, relative ease of formation, avoid double-taxation as personal income for the partners

disadvantages: unlimited liability for GPs, risk of disagreement, difficult to end

Types of corporations + descriptions

C-corporation: limited liability, double taxation

S-corporation: limited liability, no double taxation-at share holder level, restrictions on status (ex: no more than 100 owners)

Limited Liability Corporation: limited liability, no double taxation, no shareholder restriction

Corporations advantages + disadvantages

advantages: limited liability, ability to raise funds, transfer of ownership, longevity, attracting human capital

disadvantages: double taxation on c-corps, difficult/expensive to form, additional gov’t regulations

Mergers and Acquisitions

Mergers: occurs when two companies enter into an agreement to operate as a new company

Acquisition: one company acquires another company, usually by purchasing it from its owners

Franchises, type of licensing:

-owner

-user

-initial fee

-ongoing fee (% of revenue)

-terms and conditions

-franchisor

-franchisee

-franchise fee

-royalties

-franchise agreement

Franchises advantages + disadvantages

advantages: established brand name, support from franchisor, access to capital, national advertising

disadvantages: initial/ongoing fees, rules/regulations, limited control/flexibility, multiple disconnected franchisees

What company is devoted to keeping the business world as honest as possible through regulation, responsible for detecting and preventing accounting fraud

Securities and Exchange Commission (SEC)

Financial Accounting

external stakeholders, report & analyze past transactions, provide financial statements, deadlines determined by external entities

Managerial Accounting

internal stakeholders, develop future projections, provide information for devision makers, deadlines at the discretion of the organization

Managerial Accounting

information for internal stakeholders, used in decision making, info is proprietary (not for public viewing), not subject to external regulation (no GAAP)

Financial Accounting Standards Board (FASB) vs International Accounting Standards Board (IASB)

FASB-generally accepted accounting principles (GAAP)

IASB-international financial reporting standards (IFRS)

Financial Statements

balance sheet, income statement, statement of cash flows

Balance sheet

Assets=liabilities + owner’s equityA

Assets

what’s owned by or owed to the firml

iabilities

what’s owed by the firm to creditorsowner

‘s equity

what’s owed by the firm to its owners

Statement of cash flows

identifies where cash is coming in and how it’s being used

-operating activities, investing activities, financing activities

Ratio analysis

-profitability ratios (earnings per share, return on equity, return on assets) (ability to transform resources into net income)

-liquidity ratios (current ratio) (ability to pay short-term bills)

-leverage ratios (debt to owner’s equity) (reliance on debt to finance operations)

Managerial Accounting Budgeting + definitions

-operating budget (pro forma income statement): projects revenue and costs

-financial budget (pro forma statement of cash flows): projects cash flow and helps plan capital expenditures

-master budget: ties all budgets together

Direct vs indirect costs

Direct costs of production: raw materials, labor, etc

Indirect costs: supplies, rent, overhead, etc

Fixed vs variable costs

Fixed Costs-equipment, insurance, etc

Variable costs-raw materials, labor, etcC

ost Accounting

direct vs indirect costs, fixed vs variable costs, opportunity costs

the accounting profession

auditing (internal/private, external/independent/public), tax accountants, gov’t accountants, nonprofit accountants

Auditors

all publicly traded companies are required to have independently audited financial statements

-evaluate a company’s financial statements (accurate, relevant, reliable, consistent, comparable)

-ensures the independence of the audit process (places additional restrictions on the relationship between auditors and the firm)