Business Final

CHAPTER 1

Characteristics of a Nonprofit

  • Organization that exists to serve a mission, not to make profit.

  • Any extra revenue is reinvested into its cause.

  • Exempt from taxes.

  • Examples: charities, schools, churches.

4 Factors of Production

  1. Land – natural resources (water, minerals, timber).

  2. Labor – human work/effort (employees, managers).

  3. Capital – tools, machinery, buildings, money.

  4. Entrepreneurship – people who take risks to start and run businesses.

5 Key Dimensions of the Business Environment

  1. Economic environment – overall economy, interest rates, unemployment.

  2. Competitive environment – rivals in the same market.

  3. Technological environment – new innovations & systems.

  4. Social environment – customer values, demographics, culture.

  5. Global environment – international markets, trade, world events.

Profit

The money left after expenses are subtracted from revenue.

  • Profit = Revenue – Expenses.

CHAPTER 2

FDIC

  • Federal Deposit Insurance Corporation.

  • Insures bank deposits up to $250,000 per depositor per bank.

Purpose of Our Economic System

  • To allocate resources efficiently and provide goods and services people want.

  • In the U.S., the system is mixed market capitalism (mostly markets + some government).

Federal Reserve – Components & Structure

  • Central bank of the U.S.

  • Components:

    • Board of Governors

    • 12 Regional Federal Reserve Banks

    • Federal Open Market Committee (FOMC)

How the Federal Reserve Is Set Up

  • Independent government agency.

  • Controls the money supply, interest rates, and regulates banks.

Effects of Competition in Business

  • Lower prices

  • Higher quality

  • More innovation

  • More choices for consumers

Supply Curve – What Happens When Prices Go Up or Down?

  • Price ↑ → Quantity supplied ↑

  • Price ↓ → Quantity supplied ↓
    (This is the law of supply.)

GDP

  • Gross Domestic Product.

  • Total dollar value of all goods and services produced in a country in one year.

CHAPTER 3

Exporting

  • Selling goods to other countries

Free Trade

  • Trade without tariffs, quotas, or restrictions.

Opportunity Cost

  • The value of the next-best alternative you give up when making a decision.

Comparative Advantage

  • When a country/business can produce something at a lower opportunity cost than another country.

Offshoring

  • Moving production or jobs to another country to reduce costs.

CHAPTER 4

Social Responsibility

  • A business’s duty to act in the best interest of society (ethical behavior, sustainability, fairness).

Foreign Corrupt Practices Act

  • U.S. law that prohibits bribing foreign officials for business advantage.

Stakeholders

  • Anyone affected by a business’s actions (employees, customers, community, shareholders, suppliers).

CHAPTER 5

Choosing the Best Communication Channel

  • Pick based on urgency, sensitivity, and audience.
    Examples:

  • Email → formal, documentation

  • Phone → quick clarification

  • Face-to-face → sensitive or complicated matters

  • Text → simple, fast communication

Characteristics of Good Business Writing

  • Clear

  • Concise

  • Professional tone

  • Correct grammar

  • Purposeful / organized

CHAPTER 6

Characteristics of Each Business Structure

Sole Proprietorship

  • One owner

  • Easiest and cheapest to start

  • Unlimited liability

  • Owner keeps all profits

Partnership

Two or more owners

  • Shared skills + shared liability

  • Partnership agreement recommended

Corporation

  • Legal entity separate from owners

  • Limited liability

  • More regulations + double taxation (C-corps)

LLC (Limited Liability Company)

  • Hybrid of corporation & partnership

  • Limited liability + pass-through taxation

Franchise

  • Business model where you buy the right to use a parent company’s name, products, and system.

CHAPTER 7

Characteristics of Entrepreneurs

  • Risk-takers

  • Creative / innovative

  • Independent

  • Persistence & problem-solving

  • Opportunity-driven

Business Plan

  • Written document describing a business’s goals, structure, financial needs, and strategies.

Venture Capitalist vs. Angel Investor

  • Venture capitalist: invests large amounts, usually through a firm, expects high return + ownership.

  • Angel investor: wealthy individual investing their own money earlier and smaller amounts.

CHAPTER 8

GAAP

  • Generally Accepted Accounting Principles – rules for financial reporting in the U.S.

Types of Accountants

  • Public accountant – works for multiple clients.

  • Private accountant – works for one company.

  • Government accountant – works for government agencies.

  • Auditor – verifies accuracy of financial records.

4 Basic Categories of Financial Ratios

  1. Liquidity – ability to pay short-term debts

  2. Profitability – ability to earn profit

  3. Leverage (Debt) – how much debt vs. equity

  4. Efficiency – how well assets are used

Accounting Equation

Assets = Liabilities + Owner’s Equity

Parts of an Income Statement

  • Revenue

  • Expenses

  • Net income or loss

Parts of a Balance Sheet

  • Assets

  • Liabilities

  • Owner’s equity

3 Possible Auditor Opinions

  1. Unqualified (clean) – statements are correct

  2. Qualified – mostly correct with minor issues

  3. Adverse – major problems; statements unreliable

CHAPTER 9

Financial Ratios – Characteristics

  • Compare parts of financial statements

  • Show performance, risk, and financial health

  • Allow comparisons across companies

Equity vs. Debt Financing

  • Equity: selling ownership (stock)

  • Debt: borrowing money (loans, bonds)

CHAPTER 10

Financial Services Modernization Act of 1999

  • Allowed banks, insurance companies, and investment firms to merge and offer each other’s services.

Rights of Common Stockholders

  • Vote on major company issues

  • Receive dividends

  • Right to sell shares

  • Residual claim after debts if company closes

Mutual Funds – Advantages & Disadvantages

Advantages:

  • Diversification

  • Professional management

  • Affordable

Disadvantages:

  • Fees

  • No guarantee of returns

  • Less control than picking your own stocks

IPO Process

  • Initial Public Offering = first sale of stock to the public
    Steps:

  1. Hire investment bank

  2. File with SEC

  3. Price shares

  4. Sell to market

Dividends

  • Part of a company’s profit paid to shareholders.

CHAPTER 11

Mass Customization

  • Using technology to let customers personalize products (ex: Nike shoes).

Demographics

  • Statistical traits of a population (age, income, gender, education).

Consumer Behavior

  • How people decide what to buy and why.

Primary vs. Secondary Data

  • Primary: collected directly (surveys, interviews).

  • Secondary: existing data (reports, databases, articles).

Green Marketing

  • Selling products based on environmental benefits.

CHAPTER 12

Product Differentiation

  • Making your product stand out through features, quality, style, price, or branding.

CHAPTER 13

Distribution Strategies

  • How products reach customers (retailers, wholesalers, direct online, etc.)

Breakeven Analysis

  • Point where total revenue = total costs
    Breakeven formula:
    \text{Breakeven quantity} = \frac{\text{Fixed Costs}}{\text{Price} - \text{Variable Cost per Unit}}

Fixed Cost

  • Costs that stay the same regardless of production (rent, salaries).

Variable Cost

  • Costs that change with production (materials, labor per unit).

Supply Chain

  • Entire flow of goods from raw materials to customer.

CHAPTER 14

Management

  • Coordinating resources to achieve organizational goals.

Four Areas of Management

  1. Planning – setting goals

  2. Organizing – structuring resources

  3. Leading – motivating and guiding

  4. Controlling – monitoring performance

Leadership Styles

  • Autocratic – leader makes decisions

  • Democratic – group participates

  • Free-rein – employees make decisions

Types of Management Skills

  • Technical

  • Human/Interpersonal

  • Conceptual

Levels of Management

  • Top managers

  • Middle managers

  • First-line managers

SWOT Analysis

  • Strengths

  • Weaknesses

  • Opportunities

  • Threats

Types of Planning

  • Strategic (long-term)

  • Tactical (short-term)

  • Operational (day-to-day)

  • Contingency (back-up plan)

Mission Statement

  • Describes the organization’s purpose.

Theory X

  • Assumes employees are lazy & need close supervision.

Theory Y

  • Assumes employees are motivated & trust-worthy.

CHAPTER 15

Types of Interviews

  • Structured

  • Unstructured

  • Behavioral

  • Panel

  • Phone/video interviews

Types of Compensation & Benefits

  • Salary/wages

  • Bonuses

  • Health insurance

  • Retirement plans

  • Paid time off

  • Perks (gym, tuition reimbursement)

Labor Laws – ADA of 1990

  • Americans with Disabilities Act

  • Prohibits discrimination against people with disabilities

  • Requires reasonable accommodations.

CHAPTER 16

Hardware vs. Software

  • Hardware: physical components (CPU, keyboard).

  • Software: programs & apps.

Cloud Computing

  • Storing data and running software online instead of on a personal computer.

Hackers

  • People who gain unauthorized access to systems.

Digital Wallets (Cybermediaries)

  • Apps storing payment info (Apple Pay, Google Wallet).

RFID

  • Radio-frequency identification; chips used for tracking items.

Phishing

  • Fake emails/messages that try to steal personal information.

CHAPTER 17

Good vs. Service

  • Good: physical, tangible product

  • Service: intangible action performed for you

Durable vs. Nondurable Goods

  • Durable – last 3+ years (furniture, cars).

  • Nondurable – consumed quickly (food, shampoo).

TQM (Total Quality Management)

  • Company-wide effort to continuously improve quality.

Facility Location Considerations

  • Cost of land

  • Labor availability

  • Transportation access

  • Proximity to customers

  • Taxes & regulations