BUS261 Class 12 _ Finance 2

Understanding the Entrepreneurial Process

• Identifying Opportunity

  • Key aspect of entrepreneurship; involves recognizing unmet needs in the market.

• From Opportunity to Business

  • Transitioning a recognized opportunity into a viable business model involves research, planning, and execution.

• Financing

  • Securing adequate funding is crucial for startup operations and growth. Various sources include personal savings, loans, investors, and grants.

• Business Plan Pitch

  • Crafting a persuasive business plan to communicate the business vision to potential investors and stakeholders.

• Cashing In

  • Strategies for profitability, managing revenue streams, and considering exit strategies.

Business Overview

• Business Ethics

  • Importance of ethical practices within businesses. Ethical considerations impact reputation and long-term success.

• Support Functions

  • Understanding the roles of different departments:

    • Accounting

    • Sales

    • Operations

    • Marketing

    • Finance

    • HR

Financial Concepts to Understand

• Time Value of Money

  • Fundamental principle stating that a dollar today is worth more than a dollar in the future due to potential earning capacity.

    • Example:

      • Investing $100 at 10% interest compounds to provide more money over time (e.g., $110 after one year).

• Risk vs. Reward

  • Higher potential returns are typically associated with higher risk investments.

    • Risk Tiers:

      • High Risk: Lower-quality stocks, junk bonds.

      • Medium Risk: Quality cyclical stocks.

      • Low Risk: Treasury bills and CDs.

• Sunk Costs

  • Costs that have already been incurred and cannot be recovered. Business decisions should ignore these costs to focus on future prospects.

    • Principle: "Don’t let past investments dictate future actions; focus on potential outcomes."

Interpreting Stock Data

• Essential indicators to monitor for evaluating company stock:

  • PE Ratio (TTM)

  • EPS (TTM)

  • Market Cap

  • Dividend Yield

  • Beta (Volatility)

  • Volume of Shares Traded

Stock Market Trends

• Historical context shows that despite fluctuations, long-term investments in stocks (e.g., S&P 500, Dow Jones) have generally appreciated over time.

Inflation Considerations

• Consumer Price Index (CPI) tracks inflation and affects purchasing power; essential for understanding the time value of money and investment strategy.