Midterm Exam Review Notes

Midterm One Notes

Key Terms

• Risk: The chance entrepreneurs take of losing time and money; the chance of something happening.

• Bankruptcy: A situation where an individual or organization is unable to pay outstanding debts and seeks relief through court-ordered liquidation of assets.

• Revenue: The total money received during a given period for goods or services sold.

• Standard of Living: Refers to how much people can buy with the money they have, reflecting the quality of life.

• Quality of Life: The general well-being of society and the individual.

Economic Theories

• Comparative Advantage Theory: Suggests that countries should export goods and services they can produce most efficiently compared to others.

• Absolute Advantage Theory: A country can produce a specific good more efficiently than all other countries.

Business Policies

• Fiscal Policy: The federal government's efforts to keep the economy stable through government spending and tax policies.

• Law: Formal rules established to maintain societal order, enforced by governmental authority.

• Ethics: Standards of moral behavior accepted by society.

• Corporate Social Responsibility (CSR): A business's obligation to be accountable to society, contributing to societal welfare and giving back to the community.

• Compliance-Based Code: A set of rules designed to prevent unlawful behavior by increasing control.

• Integrity-Based Code: Promotes ethical behavior, outlines corporate values, and shares accountability among employees.

Business Evaluation

• Social Audit: A system used to evaluate a business's social and ethical performance and assess its impact on various stakeholders.

Global Business Practices

• Offshoring: Sourcing part of the purchased inputs or production outside of the home country.

• Outsourcing: Contracting with other companies to perform functions of a firm, such as accounting.

• Insourcing: When a company utilizes its own resources to perform services that could be otherwise outsourced.

Economic Indicators

• Disinflation: Recognizes a decrease in the rate of inflation, where price increases are slowing down.

• Deflation: Refers to an actual decline in prices within the economy.

• Tariffs: A tax imposed on imported goods.

Business Goals

1. Provide goods or services to meet consumer demands.

2. Make a profit to ensure sustainability and growth.

Factors of Production

1. Land: Natural resources utilized in the production of goods.

2. Labour: Human work effort in producing goods and services.

3. Capital: Physical assets (not monetary) that are used in production.

4. Entrepreneurship: The innovation and risk-taking involved in starting and managing a business.

5. Knowledge: A modern factor of production that encompasses skills, expertise, and technology.

Business Environment

• Definition: This encompasses the various external factors that can help or hinder the development of a business.

• Components of the Business Environment:

  1. Legal Environment: Tax laws, contract laws, and the elimination of corruption (e.g., Employment Standards Act).

  2. Economic Environment: Factors such as income/expenditures, currency shifts, and economic systems.

  3. Technological Environment: Developments in information technology, databases, and the internet impact businesses.

  4. Social Environment: Factors like diversity, demographic shifts, and family changes influence market dynamics.

  5. Competitive Environment: Elements of competition, customer-driven decisions, and the structure of competition.

  6. Global Environment: The creation of new jobs, increased competition from foreign markets, and the need for continual learning for future market preparedness.

Key Economic Indicators

1. GDP (Gross Domestic Product): The total value of goods and services produced by the economy.

2. Unemployment Rate: The percentage of the labour force that actively seeks work but is unable to find employment.

3. Inflation: A general rise in prices over time.

Types of Unemployment

• Frictional Unemployment: Occurs when individuals leave a job due to dissatisfaction (e.g., about the job or working conditions) and take time to find a suitable match.

• Structural Unemployment: Arises from restructuring or technological changes within firms that result in job loss or creation.

• Cyclical Unemployment: Results from economic downturns or recessions within the business cycle.

• Seasonal Unemployment: Caused by fluctuating demand for jobs throughout the year (e.g., holiday seasons).

Economic Systems

1. Market Economy: A system characterized by private ownership and market-based economic decisions (e.g., Japan, UK).

2. Command Economy: An economic structure where the government makes all economic decisions (e.g., North Korea).

3. Mixed Economy: Combines market forces with government intervention (e.g., Canada, Sweden).

4. Traditional Economy: Decisions based on historical customs, which can slow innovation (e.g., Inuit cultures).

5. Traditional Mixed Economy: A blend of traditional and market-based practices (e.g., India, China).

Competition Within Markets

1. Perfect Competition: Multiple sellers exist, with no single seller able to control market pricing.

2. Monopolistic Competition: A market structure with many sellers offering differentiated products.

3. Oligopoly: A market dominated by a small number of sellers.

4. Monopoly: A single seller controls the entire market.

Key Measures of Trade

• Exporting: The process of sending goods or services to another country for sale.

• Importing: The purchase of goods or services from another country.

• Balance of Payments: The overall difference between exports and imports.

• Balance of Trade: The comparison of the quantity of goods exported versus imported.

• Exchange Rate: The rate at which one currency can be exchanged for another.

  • Trade Surplus: A favorable balance when exports exceed imports.

  • Trade Deficit: An unfavorable condition where imports exceed exports.

Strategies for Reaching Global Markets

• Least Commitment, Control, Risk, Profit:

  1. Licensing: Grants a foreign company the rights to manufacture its product or use its trademark.

  2. Exporting: Selling domestically produced goods to foreign countries.

  3. Franchising: Allows others to operate businesses under its brand and sell its products.

  4. Contract Manufacturing: Third-party manufacturers produce goods to be marketed by a domestic firm.

  5. Joint Ventures: A partnership for a project that combines resources from two or more companies to achieve mutual benefits.

  6. Strategic Alliances: Long-term partnerships formed to exploit joint opportunities in the market.

  7. Foreign Direct Investment (FDI): Investments that entail purchasing assets or businesses in foreign nations.

Trade Agreements

• USMCA (United States-Mexico-Canada Agreement): A trade agreement between the US, Canada, and Mexico.

• European Union (EU): A political and economic union of European countries.

Government Involvement in Business

1. Crown Corporations: Companies owned by federal, provincial, or territorial governments (e.g., Canada Post).

2. Laws and Regulations: Establish legal frameworks for business operations, created by politicians and interpreted by the Supreme Court.

3. The Bank of Canada: Central bank responsible for managing monetary policy and regulating the Canadian currency.

4. Taxation: Primary revenue source for governments to fund public services.

5. Government Expenditures: Funds allocated towards public services and infrastructure.

6. Purchasing Policies: Guidelines related to government procurement processes.

Levels of Government

1. Municipal Government: Local governance responsible for community services and regulations.

2. Provincial/Territorial Government: Manages areas such as education, health services, and natural resources.

3. Federal Government: Manages nationwide issues like trade regulations, taxation, and national defense.

Business Responsibilities

• To Customers: Must offer real value and ensure consumer safety while informing customers of their rights (right to safety, right to choose, right to be heard).

• To Investors: Ensure ethical and transparent behavior.

• To Employees: Create quality jobs and provide incentives to motivate performance.

• To Society: Ensure the social well-being of stakeholders, suppliers, and community.

• To the Environment: Prioritize sustainability practices to reduce environmental impact for future generations.

Forms of Business Ownership

• Sole Proprietorship: Single individual responsible for all aspects and liabilities of the business.

• Partnerships:

  • General Partnership: Partners share unlimited liability and active management.

  • Limited Partnership: Partners have limited liability and do not partake in management.

• Corporations: Separate legal entities that provide limited liability protection to owners.

• Franchises: Allow others to operate under a brand name with a specified business model.

• Co-operatives: Owned and operated by a group of individuals for their mutual benefit.

Factors of Management (PLOC/PDOC Framework)

• Planning: Anticipating trends, determining strategies and tactics. Types include Strategic, Tactical, Operational, and Contingency planning.

• Directing/Leading: Creating shared vision and motivating staff through training and leadership.

• Organizing: Structuring the company, establishing conditions and objectives.

• Controlling: Monitoring and correcting employee performance and organizational activities.

SWOT Analysis

• Strengths: Internal positive factors that can help in achieving objectives.

• Weaknesses: Internal negative aspects that may hinder success.

• Opportunities: External conditions that could be exploited to the advantage of the business.

• Threats: External challenges that may pose risks to the organization.

Financial Performance Questions

• Example calculations for Draper Publications:

  • Acid-Test (Quick) Ratio: $ext{Current Assets} - ext{Inventory} / ext{Current Liabilities}$

  • Inventory Turnover: $rac{ ext{Cost of Goods Sold}}{ ext{Average Inventory}}$

  • Net Profit Margin: $rac{ ext{Net Profit}}{ ext{Net Sales}}$

  • Return on Equity (ROE): $rac{ ext{Net Profit}}{ ext{Total Owner's Equity}}$

  • Debt to Equity Ratio: $rac{ ext{Total Liabilities}}{ ext{Owner's Equity}}$

  • Earnings per Share (EPS): $rac{ ext{Net Profit}}{ ext{Number of Shares Outstanding}}$

Final Exam Focus: Chapters 10-17

Key Terms:

• Materials Requirement Planning (MRP): Ensures materials are available based on sales forecasts.

• Enterprise Resource Planning (ERP): Integrates various business processes into a unified system.

• Supply Chain Management: Coordinates all production aspects from raw materials to consumer delivery.

• Job Description: Lists duties and responsibilities of a job.

• Job Specification: Details qualifications and skills needed to perform the job.

Motivation Theories

• Hawthorne Effect: The tendency for individuals to alter their behavior when they know they are being observed.

• McGregor’s Theory X and Y: Theory X holds that workers dislike work and need control; Theory Y posits that workers find work fulfilling and embrace responsibility.

Hiring Conditions in Unions

1. Closed Shop: New hires must become union members; hiring done through union.

2. Union Shop: Employees must join the union after hiring.

3. Agency Shop: Employees not required to join but must pay dues.

4. Open Shop: Employees can choose to join the union or not.

Union Tactics

• Strikes: Collective refusal by employees to work.

• Boycotts: Refusal to support or buy from the company.

• Picketing: Protesting outside workplaces to raise awareness.

• Work Slowdowns: Deliberately reducing work speed to pressure management.

Management Tactics

• Injunctions: Court directives that compel or restrict actions by workers or management.

• Strikebreakers: Replacement workers brought in during strikes.

• Lockouts: Temporarily closing business to pressure workers during disputes.

Marketing Mix (4Ps)

1. Product: Good, service, or idea that fulfills a consumer need.

2. Price: The value that consumers are willing to pay for the product.

3. Place: Distribution channels where the product is sold.

4. Promotion: Marketing efforts to encourage customers to purchase (advertising, sales).

Evolution of Marketing

• Production Era (up to early 1900s): Focused on high production levels.

• Selling Era (1920s-1950s): Emphasized persuasive advertising.

• Marketing Concept Era (1950s-1990s): Featured customer and service orientation alongside profit motivation.

• Customer Relationship Era (1990s+): Cultivated relationships and customer value.

• Emerging Mobile/On-Demand Marketing Era: Provides personalized marketing when and where needed.

Financial Statements

1. Balance Sheet: Snapshot of a company's financial position; shows assets, liabilities, and owner's equity using the equation $Assets = Liabilities + Owner's Equity$.

2. Income Statement: Summarises revenues, costs, and expenses, detailing profit or loss.

3. Statement of Cash Flows: Tracks cash inflows and outflows from operational, investing, and financing activities.

Major Reasons for Business Failure

1. Undercapitalization: Running out of funds needed to support business functions.

2. Poor Control over Cash Flow: Mismanagement of financial resources leading to liquidity problems.

3. Inadequate Expense Control: Failure to monitor spending effectively.

Human Resources Planning Steps

1. Prepare HR inventory (employee data like ages, names, skills).

2. Develop job analysis (description and specifications about roles).

3. Assess future demand and supply for human resources.

4. Establish strategic planning to address recruitment, training, evaluation, and career development.