BUSN 101 Key Terms Flashcards

Fundamentals of Business and Value Creation

• Business: An organization that strives for a profit by providing goods and services desired by its customers.
• Traditional Purpose of Business: To maximize the value of the firm to its owners, which translates to maximizing shareholder wealth by increasing overall profits.
• Goods: Tangible items manufactured by businesses (e.g., laptops).
• Services: Intangible offerings of businesses that cannot be held, touched, or stored (e.g., services provided by physicians, lawyers, hair stylists, car washes, and airlines).
• Business-to-Business (B2B): The practice of selling products and services between two businesses, rather than directly to an end consumer.
• Business-to-Consumer (B2C): The practice of selling products and services directly to an individual consumer (the end user).
• Stakeholder: Anyone involved with or affected by an organization, including shareholders, customers, community members, employees, suppliers, and distributors.
• Shareholder: An individual, company, or institution (such as a financial, educational, or medical institution) that owns a share of a company's stock.
  • Common Stock Shareholder: Holds voting rights on major corporate decisions and aims to benefit through stock value appreciation and/or dividend distributions.
• Value Proposition: The unique benefit that a company provides to customers who purchase its goods or services.
• Cross-Functional Teams: Groups composed of individuals from different functional areas or domains of expertise within an organization.

Functional Areas of Business

• Core Business Functions: Organizations depend on several interconnected functional areas to operate effectively:
  • Accounting
  • Finance
  • Management
  • Management Information Systems (MIS)
  • Marketing
  • Supply Chain Management (SCM)
• Interdependence: Regardless of an individual's specific major or field, understanding all functions of business and how they relate to one another is essential for effective organizational leadership.

Accounting and Financial Reporting

• Accounting: The comprehensive process of collecting, sorting, classifying, summarizing, reporting, and analyzing financial activities.
• Financial Accounting: A branch of accounting focused on preparing external financial reports used by outsiders—such as lenders, suppliers, investors, and government agencies—to assess the financial strength of a business.
• Managerial Accounting: A branch of accounting that provides financial information to internal managers so they can evaluate operational efficiency and make informed decisions regarding current and future operations.
• Auditing: The formal process of reviewing financial records used to prepare financial statements and issuing an auditor's opinion on whether those statements conform to Generally Accepted Accounting Principles (GAAP).
• Tax Accounting: The strategic planning of reductions in tax obligations aligned with Internal Revenue Service (IRS) regulations, along with the preparation of required tax documentation.
• Certified Public Accountant (CPA): An accountant who has completed an approved bachelor's degree program, passed the national exam prepared by the American Institute of CPAs (AICPA), and met state licensing requirements.
  • Note: Only a CPA is legally authorized to issue an auditor's opinion on a firm's financial statements.
• Balance Sheet: A financial statement summarizing a firm's financial position at a specific point in time. It must always balance according to the fundamental accounting equation:

$\text{Assets} = \text{Liabilities} + \text{Shareholder's Equity}$

• Assets: Items or resources of financial value owned by a firm.
• Liabilities: Amounts owed by a firm to its creditors (also referred to as debts).
• Shareholder's Equity: The total investment in the firm minus total liabilities; also known as net worth.
• Income Statement: A financial statement summarizing a firm's revenues and expenses, demonstrating its net profit or loss over a specific period.
• Revenue: The total dollar amount of sales and other financial inflows earned from sources such as interest, dividends, and rent.
• Expense: The monetary cost incurred to operate a business.
• Profit: The financial gain calculated as the difference between total revenue and total expenses:

$\text{Profit} = \text{Revenue} - \text{Expenses}$

• Cost of Goods Sold (COGS): Direct expenses tied specifically to the purchase or production of a firm's goods or services.
• Gross Profit: Total revenue remaining after subtracting direct production costs:

$\text{Gross Profit} = \text{Revenues} - \text{COGS}$

• Other Expenses: Operational expenditures not directly tied to core production, such as rent and utility costs.
• Earnings Per Share (EPS): A corporate profitability metric defined as the ratio of net profit to the number of common stock shares outstanding, measuring dollars earned per share:

$\text{EPS} = \frac{\text{Net Profit}}{\text{Common Stock Outstanding}}$

Finance and Financial Management

• Finance: The discipline dealing with the allocation of assets and liabilities over time under conditions of certainty and uncertainty.
• Financial Management: The art and science of managing a firm's monetary resources so that it can meet its operational and strategic goals.
• Financial Planning: The process of preparing a financial plan that projects revenues, expenditures, and financing needs across a defined period.
• Investing: The practice of spending money in the present to generate profit in the future by committing firm funds to projects and securities that offer high returns relative to their risks.
• Financing: The process of obtaining funding for operations and capital investments while managing the balance between debt and equity.
• Equity: Business financing raised through the sale of ownership shares (stock) in the business.
• Debt: A form of business financing consisting of borrowed capital that must be repaid with interest over a designated period.
• Common Stock: A financial security representing an ownership interest in a corporation.
• Dividends: Cash or stock payments distributed to shareholders from a corporation's profits.
• Public Company: A corporation whose shares of stock are listed and traded publicly on stock exchanges.
• Private Company: A business entity whose stock is not publicly traded on public exchanges.
• Initial Public Offering (IPO): A corporation's initial sale of stock to the general public.
• Ticker Symbol: A unique combination of letters used to identify a publicly traded company's stock on exchange platforms.
• Share Price: The individual market purchase price of a single share of stock.
• Interest: A fixed fee paid by a borrower to a lender (for a bond, loan, or mortgage) on a regular schedule.
• Commercial Banks: Profit-oriented financial institutions that accept deposits, issue consumer and commercial loans, invest in securities, and offer general banking services.
• Investment Banking: Financial intermediaries that help corporations and governments raise long-term capital by purchasing issued securities and reselling them to the public.
• Real Estate Finance: A specialized financial domain governing capital structures and investment strategies used by developers, investors, and owners to acquire and manage commercial and residential real estate properties.

Marketing and Strategic Distribution

• Marketing: The organizational process of creating, communicating, and delivering value to customers.
• Marketing Mix (4 Ps): The foundational components of a marketing strategy:
  1. Product: Goods, services, and ideas offered to satisfy consumer needs.
  2. Price: The monetary or nonmonetary consideration exchanged for a product (also termed rent, fees, charges, etc.).
  3. Promotion: Strategic methods used to inform, persuade, and influence purchase decisions.
  4. Place (Distribution): Methods for delivering the product from supplier to customer.
• Note on the 5th P: Some textbook frameworks expand the core marketing mix to include People as a fifth element.
• Promotional Mix Components:
  • Traditional Advertising
  • Sales Promotion
  • Public Relations
  • Personal Selling
  • Social Media
  • E-commerce
• Tasks Included in Place Strategy:
  • Transportation and location planning
  • Supply chain management (governing entities along the path to the customer)
  • Online presence setup
  • Inventory management
  • Atmospherics (design and physical/digital appearance of retail environments or websites)
• Market Segmentation: The process of evaluating, separating, and identifying layers within a market to determine an optimal target market.
• Target Market: The specific consumer demographic toward which a firm focuses its marketing initiatives.

Management, Leadership, and Operations

• Management: The process of guiding the development, maintenance, and allocation of resources to achieve organizational goals.
• Four Primary Functions of Management:
  1. Planning: Deciding what needs to be accomplished, setting objectives, mapping timelines, and delegating responsibilities.
  2. Organizing: Coordinating and allocating physical and human resources to execute plans.
  3. Leading (Leadership): Guiding, inspiring, and motivating human capital toward organizational goals.
  4. Controlling: Assessing progress toward organizational targets, monitoring implementation, and correcting deviations from established plans.
• Types of Management Planning:
  • Strategic Planning: Formulating long-range broad goals spanning $1\text{ to }5\,\text{years}$ and identifying necessary resources.
  • Tactical Planning: Implementing strategic plans by allocating resources and managing coordination across individual business units.
  • Operational Plans: Establishing daily policies, standard operating procedures, and functional performance benchmarks.
  • Contingency Plans: Alternative action plans created to manage crisis situations or unforeseen emergencies.
• Performance Metrics:
  • Efficiency: Using the least amount of resources to accomplish organizational objectives.
  • Effectiveness: The ability to produce a desired result, good, or service.
• Organizational Direction and Culture:
  • Vision Statement: A concise summary of an organization's broad aspirations and intended impact, highlighting the overarching "why" behind its existence.
  • Mission Statement: A clear declaration explaining a firm's core purpose, focusing on the "what" and "how" of achieving its goals.
  • Core Values: Non-negotiable principles and behaviors guiding employee conduct and organizational relationships.
  • Corporate Culture: The set of values, standards, and shared attitudes that defines an organization's unique environment.
• Specialized Management Fields:
  • Human Resource Management (HRM): Coordinating, managing, and allocating human capital (employees) to advance organizational targets.
  • Entrepreneurship: Identifying unmet market needs and launching initiatives to capitalize on new business opportunities at the right time.
  • Entrepreneur: An individual or partner group taking an original approach to establish a new business venture.
  • Management Consulting: Advisory services offering external perspectives, problem-solving expertise, strategic advice, and best practices to enhance company performance.

Supply Chain Management and Operations

• Supply Chain Management (SCM): The process of coordinating transitions across the supply chain to ensure customer satisfaction through quality delivery, strong supplier bonds, and material management ("bringing things in, putting things together, and sending things out").
• Operations: The management, design, and control of conversion processes that transform raw inputs into finished goods and services.
• Logistics: The supply chain function controlling the physical flow of goods, services, personnel, facilities, and supplies.
• Supply Chain Lifecycle Stages:

$\text{Raw Materials} \rightarrow \text{Supplier} \rightarrow \text{Manufacturer} \rightarrow \text{Distributor} \rightarrow \text{Retailer} \rightarrow \text{Customer}$

• Procurement: The procurement action of securing tools, machinery, and equipment for business operations.
• Inputs: Basic resources utilized in production, including human resources, natural resources, capital, and raw materials.
• Outputs: The final goods and services generated by a business.
• Production: The transformation process converting inputs into valuable outputs.
• Inventory Management: Determining optimal stock levels, ordering routines, receiving procedures, storage methods, and inventory tracking.
• Just-In-Time (JIT) Inventory Management: An inventory management approach scheduling material arrivals from suppliers exactly when needed in the production process to eliminate holding costs.
• Supply Chain Sustainability: Managing social, economic, and environmental impacts while upholding governance practices across the product lifecycle.

Information Systems and Technology

• Information Systems (IS): Operational frameworks leveraging technology, personnel, and data structures to advance organizational aims.
• Information Technology (IT): Hardware and software tools used to manage, store, and process business data.
• Enterprise Resource Planning (ERP) Systems: Computerized systems integrating supplier, customer, and internal operational data into a unified management system.
• Data: Raw, unorganized facts and metrics capable of electronic transmission and storage.
• Information: Data that has been processed, structured, organized, and contextualized into a meaningful form.
• Spreadsheet: Software application used to calculate, sort, organize, and store data in structured rows and columns.
• Database: An organized collection of electronic data stored for rapid digital access.
• Database Management System (DBMS): Software tools enabling users to store, query, track, organize, and retrieve structured database information.
• Cloud Computing: Delivery of on-demand computing services (such as data storage and software applications) over the internet.
• Information Security: Tools, rules, and procedures deployed to guard organizational data against unauthorized modification, destruction, disruption, or inspection.
• Cybersecurity: The practice of safeguarding digital networks, hardware, and programs against unauthorized access, extortion attempts, data destruction, or operational disruption.
• Network Segmentation: Network architecture designed to manage access controls and enforce security boundaries.