KSB Exam 2

Chapter 8 – Product Design and Development

8.1 Riding the Crest of Innovation

o   PowerSki Jetboard makes its own waves, so you don’t need natural waves to surf.

o   45 horsepower, 45-pound watercraft engine.

8.2 What is a Product?

o   Product – something that can be marketed to customers because it provides benefits and satisfies a need.

o   Tangible and Intangible good (ex: apple computer is tangible and the promises to answer technical questions about the computer is intangible).

o   New-to-the-company – product in the market but new to the company.

o   Improvement of existing product – getting an existing product in the company and making it better.

o   Extension of product line – adding more products in a category that already exists in the company.

o   New-to-the-market – no comparable product in the market.

o   Four characteristics of the entrepreneurial start-up

o   Innovative

o   Goals include profitability and growth

o   New opportunities

o   Willing to take risks

8.3 Where Do Product Ideas Come From?

o   Have multiple ideas so one might have a chance

o   Seth Godin refers to remarkable ideas as “Purple Cows”

o   55% of all new product ideas come from small businesses

8.4 Identifying Business Opportunities

o   Commercial potential – make money by selling the product

o   Products provide customers with four types of utility or benefit

o   Time utility – available at a convenient time

o   Place utility – convenient location

o   Ownership utility – value created by transferring a product’s ownership

o   Form utility – the value to consumers from changing the composition of a product

8.5 Understand Your Industry

o   Industry – group of businesses that compete with one another to market products that are the same or similar

o   Market – group of buyers or potential buyers who share a common need that can be met by a certain product

o   Niche – narrowly defined group of potential customers with a fairly specific set of needs

8.6 Forecasting Demand

o   Market share – the company’s portion of the market that it has targeted

8.7 Breakeven Analysis

o   Breakeven analysis – method of determining the level of sales at which the company will break even (have no profit or loss)

o   Fixed costs – costs that don’t change

o   Variable costs – costs that vary, in total, as the quantity of goods sold changes but stay constant on a per-unit basis.

o   Contribution margin per unit – excess of revenue per unit/variable cost per unit

o   Breakeven point in unit – number of sales units at which net income is zero (calculates: fixed costs/contribution margin per unit)

8.8 Product Development

o   Project team – individuals from different functional areas assigned to work together throughout the product development process

o   Risks in product development

o   Trade-offs

o   Time pressure

o   Economics

o   Product development process – a series of activities by which a product idea is transformed into a final product

o   Product concept – description of what a new product will look like and how it will work

o   Prototype – physical model of a new product

o   Ramp-up stage – stage in the product development process during which employees are trained in necessary production processes and new products are tested.

8.9 Protecting Your Idea

o   Patent – grant of the executive right to produce or sell a product, process, or invention.

o   To be patentable the idea needs to be new, not obvious, and have utility

Chapter 9 – Marketing: Providing Value to Customers

9.1 A Robot with Attitude

o   Mark Tilden used to build robots for NASA that were trashed on Mars.

o   Decided to specialize in robots for earthlings

o   Teamed up with Wow Wee Toys Ltd. To create “Robosapien,” an intelligent robot with attitude

o   Without marketing, Robosapien wouldn’t have gotten anywhere

9.2 What Is Marketing

o   Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large

o   Marketing includes: coming up with a product and defining its features and benefits, setting price, identifying target market, making potential cusomers aware, getting people to buy it, delivering it to people who buy it, managing relationships with customers after delivery.

o   Find out what customers need, develop product to meet needs, engage the entire organization in efforts to satisfy customers

o   Marketing concept: Basic philosophy of satisfying customer needs while meeting organizational goals.

o   Marketing strategy - Plan accfor selecting a target market and creating, pricing, promoting, and distributing products that satisfy customers.

o   Demographic segmentation - Process of dividing the market into groups based on such variables as age and income.

o   Geographic segmentation - Process of dividing a market according to such variables as climate, region, and population density.

o   Behavioral segmentation - Process of dividing consumers by behavioral variables, such as attitude toward the product, user status, or usage rate.

o   Psychographic segmentation - Process of classifying consumers on the basis of individual lifestyles as reflected in people’s interests, activities, attitudes, and values.

9.3 The Marketing Mix

o   Four P’s: product, price, place, promote

o   Secondary data - Information used in marketing decisions that has already been collected for other purposes.

o   Primary data - Newly collected marketing information that addresses specific questions about the target market.

o   Private branding - Product made by a manufacturer and sold to a retailer who in turn resells it under its own name.

o   Generic branding - Product with no branding information attached to it except a description of its contents.

o   Manufacturer branding - Branding strategy in which a manufacturer sells one or more products under its own brand names.

o   Brand equity – Value of a brand generated by a favorable consumer experience with a product.

o   Brand loyalty – Consumer preference for a particular brand that develops over time based on satisfaction with a company’s products.

o   Packaging – Container that holds a product and can influence a consumer’s decision to buy or pass it up.

o   Labeling – Information on the package of a product that identifies the product and provides details of the package contents.

Chapter 10 – The Role of Accounting in Business

10.1 Rent a Room or a House

o   Airbnb and how accounting is needed to manage and record money in the business.

10.2 The Role of Accounting

o   Accounting is often called the language of business because it communicates so much information that owners, managers, and investors need to evaluate a company’s financial performance.

o   Purpose of accounting is to help stakeholders make better business decisions by providing them with financial information.

o   Accounting – system for measuring and summarizing business activities, interpreting financial information, and communicating the results to management and other decision makers.

o   Two major fields in accounting; management accountants (provide information and analysis to decision makers inside the organization in order to help them run it) and financial accountants (furnish information to individuals and groups both inside and outside the organization in order to help them assess its financial performance).

o   In other words, management accounting helps you keep your business running while financial accounting tells you how well you’re running it.

o   Management accounting - Branch of accounting that provides information and analysis to decision makers inside the organization to help them operate the business.

o   Financial accounting - Branch of accounting that furnishes information to individuals and groups both inside and outside the organization to help them assess the firm’s financial performance.

o   Financial accountants adhere to a set of rules called generally accepted accounting principles (GAAP).

o   GAAP is issued by Financial Accounting Standards Board (FASB).

o   Companies outside US follow International Financial Reporting Standards (IFRS).

o   IFRS is issued by the International Accounting Standards Board (IASB).

o   IFRS is stricter about the ways you can calculate the costs of inventory than GAAP.

10.3 Understanding Financial Statements

o   Parts of a financial statement: income statement, balance sheet, statement of owner’s equity, and statement of cash flows.

o   Income s – financial statement summarizing a business’ revenues, expenses, and net income.

o   Revenues – amount of money earned by selling products to customers.

o   Expenses – costs incurred by selling products to customers.

o   Divide expenses into two categories: costs of goods sold and operating expenses.

o   The positive difference between sales and cost of goods sold is your gross profit or gross margin.

o   The positive difference between gross profit and operating expenses is your net income or profit (if difference is negative then took a loss instead of profit).

o   Breakeven analysis – Method determining the level of sales at which the company will break even (have no profit or loss).

o   Fixed costs – costs that don’t change the amount of goods sold changes

o   Variable costs – costs that vary as quantity of goods sold changes but stay constant on a per-unit basis.

o   Contribution margin per unit – excess of revenue per unit/variable cost per unit.

o   $10 selling price – $6 variable cost per unit = $4

o   Breakeven point in units – number of sales units at which net income is zero.

o   $300 fixed costs/$4 contribution margin per unit = 75 units

o   Balance sheet – report on a company’s assets, liabilities, and owner’s equity at a specific point in time.

o   Assets – resources from which it expects to gain some future benefit.

o   Liabilities – the debts that it owes to outside individuals or organizations.

o   Owner’s equity – your investment in your business.

o   Fiscal year – company’s designated business year

o   The accounting equation – assets = liabilities + owner’s equity

o   Statement of owner’s equity – a financial statement that details changes in owner’s equity for a specified period of time.

10.4 Accrual Accounting

o   Accounts receivable – record of cash that will be received from a customer whom a business has sold products on credit (receive later).

o   Accounts payable – record of cash owed to sellers from whom a business has purchased products on credit (pay later).

o   inventory – goods that a business has made or bought and expects to sell in the process of normal operations.

o   Accrual accounting – a system that records transactions when they occur, regardless of when cash is paid or received.

o   Depreciation expense – costs of a long-term or fixed asset spread over its useful life.

o   Classified balance sheet – balance sheet that totals assets and liabilities into separate categories.

o   Types of assets: current assets and long-term assets.

o   Liquidity – speed with which an asset can be converted into cash.

o   Current assets – assets that you intend to convert into cash within a year.

o   Long-term assets – assets that you intend to hold for more than a year.

o   Types of liabilities

o   Current liabilities – liabilities that you’ll pay off within one year.

o   Long-term liabilities – liabilities that don’t become due for more than a year.

o   Statement of cash flows – financial reporting on cash inflows and outflows resulting form operating, investing, and financing activities.

o   Three categories of cash flows:

o   Operating activities- activity that created cash inflows or outflows through day-to-day operations.

o   Investing activities – activity that creates cash inflows and outflows through the selling or buying of long-term assets.

o   Financing activities – activity that creates cash inflows and outflows through obtaining or repaying of borrowed or invested funds.

10.5 Financial Statement Analysis

o   Comparative income statement – financial statement showing income for more than one year.

o   Vertical percentage analysis – analysis of an income statement treating the relationship of each item as a percentage of a base (usually sales).

o   Ratio analysis – a technique for financial analysis that shows the relationship between two numbers.

o   Profit margin ratios - tell you how much of each sales dollar is left after certain costs are covered.

o   Management efficiency ratios - tell you how efficiently your assets are being managed.

o   Management effectiveness ratios - tell you how effective management is at running the business and measure overall company performance.

o   Financial condition ratios - help you assess a firm’s financial strength.

o   Inventory turnover ratio – financial ratio that shows how effectively a company turns over it inventory.

o   Current ratio - financial ratio showing relationship between a company’s current assets and current liabilities.

o   Debt-to-equity ratio - financial ratio showing relationship between debt and equity.

o   Capital structure – relationship between a company’s debt and its equity.

o   Interest coverage ratio – financial ratio showing a company’s ability to pay interest on its debts from its operating income.

10.6 The Profession: Ethics and Opportunities

o   Sarbanes-Oxley Act (SOX) – A federal law enacted to encourage ethical corporate behavior and discourage fraud and other wrongdoing.

Here is a comprehensive summary of the key takeaways, points, and equations from the provided sources, organised by section numbers for easy reference.

## 10.2 The Role of Accounting

   Accounting is crucial for providing financial information to stakeholders, enabling informed business decisions. It acts as the "language of business".

   Two branches of accounting:

       Managerial Accounting:  Focuses on information for internal users like managers, helping them plan, control, and make decisions about the organisation.

       Financial Accounting: Prepares financial statements (income statement, balance sheet, statement of owner's equity, and statement of cash flows) for both internal and external users.  It follows Generally Accepted Accounting Principles (GAAP) to ensure accuracy and comparability.

   GAAP is essential for accurate financial reporting, enabling stakeholders to compare statements from different companies.

   Users of financial information:

       Internal: Managers, employees.

       External: Investors, creditors, government agencies (e.g., SEC, IRS), suppliers, and others interested in the company's performance.

   International Financial Reporting Standards (IFRS): An alternative accounting standard used by many companies outside the US, aiming for global consistency in financial reporting.

10.3 Understanding Financial Statements

   Financial Statements: Summaries of a company's financial activities over a specific period, including:

       Income Statement: Reports revenues, expenses, and net income (profit or loss).

       Balance Sheet: Shows assets, liabilities, and owner's equity at a point in time.

       Statement of Owner's Equity: Tracks changes in owner's equity over time.

       Statement of Cash Flows: Details cash inflows and outflows from operating, investing, and financing activities (discussed in Section 10.4).

   Accounting Equation:  Highlights the relationship between assets, liabilities, and owner's equity:

    Assets = Liabilities + Owner's Equity

    This equation underlies the balance sheet, where assets must equal the sum of liabilities and owner's equity.

   Preparation order of financial statements: Income Statement, Statement of Owner's Equity, Balance Sheet. This is because net income from the income statement is needed for the statement of owner's equity, and ending owner's equity is reported on the balance sheet.

   Breakeven Analysis: Determines the sales level required to cover all costs and avoid losses.

       Breakeven Point (in units) = Fixed Costs / Contribution Margin per Unit

       Contribution Margin per Unit = Sales Price per Unit - Variable Cost per Unit

## 10.4 Accrual Accounting

   Accrual Accounting: Recognises revenue when earned and  when incurred, regardless of when cash changes hands. This method provides a more accurate view of financial performance compared to cash-basis accounting, which records transactions only when cash is received or paid.

   Key Concepts:

       Inventory:  Represents goods purchased for resale and is reported as an asset on the balance sheet.

       Cost of Goods Sold: Represents the expense of goods sold during a period and appears on the income statement.

       Depreciation:  Allocates the cost of long-term assets (like equipment) over their useful life, appearing as an expense on the income statement.

   Classified Balance Sheet: Categorises assets and liabilities into current and long-term:

       Current Assets:  Expected to be converted into cash within one year (e.g., cash, accounts receivable, inventory).

       Long-Term Assets: Held for more than one year (e.g., property, plant, equipment).

       Current Liabilities: Due within one year (e.g., accounts payable, short-term loans).

       Long-Term Liabilities: Due in more than one year (e.g., long-term loans, mortgages).

   Statement of Cash Flows: Reports the movement of cash from operating, investing, and financing activities, providing insights into the company's cash management practices.

## 11.2 The Functions of Money

   Functions of Money:

       Medium of Exchange: Facilitates transactions by being widely accepted for goods and services.

       Measure of Value: Provides a common unit to express prices and compare values.

       Store of Value: Allows wealth to be held and used later, assuming money retains its value.

   Measures of Money Supply:

       M-1: Includes the most liquid forms of money: cash, checking account balances, and traveller's cheques.

       M-2:  Includes M-1 plus less liquid, near-cash items like savings accounts, time deposits, and money market mutual funds.

## 11.3 Financial Institutions

   Financial Institutions: Act as intermediaries, channelling funds from savers to borrowers, thereby facilitating financial transactions.

   Types of Financial Institutions:

       Depository Institutions: Accept deposits from customers:

           Commercial Banks: Offer various banking services, including checking and savings accounts, loans, and credit cards.

           Savings Banks:  Focus primarily on savings accounts and mortgage loans.

           Credit Unions: Member-owned institutions providing banking services similar to commercial banks but often with better rates and lower fees.

       Nondepository Institutions: Don't accept deposits but provide financial services:

           Finance Companies: Make loans to individuals and businesses, often specialising in higher-risk lending.

           Insurance Companies:  Provide protection against financial losses.

           Brokerage Firms:  Facilitate the buying and selling of securities (stocks, bonds, etc.).

           Pension Funds:  Manage retirement savings plans.

## 11.5 The Role of the Financial Manager

   Financial Plan: Outlines a company's capital needs, acquisition strategies, and repayment plans.

   Common Funding Sources:

       Personal Assets:  Investing personal savings or assets into the business.

       Loans from Family and Friends:  Borrowing from personal connections.

       Bank Loans:  Securing loans from financial institutions.

       Crowdfunding: Raising funds from a large number of individuals, often online, through platforms like Kickstarter and Indiegogo.

   Managing Accounts Payable: Efficiently handling payments to suppliers to maintain good relationships and optimise cash flow.

   Budgeting: Creating financial plans for specific periods, typically a year, to project revenues, expenses, and cash flow, helping in financial control and decision-making.

## 11.7 Financing the Going Concern

This section is mentioned in the sources but does not contain specific takeaways or information.

## 12.2 Misgoverning Corporations: An Overview

   Business Ethics: Applying ethical principles in a business context, going beyond legal compliance to include honesty, fairness, and not harming others.

   Ethical Lapses: Making unethical or illegal decisions, often leading to significant consequences.

   Ethical Organisations: Prioritise fairness, communicate core values, and hold employees accountable for ethical conduct.

## 12.5 The Organisational Approach to Ethics

   Organisational Ethics: Recognises that individual behaviour is influenced by the organisation's culture and leadership.

   Ethical Culture:  Shaped by shared values, beliefs, and expected behaviours within an organisation.

   Role of Top Management: Setting the ethical tone and establishing clear expectations for behaviour.

   Code of Conduct: Formal guidelines for ethical behaviour within the organisation, outlining expected conduct and consequences for violations.

## 13.1 Essential Elements of Contracts: Agreement, Consideration, Capacity, and Legality

   Valid Contract: A legally enforceable agreement that meets these four essential elements:

       Agreement:  A mutual understanding and agreement to the terms of the contract, evidenced by an offer and acceptance.

       Consideration: Something of value exchanged between the parties, such as money, goods, services, or a promise to do or not do something.

       Contractual Capacity: The legal ability to enter into a contract. This excludes minors, individuals under the influence of drugs or alcohol, and those mentally incompetent.

       Legality: The contract's purpose must be legal and not violate any laws or public policy.

## 13.7 Overview of Contract Remedies

   Breach of Contract: Occurs when a party fails to fulfil its contractual obligations.

   Contract Remedies: Legal remedies available to the non-breaching party to address the breach:

       Monetary Remedies:  Financial compensation to cover losses caused by the breach, including compensatory damages (covering direct losses) and consequential damages (covering indirect losses).

       Equitable Remedies: Non-monetary remedies to enforce the contract, such as:

           Specific Performance: Ordering the breaching party to fulfil the contract's terms.

           Injunction: Ordering a party to stop a specific action.

## 14.1 Where Does Your Money Go?

   Credit Management: Using credit responsibly involves evaluating needs, affordability, and interest costs before making purchases.

   Credit Bureaus and Credit Scores: Track individuals' debt and payment history, compiling a FICO score based on factors like payment history, total debt, credit history length, new credit, and credit mix.

   Debt Management Strategies:

       Cash-Only Living: Cutting up credit cards to reduce reliance on credit and curb spending.

       Reducing Monthly Bills:  Identifying and eliminating unnecessary expenses to free up cash flow.

       Addressing Credit Card Debt:

        1.  Assess total debt.

        2.  Avoid late fees.

        3.  Stop using credit cards.

        4.  Seek professional help from credit counselling agencies if needed.

## 14.4 The Financial Planning Process

   Financial Planning: A three-step process for managing personal finances:

    1.  Evaluate Financial Status: Using a net worth statement (assets - liabilities = net worth) and a cash flow statement (tracking income and expenses).

    2.  Set Financial Goals:  Identifying short-term, intermediate-term, and long-term goals, such as saving for retirement, buying a house, or paying for education.

    3.  Budgeting: Planning future income and expenses, monitoring progress, and adjusting as needed to achieve financial goals.

   Personal Budget Components:

       Income Sources:  Salaries, wages, investments, etc.

       Expenditures: Housing, food, transportation, education, savings, etc.

       Budget Column:  Planned amounts for income and expenses.

       Actual Column:  Recorded amounts for income and expenses.

       Variance Column:  The difference between budgeted and actual amounts.

## Chapters 8 and 9: Key Takeaways and Points

This section combines takeaways from multiple chapters, addressing product development, marketing, and industry analysis.

   Product Development:

       Patentability Criteria:  An invention must be new, non-obvious, and useful to be eligible for a patent.

       Sources of Product Ideas:  Entrepreneurs, small business owners, employees from various departments (marketing, sales, research, manufacturing), customer feedback, and external research.

       Calculated Risks:  Successful product development involves carefully assessing risks and gathering information from research and personal experience.

   Marketing Strategy:

       Marketing Mix (4Ps):

           Product: Creating a product that meets target market needs.

           Price: Setting the right price for the product.

           Place (Distribution):  Getting the product to the right customers at the right time and place.

           Promotion: Communicating the product's value to customers.

       Marketing Research:

           Secondary Data: Information already collected for other purposes, such as industry reports, census data, or company records.

           Primary Data: Newly collected information specific to the research question, gathered through methods like surveys, interviews, and focus groups.

       Target Market Selection: Identifying a specific group of consumers to target with marketing efforts.

       Market Segmentation: Dividing the market into smaller groups with common characteristics to tailor marketing strategies.

       The Buying Process:

           Need Recognition: Recognising a need for the product.

           Information Search: Gathering information about potential solutions.

           Evaluation:  Comparing different product options.

           Purchase: Making the decision to buy.

           Post-Purchase Evaluation:  Assessing satisfaction with the product.

       Customer Relationship Management (CRM): Building and maintaining strong relationships with customers to retain them.

       Factors Influencing Consumer Behaviour:

           Psychological Factors:  Motivation, perception, learning, attitudes, personality.

           Social Influences:  Family, reference groups, culture, social class.

   Industry Analysis:

       Industry:  A group of related businesses that offer similar products or services and compete with each other.

       Market:  A group of customers with a specific need or want.

       Market Segment: A smaller group within a market with shared characteristics.

       Competitive Analysis: Studying competitors to understand their strengths, weaknesses, strategies, and target markets.

## Chapters 11 and 12: Key Takeaways and Points

   The Federal Reserve System (Fed):

       Central Banking System: Regulates the US banking industry and monetary policy.

       Goals: Price stability, sustainable economic growth, and full employment.

       Tools:

           Reserve Requirements: The percentage of deposits that banks must hold in reserve.

           Discount Rate: The interest rate charged by the Fed to banks borrowing reserves.

           Open Market Operations: Buying and selling government securities to influence the money supply (information not from sources).

   Securities Markets:

       Functions:

           Raising Capital:  Helping companies raise funds by issuing stocks and bonds.

           Trading Securities:  Providing a platform for buying and selling existing securities.

       Types of Markets:

           Primary Market: Where new securities are issued to the public (e.g., through an IPO).

           Secondary Market: Where previously issued securities are traded among investors.

   Major Stock Exchanges:

       New York Stock Exchange (NYSE): The largest stock exchange in the world by market capitalisation.

       American Stock Exchange (AMEX): A smaller exchange focusing on small and mid-sized companies.

       NASDAQ: An electronic exchange known for listing technology companies.

   Insider Trading: Illegal trading of securities based on non-public information, giving the trader an unfair advantage.

   Market Indexes: Measures of stock market performance, tracking the movement of a specific group of stocks (e.g., Dow Jones Industrial Average, S\&P 500, NASDAQ Composite).

This comprehensive summary provides an in-depth analysis of the key takeaways, points, and equations from the sources you provided. Please let me know if you have any other questions or need further clarification.