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Definition
| the organized effort of individuals to produce and sell for a profit, the goods and services that satisfy a society's needs |
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| after all business expenses are deducted from sales revenues |
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Term
| What are the four kinds off resources business owners combine? |
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Definition
1.Materials
2.Human Resources
3.Financial Resources
4.Informational Resources |
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Definition
| raw materials used in manufacturing |
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| people whi furnish labor in return for busisness |
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| money required to pay employees, purchase materials, keep business operating |
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| tells managers how effectively resources are being combined and used |
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| What are the four business classifications? |
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Definition
Manufacturing
• Service Business
• Marketing Intermediaries (retailers)
• Consumers |
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| the study of how wealth is created and distributed |
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| the combination of policies and choices made by a nation regarding ownership of capital and where economic decisions are made |
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| resources used in the creation of goods and services |
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Term
| What are the factors of production? |
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Definition
| Natural Resources: land, water, minerals • Labor: human resources • Capital: money • Entrepreneurship: willingness to take risks and ability to use other factors efficiently |
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| What are the two types of economic systems? |
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Definition
| Market Economies & Planned Economies |
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Term
| Capitalism (market economy) |
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Definition
Driven by profit motive and competition - Individuals own and operate majority of business - Market defined as laissez faire = “let them do”
Free market economy where individuals make decisions about what to product, market and pricing |
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Term
| Planned Economies (Command Economies): |
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Definition
| Communism: economic system where private property is eliminated and government owns all the major forms of production and makes all economic decisions - Socialism: economic system where government owns and operates major industries or sectors in the economy |
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Definition
| blend characteristics of planned and market economies - private enterprise and government involvement - USA, UK have a mixed economy |
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| How do we measure our Economic Performance? |
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Definition
| Access Productivity (average level of output per worker) • GDP – Gross Domestic Product – total dollar value of all goods and services produced by all people within the boundaries of a country during one year period • The gross domestic product (GDP) is the primary indicator used to gauge the health of a country's economy |
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| Prosperity: income high, unemployment low, expansion, prices high • Recession – 2-3 months of decline in GDP, price discounting, unemployment • Depression – Severe recession, high unemployment • Recovery |
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Term
| What is UNDER Employment? |
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Definition
| Underemployment refers to an employment situation that is insufficient in some important way for the worker, relative to a standard. Examples include holding a part-time job despite desiring full- time work, and overqualification, where the employee has education, experience, or skills beyond the requirements of the job. |
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Federal reserve’s decisions that determine the supply of money and interest rate
The actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates |
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Definition
Government influence on the amount of savings and expenditures, (tax structures, government spending)
Government spending policies that influence macroeconomic conditions. These policies affect tax rates, interest rates and government spending, in an effort to control the economy. • Fiscal measures are frequently used in tandem with monetary policy to achieve certain goals |
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| total of all federal deficit |
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Term
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Definition
| Owned by one person, easiest to start, most large corporations started as sole • Un-incorporated |
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Term
| What are the advantages of a Sole proprietorship? |
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Definition
| Retail all profits Ease start up Flexibililty Tax advantage (corps are taxed twice) Secrecy (not required to reveal profits) |
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| What are the disadvantages of a sole proprietorship? |
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Definition
| Unlimited Liability: business owner is responsible for all debts Lack of Money (banks unwilling to lend) Limited Management Skills Difficulty in Hiring Employees |
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| Two or more persons act as co-owners for a profit |
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Definition
unlimited liability
assumes managment role |
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Definition
liability limited to investment
may not take active managerial role |
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Term
| What are the advantages of a partnership |
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Definition
| Ease of Start up Availability of Capital and Credit Retain all profits, taxed 1x Combine skills of partners |
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| What are the disadvantages of a partnership? |
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Definition
| Unlimited Liability (if not incorporated) Management Disagreements |
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| Legal entity that functions separate and apart from its owners. |
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| legal document that formally establishes a corporation |
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Definition
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| legal governing body of the corporation |
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| What are the advantages of corporation? |
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Definition
| Limited Liability: creditors claims are on assets of corp, not of owners Easy to Raise money (sell shares of stocks) Easy to Transfer Ownership (shares sold/ bought) Specialized Management (can use stock to motivate managers/employees |
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| What are the disadvantages of a corporation? |
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Definition
| Legal Issues (complex to form) Government Regulations (file reports on operations, finance) Double Taxation: corp pays tax, owners pay tax on profits Lack of Secrecy for public corporations |
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| What are the types of corporation? |
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Definition
| Private, Public, S-Corp, LLC, not for profit, joint venture |
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Definition
| stock is held by a few people and not available for sale to public |
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Definition
| stock is traded on stock exchange and bought and sold by investors |
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| benefits of incorporation, yet taxed at lower rate applied to sole prop, and partnerships. (small businesses, Drs, athletes) |
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Definition
| Limited Liability Corp: Hybrid of publicly held corp and partnership; allows business to choose whether to be taxed as partnership or corporation (provides limited liability protection) |
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Definition
| A nonprofit organization (NPO) is an organization that uses surplus revenues to achieve its goals rather than distributing them as profit or dividends |
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Term
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Definition
| two or more organizations collaborate on a project for mutual gain |
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Term
| What are some ways of corporate growth? |
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Definition
| • Internal Growth: new stores, new lines, etc. • Merger / Acquisition |
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Definition
| union of two corporations to form a new corporation |
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| the purchase of one organization by another |
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| company being acquired does not want to be bought |
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| joining of two firms in same industry |
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| joining of two firms in different stages of related industry |
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| joining of two firms in unrelated industries |
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Definition
| allows a firm’s managers or group of investors to purchase a company, using the assets of the purchased company to guarantee repayment of a loan • The purpose of LBO’s is to allow companies to make large acquisitions without having to commit a lot of capita |
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| A rivalry among businesses for customers and sales |
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| quantity of product or service that producers are able and willing to sell • |
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| quantity of product or service that buyers are able and willing to purchase |
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Term
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Definition
| profit maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal |
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| many buyers, many sellers producing a product; no one is powerful enough to affect price • |
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| many buyers, relatively large amount of sellers trying to differentiate their product from those of competitors • |
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Definition
| few sellers, with the power to influence the price of their product |
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Term
| What are the degrees of competition? |
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Definition
| Pure competition, monoploistic competition, oligopoly, monopoly |
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Definition
| One producer/ seller, which can therefore set the prices of its products |
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Definition
| Industry in which one company can most efficiently supply all needed goods or services |
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Definition
| Federal Trade Commission – investigates illegal trade practices, enforces antitrust laws (fair competition) |
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Definition
| Equal Employment Opportunity Commission: regulates discrimination in employment practices • |
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| Securities Exchange Commission: regulates corporate securities • |
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| Food and Drug Administration: protects consumers and regulates food and drug safety • |
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| Federal Communications Commission, regulates radio, TV, telephone communications |
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| What are the government laws encouraging competition? |
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Definition
| Sherman Antitrust Act. The Clayton Act |
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Definition
| encourages competition, prevents monopolies. Prohibits Price Fixing (agreement between 2 businesses about pricing) Market Allocation (agreement to divide a market among potential customers) • |
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| prohibits Price Discrimination, Tying Agreements and other unfair practices. |
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Term
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Definition
| movement to remove existing government regulations and reduce the rate at which new regulations are enacted |
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Definition
| To start up and keep rolling |
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| What is financial management? |
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Definition
| All the activities concerned with obtaining money and using it effectively. |
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Term
| How does effective financial management begin? |
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Definition
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| What is a financial plan? |
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Definition
| document that specifies the funds a firm will need for a period of time, the timing of inflows and outflows, and the most appropriate sources and uses of funds |
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| On what is a financial plan based? |
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Definition
| Based on forecasts of production costs, purchasing needs, and expected sales activities for the time period covered |
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Term
| Why do organizations need funds? |
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Definition
| to run day-to- day operations, compensate employees and hire new ones, pay for inventory, make interest payments on loans, pay dividends to shareholders, and purchase property, facilities, and equipment |
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Term
| What are the two basic sources of Funds? |
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Definition
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| Why would a company NEED short term financing: |
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Definition
| revenues low >cash flow problems (movement of $, accounts receivable less than accounts payable) >Inventory >Monthly Expenses >Speculative Production: time lag between actual production of goods and when goods are sold. >Short Term Promotional Needs >Unexpected Emergencies |
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| What are the sources of unsecured short term financing? |
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Definition
| Trade credit, promissory note, unsecured bank loan (with interest) |
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| WHat are the sources of secured short term financing? |
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Definition
LOANS secured by Inventory (using finished merchandise, raw materials or work in process inventories as collateral for a loan)
>LOANS secured by Receivables (accounts receivable are amounts owed to firm by customers) A firm can use this as collateral for short term financing.
> FACTORING Accounts Receivable |
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Definition
| Factoring is the purchase of valid Commercial Accounts Receivable [AR] for cash. |
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| Is factoring only used only by companies in financial “trouble”? |
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Definition
| Factoring gives your business the power to grow, without giving away equity or taking on debt. Contrary to what you may have heard, factoring is NOT a tool used only by struggling companies. Financially smart companies use factoring as a powerful tool to release capital tied up in AR. |
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| How is factoring different from a loan, say from a bank? Do I have to sign a Personal Guarantee? |
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Definition
| Factoring is not a loan; it is the process of purchasing valid Commercial AR [invoices] from your business at a small discount. Unlike most banks and other factors, there is NO personal guarantee required with our professional funding services. |
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| Why do companies need LONG TERM financing?: |
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Definition
| >Business Start Up Costs >Mergers, expansion, (new store openings) >New Product Development (new lines, etc) >Long Term marketing Activities >Replacement of Equipment >Expansion of facilities |
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| WHat are the sources of Equity financing? |
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Definition
| Retain earnings, selling stock |
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Term
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Definition
| se money from wealthy individuals and institutional investors and invest these funds in promising firms • Also provide management consulting advice • Become part owners |
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| Why do companies need debt financing? |
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Definition
| Not always signifies weakness. Companies can use debt financing for same reasons as long term borrowing or for…. |
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Definition
| use of borrowed funds to increase return on owners equity |
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| What is the key to managing leverage? |
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Definition
| ensuring that the company’s earnings remain larger than its interest payments, which increases the leverage on the rate of return on shareholders’ investment |
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Term
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Definition
| note that requires a borrower to repay a loan in a monthly, quarterly semiannual or annual installment • |
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| corporations written pledge that it will replay a specified amount of money with interest |
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Definition
| registerid in owner’s name by issuing company |
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Definition
| backed by REPUTATION of the corporation. |
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| What are the two types of corporate bonds? |
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Definition
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| What are the four investmental alternatives? |
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Definition
| 1. BANK ACCOUNTS (most liquid, short term, east to get your money back 2. STOCKS 3. BONDS 4. MUTUAL FUNDS |
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| What are the two types of stock? |
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Definition
| Common stock and preferred stock |
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Definition
| ELECT BOARD OF DIRECTORS - VOTE ON ISSUES |
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| - Different rights - get paid dividends first |
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| cash payments to stockholders as the result of a distribution of the company’s profits |
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Definition
| change every day as a result of market forces |
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| What makes people like one particular stock, yet dislike another |
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Definition
| NEWS that is positive or negative for a company. |
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| What are factors that investors look at? |
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Definition
| Sales, earnings, P/E ratio, market capitalization |
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| What is MARKET CAPITALIZATION? |
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Definition
| The total dollar market value of all of a company's outstanding shares; calculated by multiplying a company's shares outstanding by the current market price of one share |
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Definition
| average stock price is increasing - |
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| Average stock price is decreasing - |
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| a division of each outstanding share of stock into a greater number of shares to reduce the stock price to a price range that management feels is attractive for the stock. |
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Definition
PRICE TO EARNINGS RATIO
Shows the relationship between a stock price and its company’s earnings (or profits) per share of stock. This ratio expresses the stock price in terms of EARNINGS PER SHARE. P/E ratio uses earnings of a company to value that company’s stock |
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| What does P/E mean for Investors? |
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Definition
| high P/E means higher earnings growth in the future; shows how much investors are willing to pay per dollar of earnings |
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Definition
| Borrow money to buy stock. High risk. If your stock takes a loss – you still have to pay back the loan plus interest. |
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Definition
| Companies sell the stock to the public…via Financial Institution |
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Definition
| INITIAL PUBLIC OFFERING First time company offers stock to public. Company “goes public” |
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Definition
-NYSE (New York Stock Exchange)
b |
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Definition
| Electronic network of brokers, NASDAQ |
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Definition
| Insiders use private company information to further their own fortunes or those of their family and friends. |
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Term
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Definition
| Bonds are a form of indebtedness that is sold to the public in set increments, normally in the neighborhood of $1,000. In return for loaning the debtor the money, the lender gets a piece of paper that stipulates how much was lent, the agreed-upon interest rate, how often interest will be paid, and the term of the loan. |
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| WHat are the different types of bonds |
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Definition
| CORPORATE BONDS (higher risk than govt) - GOVERNMENT BONDS - JUNK BONDS (high risk, high yield) |
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Term
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Definition
| . Savings Bond, (Federal) b. Municipal Bonds (State & Local Govt.) c. Treasuries: |
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Term
| stock index or stock market index |
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Definition
| a method of measuring the value of a section of the stock market. It is computed from the prices of selected stocks (sometimes a weighted average). It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments. |
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