Transcript Chapter 1 - McGraw Hill Higher Education - McGraw

Business Plug-In B1
Business Basics
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LEARNING OUTCOMES
1. Define the three common business forms
2. List and describe the seven departments
commonly found in most organizations
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Types of Business
O Profit - occurs when businesses sell
products or services for more than they cost
to produce
O Loss - occurs when businesses sell products
or services for less then they cost to produce
O Businesses typically organize in one of the
following types:
O Sole proprietorship
O Partnership
O Corporation
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SOLE PROPRIETORSHIP
O Sole proprietorship - a business form in
which a single person is the sole owner and
is personally responsible for all the profits
and losses of the business
O Many small businesses are sole
proprietorships
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PARTNERSHIP
O Partnership - similar to sole proprietorships, except
that this legal structure allows for more than one
owner
O Each partner is personally responsible for all the
profits and losses of the business
O When starting a partnership, it is wise to have a
lawyer draft a partnership agreement
O Partnership agreement - a legal agreement between two
or more business partners that outlines core business
issues
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CORPORATION
O Corporation (organization, enterprise, or business) -
an artificially created legal entity that exists separate
and apart from those individuals who created it and
carry on its operations
O Shareholder - another term for business owners
O An important advantage of a corporation is that it
offers the shareholders limited liability
O Limited liability - the shareholders are not personally liable
for the losses incurred by the corporation
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CORPORATION
O Two general types of corporations :
1. For profit corporation - focuses on making money
and all profits and losses are shared by the
business owners
2. Not for profit (or nonprofit) corporation - usually
exist to accomplish some charitable,
humanitarian, or educational purpose, and the
profits and losses are not shared by the business
owners
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CORPORATION
O Limited liability corporation (LLC) - a hybrid
entity that has the legal protections of a
corporation and the ability to be taxed (one
time) as a partnership
O Reasons businesses choose to incorporate
O Limited liability
O Unlimited life
O Transferability of shares
O Ability to raise investment capital
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CORPORATION
O The differences between a sole
proprietorship, partnership, and corporation
are:
O Licensing
O Income
O Liability
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Internal Operations of a
Corporation
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Accounting
O Accounting department - provides quantitative
information about the finances of the business
including recording, measuring, and describing
financial information
O There is a difference between bookkeeping and
accounting
O Financial accounting
O Managerial accounting
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FINANCIAL STATEMENTS
O Transaction - an exchange or transfer of goods,
services, or funds involving two or more people
O Source document - describes basic transaction
data such as its date, purpose, and amount and
includes cash receipts, canceled checks,
invoices, customer refunds, employee time
sheet, etc.
O Solvency - represents the ability of the business
to pay its bills and service its debt
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FINANCIAL STATEMENTS
O Financial statement - the written records of the
financial status of the business that allow
interested parties to evaluate the profitability and
solvency of the business
O Four primary financial statements include:
O Balance sheet
O Income statement
O Statement of owner’s equity
O Statement of cash flow
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Balance Sheet
O Balance sheet - gives an accounting picture of
property owned by a company and of claims against
the property on a specific date
O Based on the fundamental accounting principle that
assets = liabilities + owner’s equity
O Asset - anything owned that has value or earning
power
O Liability - an obligation to make financial payments
O Owner’s equity - the portion of a company
belonging to the owners
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Balance Sheet
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Income Statement
O Income statement (earnings report, operating
statement, and profit-and-loss (P&L) statement) reports operating results (revenues minus
expenses) for a given time period ending at a
specified date
O The income statement reports a company’s net
income, or the amount of money remaining after
paying taxes
O Revenue - refers to the amount earned
resulting from the delivery or manufacture of a
product or from the rendering of a service
O Expense - refers to the costs incurred in
operating and maintaining a business
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Income Statement
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Statement of Owner’s
Equity
O Statement of owner’s equity (statement of
retained earnings or equity statement) - tracks
and communicates changes in the
shareholder’s earnings
O Profitable organizations typically pay
shareholders dividends
O Dividend - distribution of earnings to shareholders
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Statement of Cash Flows
O Statement of cash flow - summarizes sources and
uses of cash, indicates whether enough cash is
available to carry on routine operations, and offers
an analysis of all business transactions, reporting
where the firm obtained its cash and how it chose
to allocate the cash
O Companies typically project cash flow statements
on a monthly basis for the current year and a
quarterly basis for the next two to five years
O Financial quarter - indicates a three-month
period
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Finance
O Finance - deals with the strategic financial issues
associated with increasing the value of the business
while observing applicable laws and social
responsibilities
O Financial decisions include such things as:
O How the company should raise and spend its
capital
O Where the company should invest its money
O What portion of profits will be paid to shareholders
in the form of dividends
O Should the company merge with or acquire another
business
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Finance
O Different financial ratios evaluate a company’s
performance
O Internal rate of return (IRR)
O Return on investment (ROI)
O Cash flow analysis
O Break-even analysis
O Break-even point
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Finance
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Human Resources
O Human resources management (HR) - includes the
policies, plans, and procedures for the effective
management of employees (‘human resources’)
O HR typically focuses on the following:
O Employee recruitment
O Employee selection
O Employee training and development
O Employee appraisals, evaluations, and rewards
O Employee communications
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Sales
O Sales - the function of selling a good or service and
focuses on increasing customer sales, which increases
company revenues
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MARKET SHARE
O Measuring the proportion of the market that a firm
captures is one way to measure a firm’s
performance relative to its competitors
O Market share - calculated by dividing the firm’s
sales by the total market sales for the entire
industry
O For example, if a firm’s total sales (revenues) were
$2 million and the sales for the entire industry
were $10 million, the firm would have captured
20 percent of the total market, or have a 20
percent market share
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MARKET SHARE
O Reasons to Increase Market Share
O Economies of scale
O Sales growth in a stagnant industry
O Reputation
O Increased bargaining power
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Marketing
O Ways to Increase Market Share
O Product
O Price
O Place
O Promotion
O There are also reasons not to increase
market share
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Marketing
O Marketing - the process associated with
promoting the sale of goods or services
O Marketing communication - seeks to build
product or service awareness and to
educate potential consumers on the product
or service
O Marketing mix - includes the variables that
marketing managers can control in order to
best satisfy customers in the target market
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MARKETING MIX
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MARKETING MIX
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MARKETING
SEGMENTATION
O Market segmentation - the division of a market
into similar groups of customers
O Market segmentation typically includes:
O Geographic segmentation
O Demographic segmentation
O Psychographic segmentation
O Behavioral segmentation
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PRODUCT LIFE CYCLE
O Product life cycle - includes the four phases a product
progresses through during its life cycle
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PRODUCT LIFE CYCLE
O The product life cycle includes:
O Introduction stage
O Growth stage
O Maturity stage
O Decline stage
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Operations / Production
O Operations management (production management) -
includes the methods, tasks, and techniques
organizations use to produce goods and services
O The operations department oversees the transformation
of input resources into output resources
O The operations department is critical because it
manages the physical processes by which companies
take in raw materials, convert them into products, and
distribute them to customers
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BUSINESS PROCESS
REENGINEERING
O Business process - a standardized set of
activities that accomplish a specific task, such
as processing a customer’s order
O Business process reengineering (BPR) - the
analysis and redesign of workflow within and
between enterprises
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TRANSFORMING
CORPORATIONS
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