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Cumulative Notes From BUS 200

by: gxt71

Cumulative Notes From BUS 200 BUS

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First four classes worth of notes for BUS 200.
Introduction To Business
David Spigelman
business, Introduction
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This 13 page Bundle was uploaded by gxt71 on Thursday September 1, 2016. The Bundle belongs to BUS at University of Miami taught by David Spigelman in Spring 2016. Since its upload, it has received 7 views. For similar materials see Introduction To Business in Business at University of Miami.


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Date Created: 09/01/16
1 First Chapter Understanding What Businesses Do: - Business o Any profit-seeking organization that provides goods and services designed to satisfy the customers’ needs o Ex: UM o All have stakeholders (UM students would be a stakeholder, but trustees count the most - Adding Value to Satisfy Customers o Businesses have to find a place where they can add value o Wheat farm (converts soil seed, wheat) Flour millBakery (converts flour to bread)Grocery store (makes it easier to purchase food) - Revenue o Money that a company brings in through the sale of goods and services - Business model o Skipped it - Profit o Money left over after all the costs involved in doing business have been deducted from the revenue o Profit = revenue minus cost (Pie sign = R – C) Competing to attract and satisfy customers - Competitive advantage o Some aspect of a product or company that makes it more appealing to its target customers o “What are you good at” o Apple is good at product innovation, Nike is good at marketing o A lot of times firms try to do too much o “a well run company will allocate resources to take advantage of their competitor’s strength” Identifying Major Types of business - Goods producing - One other type Risk and Reward - Look at it from an investment perspective - Company: - Outcome: Blue chip stock = well established companies Barrier to Entry - Any resource or capability a company must have before it can start competing in a given market - Means it’s difficult to get into that business (you can easily get into the restaurant business but not the nuclear power business) There won’t be anything on the test that he doesn’t cover in class Multiple Environments of Business 2 - Company o Market environment  Target customers, buying influences that shape the behavior of those customers and competitors that market similar to products to those customers o Legal and regulatory environment  Laws and regulations that restrain, support, and protect businesses at local, state, national, and international levels o Economic environment  Conditions and forces (both managed and unmanaged) that affect the cost and availability of goods, services, and labor and thereby shape the behavior of buyers and sellers o Technological environment  Forces resulting from the practical application of science to innovations, products, and processes, can create and destroy business opportunities  Now any business needs to have a digital strategy  He predicts Walmart is gonna have a greater amount of sales coming from online  Brick and Mortar = you have a physical presence, so Barnes and Nobles has brick and mortar presence because they have stores vs. amazon which is not brick and mortar because they’re online o Social environment  Population trends, social values, relationship of society and business  He says this is also supper important obvi because it changes how people become aware of products etc Business doesn’t really have a specialization, so people have to be aware of all these things Today new regulation that oil can be exported to foreign countries from the U.S. ‘ Recognizing the Multiple Environments of Business - Social environment o Trends and forces in society at large - Stakeholders o Internal and external groups affected by a company’s decisions and activities o So shareholders are stake holders, employees would be a stakeholder, managers, owners etc, people in the community (like if you live by a proctor and gambel factory) - Technological environment o Forces resulting from the practical application of science to innovations, products, and processes 3 - Disruptive technologies o Those that fundamentally change the nature of an industry o Can be powerful enough to create or destroy entire companies Identifying major functional areas in a business enterprise - Research and development (R&D) o Functional area responsible for conceiving and designing new products - Information technology (IT) o Systems that promote…. - Manufacturing, production, or operations o An area where the company makes whatever it makes (for goods- producing business)… - Marketing o Charged with identifying opportunities in the marketplace o Working with the R&D to develop the products to address those opportunities o Creating branding and advertising strategies to communicate with potential customers, and setting prices o Involved with logistics (logistics is how you transport stuff) o Branding o Marketing o Everything to getting it into the hands of the consumer excepts the production - Finance and accounting o Responsible for virtually every aspect of a firm’s finances o Ensuring that the company has the funds it needs to operate o Monitoring and controlling how those funds are spent o Drafting reports for company management and outside audiences such as investors and government regulators o For our purposes accounting is like reporting forms etc - Human Resources o Responsible for recruiting, hiring, developing and supporting employees o Personnel *switch gears to economics* What is this thing called the economy? - Economy o The sum total of all the economic activity within a given region - Economics o The study of how a society uses its scarce resources to produce and distribute goods and services o This is the better definition o How we allocate resources Micro- small, the individual, the consumer, the business Macro – the overall big picture, unemployment, inflation 4 - Factors of production: o Capital = the physical inputs to the production process, anything tangible or physical  He would even say a computer is capital because he uses it to produce education, sometimes he uses technology as a third factor for organizing capital o Labor = human input o Capital and labor are the most important inputs to the production o Output = what the firm produces, the goods and services o Input = the factor of production o Technology = how you organize capital labor  Ex: Ford - He says China isn’t a communist country. - Cuba does not have a market oriented system - Venezuela is not a market economy - Most of the world is going towards Markets - Soviet Union fell apart mainly because they couldn’t satisfy people’s materialistic desires - Basic stuff: every company needs to think about demand and supply - At a higher price, the quantity demanded is low Demand Curve P D Q Most of the time demand curves go down but not always Supply Curve P S Q 5 Equilibrium = point where supply and demand intersect Tastes and preferences can cause change to the demand of your product, income could effect it - Ex was Greek Yogurt company Normal good = when an income goes up, you consume more of it - Most goods are normal - Ex: you graduate from UM, get a great job, so you buy a nice car Inferior Good = if your income goes up, you consume less of it Ex: Ramen noodles Know the normal vs. inferior goods (they are opposite of each other Increase in demand = a shift in the demand curve - Review, you don’t get this When supply goes down, it really is going up (two different curves, the demand curve, and a supply curve) – Will be on test Notes 2-1-16 Partnership Agreement - Should address investment percentages, profit-sharing percentages, management responsibilities, and other expectations of each owner, decision-making strategies, succession and exit strategies, criteria for admitting new partners and dispute resolution process Corporations - Corporation: o A legal entity, distinct from any individual persons, that has the power to own property and conduct business o Major disadvantage of corporation: double taxed income o Firms only become corporations if they have to, like if they are doing businesses across state lines etc - Shareholders o Investors who purchase shares of stock in a corporation o People that own shares of a company Forms of Business Ownership (Exhibit 5.1 - Chart) TEST - Sole proprietorship o Sole liability - General partnership - Limited partnership - Corporation o Like if a company wants to be traded publicly, limits liability. Cons: double taxes, usually don’t have a choice - Only one that gets double taxed (double counted for income) are corporations the others are called flow through taxes 6 Corporations ct: - Private corporation o A corporation in which all the stock is owned by only a few individuals or companies and is not made available for purchase by the public o Much higher transaction cost to buy and sell shares - Public corp o A company that’s listed on like NYSE or NASDAQ - his deff o Pros: makes it easy to buy and sell shares o A corporation in which stock is sold to anyone who has the means to buy it - Differences: o Amount of information private companies is way less than public corporations have to release o Stock price itself can be a distraction for shareholders who see the market traded everyday o Private corp adv: can focus more long term because they have to report less frequently, vs. a public corp has to report quarterly - Advantages of Corporations o Ability to raise capital o Liquitidty o Longevity o Liquidity…. - Disadvantages of corps o Cost complexity o Reporting requirements o Managerial demands o Possible loss of control o Double taxation - Leverage buyout… - Special Types of Corporations o Limited Liability Company (LLC)  A structure that combines limited liability with the pass- through taxation benefits of a partnership  Most common form for small businesses  Pass through taxation – means only taxed once for income - Corporate structures chart (KNOW THIS) o Subsidiary  Primarily or fully owned by parent company o Parent company  Owns one or more subsidiary o Holding company  Special type of parent company  Most large corporations have a holding company at the top parentmultiple subsidiaries 7  Set up this way to limit liabilities  Ex: holding company for google now is Alphabet  Usually little operating control, just holds other assets o Just know the general structure - Corporate Governance o Board of directors (Know This)  A group of professionals elected by shareholders as their representatives with responsibility for the overall direction of the company and the selection of top executives  Supposedly have oversight of CEO  But, usually the CEO helps pick the board of directors (so he chooses his own boss – con)  He thinks lots of conflict of interest and that it should be regulated o Corporate governance ct o Describes all the policies, procedures, relationships, and systems in place to oversee the successful and legal operation… o Corporate Governance chart o Shareholdersboard of directorscorporate officersemployees - Shareholders o Proxy  A corporate vote o Shareholder activism  Activities undertaken by shareholders to influence executive decision making in areas ranging from strategic planning to social responsibility  Ex: Carl Icon  Not really on test - Corporate Officers o The top executives who run a corporation o CEO  The highest-ranking officer of a corporation - Mergers and Acquisitions o Merger (TEST)  An action taken by two companies to combine and perform as a single entity o Acquisition (TEST)  An action taken by one company to prevent….. o Hostile takeover – probs not on test  You try to acquire a company against the wishes of management o Leveraged buyout LBO – not on test  Acquisition of a company’s publicly traded stock, using funds that are primary borrowed, usually with the intent of 8 using some of the acquired assets to pay back the loans used to acquire the company - Types of Mergers o Vertical Merger  When you buy up the production chain  Ex: furniture maker buys up lumber maker o Horizontal Merger o If it’s related to supply it’s vertical, everything else is horizontal - Strategic Alliance and Joint Ventures o Strategic Alliance  A long term partnership between companies to jointly develop, produce, or sell products  Ex: Delta and KLM  So you don’t have to combine entities to do business together o Joint venture  A separate legal entity established by two or more companies to pursue shared business objectives - END OF CHAPTER 5 2-3-16 Small Business - A company that has fewer than 500 employees - Probs not on test Economic Impact of Small Businesses in the U.S. (don’t necessarily need to know this) - Generate 64% 2/3rds of new jobs come from small businesses - About 2/3 of new businesses fail - Small companies produce more patents Qualities shared by successful entrepreneurs (don’t need to know) - Have to be willing to fail - Colleges will ask what you did during school, what you did outside of class Business plan: a document that summarizes a proposed business venture, goals, and plans for achieving those goals Advisory board - A team of people with subject-area expertise or vital contacts who help a business owner review plans and decisions Business is who you know. Angel Investors - Private individuals who invest money in start-ups, usually earlier in a business’s life and in smaller amounts than VCs are willing to invest or banks are willing to lend 9 - VC: venture capital are firms that will invest in early stage business, but usually require you have some experience (they would come in after the lib) IPO - A corporations’ first offering of shares to the public Financial accounting: - More standardized - The records they have to keep - (more imp for this class) Management accounting - Pretty much exclusively for internal consumption - Record keeping that management wants to create Private accountants - Not important - Controller o Highest-ranking accountant in a company, responsible for overseeing all account functions - CPA’s o Professionally licensed accountants who meet certain requirements for education and experience and who pass a comprehensive examination o Pretty reliable/always in demand job Public Accountants - Certified accountant who can work inside or outside of a firm Audit - Formal evaluation of the fairness and reliability of a client’s financial statements - A lot of firms create financial statements but aren’t always audited - Means somebody reviews them and there’s no fraud GAAP – Generally Accepted Accounting Practices (TEST) - Standards and practices used by publicly held corporations in the U.S. and a few other countries in the preparation of financial statements; on course to converge with IFRS External auditors - Independent accounting firms that provide auditing services for public companies - Larger firms are required to have large financial audits - Another reason accounting firms do so well Sarbanes-Oxley (probs not on test) - Informal name of comprehensive legislation designed to improve integrity and accountability of financial information - Before Sarbanes-oxley the CEO wasn’t as responsible for financial statements as they are now Fundamental Accounting Concepts - Assets: 10 o Things that you own of value, or lease (but only if the lease is prepaid) - Liabilities o Claims against a firm’s assets by creditors - Owners’ equity o The portion of a company’s assets that belongs to the owners after obligations to all creditors have been met Balance Sheet – Assets Liabilities Cash 80 ST (current liability) Marketable 50 - bank loans due 80 Inventory 30 - commercial paper 60 Total current assets 160 LT 140 Bond 100 Preferred Stock 100 Total liability 340 P, P, E (Property, plant and equipment) Fixed assets Real estate 130 Physical equipment 20 Factor 90 Total fixed assets: 240 Total Assets $400 *preferred stock definition 2/10/16 Mutual Funds – will definitely be on test Open end mutual fund: - Trades at net asset value - You buy the mutual fund and they are creating shares for you 11 Closed end fund - Once you invest in a close end fund it can go up or down in value but the amount of invested asset doesn’t change - Ex: 200 mill fund might go up but no additions or subtracts - ETF: means trades on stock exchange like NYSE or NASDAQ - Pool of investible assets doesn’t change but trades as ETF (trades like a stock) - Can trade at a premium - Don’t get this Passive vs. Actively managed fund - Actively managed: o Usually open end funds o Like AIM, Fidelity o Mutual fund tries to beat the market - Passively managed mutual fund o Tries to mimic exact performance of the market o PRO: investment fees are much lower (1.25-1.5% fee vs. 2-.25% fee for actively managed fund) o He says by passively managed fund - He says one of smartest ways is to just invest based on income at intervals, like saving a few hundred bucks for three months and investing (income averaging) - Stocks are gonna beat out other types of investments if they can handle market volatility and get out when the market goes down Income average generates savings Smart to time your market real-estate Detail of how bonds are priced: TEST - Bond pays a coupon - Ex: 1000 face value and coupon is (5%) - Face value is amount the bond pays at maturity - $30 + $50 + $50 + $1000  then discount it all 1 + I to the 3 = PV rd (present value) - (30/1+i^3) - So if the bond trades at 5% it trades at par value which means 100% value - If the yield (denominator is smaller the yield goes up) - The price of a bond and yield are inversely related (i is the yield – the denominator) - Yields are at an all time low rn bc of all the crisis the world wants safe investments o Bond return rn is like 2.6% vs. stock market annual return after adjusted for inflation is 7-8% o The stock market climbs a wall of worry (It also goes down faster than it goes up) 12 - Federal reserve protects the u.s, economy by buying and selling bonds. FED can make interest rates go up and down depending on what they want. FED is most powerful economic institution on earth Time value of money - 3,000 dollars today is worth more than 3,000 dollars in a year o bc you can invest it/compound interest After inflation How do firms finance themselves? If the value of your assets goes down you still have the value of your debt to pay back, so riskier companies need to finance themselves with equity. So newer and riskier companies should have less leverage. Newer companies finance themselves with equity Types of Financial instruments - Security: o Tradable financial investment  Can buy or sell it easily o A stock is a type of security o Can have a derivative security o Derivative: something that derives it’s value from something else (not on test)  Ex: you buy GE stock, the right to buy the shares but not the responsibility - Loan: o Not a security o Not usually easy for you to buy - Convertible bonds o Company uses convertible bonds o Purchaser of a bond has the option to convert into option Private Equity: (probs on test) - Ownership assets that aren’t publicly traded; includes venture capital - Has become a huge field - Focuses more on long term, reasons you would higher a manager for this - Ex: lots of colleges invest in private equity Alternative asset classes: - Normal asset classes would be real-estate, stocks and bonds Trading functions Advisory Businesses - Mergers and Acquisitions (very lucrative) - If Fisor wants to merge with Merk they go to an investment bank and ask them to create merger - Divestiture o When you sell a company, same people who do the Mergers and Acquisitions just for a different name - Very lucrative career for investment bankers 13 Underwriting - Stock Underwriting o Bond or Debt underwriting o Ex: you become next Mark Zuckerburg, you go and say you want to do an IPO o IPO is a placement of equity into the public market o Form a syndicate… o If they priced the IPO’s correctly then the stocks go up o Underwriting syndicate: group of banks that forms the price of what the security should be and has to find investors to buy it then they go back and present the deal and then there is no backing out o When you underwrite it’s a commitment that you will get those shares into the market and if you don’t then they have to keep them - Bond Underwriting Prospectus - An SEC required document that discloses required info about the company, its finances, and its plans for using the money it hopes to raise


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