Popular in Course
verified elite notetaker
Popular in Department
This 8 page One Day of Notes was uploaded by firstname.lastname@example.org Notetaker on Wednesday September 3, 2014. The One Day of Notes belongs to a course at a university taught by a professor in Fall. Since its upload, it has received 187 views.
Reviews for HowBusinessWorksTextbookNotes.pdf
The content was detailed, clear, and very well organized. Will definitely be coming back to email@example.com for help in class!
-Dr. Ruth Wyman
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 09/03/14
Making Business Work The Textbook Notes Chapter 1 Learning Objective 1 Nature and Purpose of Business What is a business Business an organization recognized under the law which attempts to create value by exchanging products with customers for money or money substitutes credit etc Four critical elements to be called a business 1 Businesses are legal entities Meaning businesses are permitted by law to conduct transactions like buying and selling products 2 A business must offer a product often referred to as either a good or service a Goods physical items that we can touch and feel b Services intangible activities that we know exist but cannot touch and feel 3 A business must exchange these products for money or money substitutes with customers Customers people or organizations that buy a business39s products A business must create an exchange or sale with a customer Economists often say that products provide customers with utility a measure of satisfactionsbenefits gained from the product 4 Businesses attempt to create value Customers get value from utility of the products they buy when they use consume or enjoy them Two Categories of Business 1 Forprofit Businesses attempt to create an exchange between the business and the customer that results in profit Profit when the revenue the money a business receives from the exchange exceeds the cost incurred in the exchange Costs price of labor services materials etc 2 Notforprofit businesses attempt to balance revenue and costs Create an exchange where profit is not the objective Learning Objective 2 The value of a for profit business is measured by the market price of the business or what you39d pay for the business if you wanted to buy it The purpose of a business is to create value The General Concept of Value Value the benefits we expect to receive if we own something Three considerations of value 1 The quantity or amount of the benefits we expect to receive 2 The expected timing of the benefits we expect to receive Time erodes value 3 The opportunity cost and risk involved 0pportunity cost required rate of return related to risk involved in our choices Risk Uncertainty of receiving benefits that are lower in amount and or later in time than we expect Why the recent business crisis occurred Value can be destroyed by focusing only on benefits without considering risks Businesses sought benefits for their owners so they took high risk levels Banks lent money to risk customers Summarizing Value 1 What benefits do I hope to receive 2 When do I expect to receive these benefits 3 What is the chance I would get lower benefits than I expect or would need to wait longer than I expect Value is about the Present and Future How Do Businesses Create Value They buy make products that have one value Cost and sell the products to the customer at a higher value revenue Create an exchange where revenuegtcost profit Sometimes businesses must sell at a loss where costgtrevenue Businesses must accept this risk Businesses Value Function the amount of profit it expects to earn but also a function of the timing and risk of the expected profits The greater the expected profit from a business the greater the value of the business A successful business creates profit in a timely fashion with little risk Who do businesses create value for Stockholders owners of corporations who buy shares of stock that represent their ownership Businesses must convince owners that they will receive value from their investment Free Market Economy buyers and sellers are free to buy and sell what they want at the price they choose Nobody forces you to work Nobody forces the supplier to sell Lenders are free to provide their money as they deem appropriate Therefore all stakeholders are important to success How is value created Seeing needs and meeting the needs and opportunities with products that are valued Entrepreneurship can only succeed in a free market economy if they compete for customers assets employees and money Attraction best products Best products best employeesassets Best employees assets competition for money Competition for money best products etc Learning Objective 3 Creating Value by Acquiring and Investing Money Acquiring money borrowing or getting owners to provide money Debtliabilities borrowed money Equity owners money Business uses money to invest in assets Asset an economic resource that a business owns and can use to operate the business Employees people to manage and operate the business Operating Profit money a business has left after deducting the expense of operating the business such as the cost of the products it sells and the employee salaries from its revenue Revenue Operating Expenses Operating Profit Lenders receive interest from the operating profit Interest the cost or expense businesses pay to borrow money Owners get remainder Net Income Operating Profit Interest Expense Acquiring and Investing Money An example When we acquire money we are acquiring financial capital Financial capital comes from debt or from equity Real Capital assets Human Capital people Learning Objective 4 Managing a Business Creating Value Managers must be hardworking and smart working constantly looking for better methods and forecast opportunities and challenges in the future Manager someone who is responsible for looking after the interests of the business39s owners and other stakeholders The focus of successful managers is always on creating value Management the process of decision making that affects the business value Three Managerial Duties 1 Plan planning involves envisioning future finding opportunities setting goals determining alternatives to achieve goals and developing systems that will enable the business to execute the selected alternatives 2 Execute executing involves using systems to operate the business according to plans to achieve the desired goals 3 Review reviewing involves using systems to compare the desired outcomes to the actual results Management Levels and Business Departments Managers must focus on their role in the team Senior Managers managers who direct and coordinate overall organization Examp1e CEO or president Functional Operational Managers managers who specialize in a functional area Example plant manager for Hyundai Hierarchy Senior managers Functional Operational Middle Managers Functional Operational Iunior Managers Departments Research and Development Department responsible for acquiring and applying new knowledge to create new products refining existing products and deciding whether or not existing products can create value Marketing Department responsible for understanding the market customers and competitors making sure the product will meet customer needs pricing the product trying to show customers why the product adds superior value and distribution of the product Production Operations Department responsible for making the product FinanceTreasury responsible for acquiring and managing financial resources money Accounting department responsible for recognizing measuring recording and reporting the value of assets borrowed money equity revenue and costs IT Department responsible for managing the technology used throughout the business HR Department responsible for employees How Managers Create Value Ethics and Social Responsibility Must convert inputs to outputs that make all stakeholders better Create value Legal ethical behaviors Learning Objective 5 The Importance of Business Intermediaries businesses serve as such between the providers and consumers of products A person or organization that facilitates exchange Provide efficiency and ideally lower the cost of goods services Competition makes businesses strive to create the best products at the best prices Competition should enhance efficiency The State of Business US Non government business creates 84 of all jobs Gross Domestic Product GDP common measure of economy39s output and income the value of goods and service produced and sold in an economy Chapter 2 Understanding the Process of Creating Value Introduction Let39s Talk About Value Sustainable Competitive Advantage what businesses try to create value with by developing business models and strategies to establish it as such Why Creating Value Matters Successful Business Characteristics Ability to create operating profits which exceed financing costs over time on a risk adjusted basis Learning objective 1 The Nature and Purpose of Business Market a place sometimes physical and sometimes not where people and organizations exchange products or other things of value such as money works by individuals and organizations demanding supplying items Worth a business is worth what it would cost to buy it value of business is price set by market to buy it Creating Value Investing Financing and Operating a Business Liquidate when the assets are sold Bad investment decisions vs Bad Financing Decisions Borrow at low interest rates instead Creating Value make sure net results of investment and financing decisions make sense Creating Value Managing a Business Portfolio a mix or pool of different resources Assets cash inventory buildings equipment Attract money at the lowest cost use the money to acquire best assets and employees manage the assets and employees in the best way possible Learning Objective 2 Operating a Business for Value Cash an asset that allows business to pay bills currency Accounts Receivable instead of cash a business may accept this promise to pay in the future also an asset Inventory a supply of goods to sell asset Fixed asset also property plant and equipment if the business owns the place or equipment in requires The Impact of Time on Value The faster operating profit is earned the more valuable the profit is to the money providers As time passes value deteriorates Recognizing and Understanding Opportunity Cost or Required Return Return a percentage relating what the lender owner received from the business relative to what they put in the business during a given period Return P1PoPo Where P1 The amount of money received during or at the end of a period P0 The amount of money provided at the beginning of the period Required rate of Return expected return the price of the money which creates value sought by lenders and owners riskfree return cost of money overtime assuming no risk risk premium the higher the risk the higher the return required by the providers of money Re Rf Risk Premium Where Re required expected rate of return Rf risk free rate of return in the economy Risk Premium additional required return to compensate for risk Learning Objective 3 Making a Business Valuable Winning in a Competitive World Business Models Business Model a description of how a business creates and delivers value describes a business39s system that creates value called a value chain Differentiating business strategy vs business model Business Strategy how a business tries to compete against other businesses with similar business models and win the competition to create vaue Hyundai same model different strategy products meet customer39s needs competitive advantage Target why instead of walmart competitive advantage Competitive Advantage when a business can do something that allows it to outperform its competitors understand customers to create value suited to them long term Google customer perception is better value Competition reaps successful economies Innovation finding new ways to think and do things Evolution of Retail Business Model Small local merchants Late 18005 Dept Stores Early 19005 Catalog Retailers Early 19605 Discount Dept Stores Late 19905 Internet Retailers Strategy is about being different Innovation is about being different over time Putting it All Together The Mission Statement Mission Statement description of a business model strategy and operating values why it exists how it operates why it39s special often published Learning Objective 4 Looking at Business as a System Business system processes that businesses use to operate u5ing people data and processes businesses create produce and sell systems of management plan execute review systems to create competitive advantage Value Chain a mapping of how a business converts inputs people assets and money into outputs that create value for customers owners and other stakeholders Importance of Business Systems Using systems to lower costs assembly line by Ford Why is the business world complex and rapidly changing 1 Globalization 2 Spread of Information 3 Technology Learning Objective 5 Business in the Future Globalization the disintegration of the barriers of global trade geography language and cultural misunderstanding Information Revolution knowledge is more accessible to everyone so businesses can no longer rely on ignorance of customers Technology devices and systems used in businesses and society more efficiency connection lifespan dependence creates opportunities and challanges
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'