End of semester exam 2

What are some "tests" we can consider to weigh the consequences of our actions?

The "Wall Street Journal" Test - How would I feel if my decision made front- page news in the Wall Street Journal? The "Parent" Test - Would I be proud to tell my mother or father about my decision? The "Personal Gain" Test - What have I gained in this situation? Did the chance for personal benefits get in the way of my thinking? The "Platinum Rule" Test - Am I treating others the way they would like to be treated?

10. What four basic decisions are generally the responsibility of the CEO?

A CEO must be responsible for the planning process, which means understanding the relationship of business functions like marketing, product development, production, finance, HR, and how they affect the value chain of the company. They are also responsible for business models, and that they understand the attributes of the organization that influence the internal cost structure, the customer value proposition, business performance, and how innovation can shape its business environment. CEO's also are responsible for competitive advantage, by accessing different market factors in the industry the CEO can commit the company to a specific path. Lastly, they are responsible for strategic choice. Based on the analysis of the previously stated, the CEO chooses the direction and operating agenda.

How does a company's financing strategy impact its operations and performance?

A company's financing strategy is essentially just the way a company goes about getting the money needed to grow the business. This can be done through short term bank loans, issuing bonds, or selling stocks. The money can then be used to develop new products, buy new equipment, launch new promotion campaigns, and to take advantage of opportunities in the market when they develop.

What does a contribution margin represent?

A contribution margin represents the difference between the revenue brought in by sales of products or services, and the cost of making those products or offering the services for sale. This difference is what is left over to cover fixed costs and to generate profit.

14. What are some ways to create "barriers" in the Foundation Simulation?

A couple barriers that can be created are economies of scale. You can grow your company so large that they are too big to allow for smaller competitors. There is also differentiation. You can make your product have such a strong value proposition that no other companies can compete.

Why would a company choose to pay dividends?

A dividend is a form of a cash disbursement from profits paid to stockholders. By paying these dividends, and sharing the profits with the owners of the company, this is turn increases the value of the stocks.

What is a loan and how do interest rates affect a company that takes out a loan?

A loan is a form of a rental agreement such as when you borrow money from someone the principle will be the loan as the amount of money you use, then you will pay the person back the principal and a percentage of the initial money you borrowed from the this being the interest rate. The interest rate affects a company that takes a loan because it is the amount they will have to repay onto of the money they borrowed.

Describe the difference between profit and cash.

According to the class text, profit is the difference between what it costs to make and sell a product and what the customer pays for it. Profit does not equal cash. Cash moves in and out of the business constantly. The number amounts on the income statement may not reflect the reality of the amount of cash actually present. Because of this, the company may report a profit but may go bankrupt because it runs out of cash in order to pay for several different expenses.

What are the three key responsibilities of a marketing manager?

According to the class textbook, the three key responsibilities of the marketing manager are: to clearly define, describe, and forecast the needs of its customers by using market research; determine how to select specific markets and satisfy customer needs through balancing products, services, and benefits and analyze its competitive advantages, plans, and actions.

14) What is the difference between an economic cost and an opportunity cost?

An economic cost is the money spent to implement a decision, so for example if you were marketing a product, the economic cost would be the amount you spend to decide what platform to market your product on. An opportunity cost is the cost of what you gave up doing when you committed to the course of action you chose. An example of this could be the time and opportunities you sacrificed to design and create a new product to put to market.

What makes a problem or situation an "ethical issue"?

An ethical issue is one where a person's actions, when performed of their own free will, has the potential to hurt or help others. Ethical principles influence nearly every decision made when running a business. It is typically for a decision to be called "ethical" when it is both legal and morally acceptable. Sometimes, actions that may be legal in a business context may not be considered "morally acceptable" to the community at large. In circumstances like this, ethical decision making is imperative to avoid adverse consequences either to stakeholders or to the business itself.

What is the difference between assets and liabilities?

Assets include the economic resources that the company can use and that it expects to derive future economic benefit. There are current assets which include cash, accounts receivable, and inventory. There are also fixed assets which include property, plant, and equipment and accumulated depreciation. Liabilities are loans or debt contracts that the company owes. There are long term liabilities and current liabilities which include accounts payable, and current debt.

In what ways are bonds different than loans?

Bonds are different from loans because unlike loans with bonds you have the opportunity to trade them on a secondary market. Loans tend to be more of an agreement with the bank that you have to pay back by a certain date.

2) What are the primary functions of business?

Business functions typically fall into four basic categories; Marketing, production, accounting, and finance.

What are the differences between Cash from operating activities, cash from investing activities, and cash from financing activities?

Cash from operating activities traces money from sale of a company's goods and services. Cash from investing activities uses the cash flow statement which calculates the difference between what the company spent or received due to investing activities that occurred between the current or last statement. Cash from financing activities tells you what cash came in and what went out in financing activities. This includes both short-term borrowing and lending from the bank or loans to other parties; and long-term investments such as stocks and purchase of retirement bonds.

3. What are the common questions that are asked in each of the components of a SWOT analysis?

Common questions involved in SWOT analysis are as follows: (1) What are the strengths the company has that contribute to a competitive advantage and consumer demand? (2) What are some of the weaknesses the company suffers from or areas the could use improvement? (3) What are some opportunities the company could expand upon either in technology, product innovation, markets, consumer segments, etc.? (4) What are the current or future threats or obstacles exist in the industry or markets the company participates in?

How are common stocks different from preferred stocks? Why would a company offer preferred stocks?

Common stocks represent a simple share of ownership of a company, and each common stock share has one vote to cast when electing the corporation's board of directors. If the company were to go bankrupt, the corporation would have no financial liability to common shareholders, and those shares may become worthless.. On the other hand, preferred stock is a type of stock that is traded at a far lower volume than common stock, and has additional privileges. These preferred shareholders can potentially receive higher dividends and have a first claim to assets if a company goes bankrupt.

15. What are the differences between the two generic strategies of cost leadership and differentiation? What are the goals and actions that are associated with each?

Cost of leadership is built around delivering the product at the lowest cost possible. Differentiation is about making a product unique in its market sector and giving it a distinct unique value proposition. Both strategies are aimed at capturing market share, however, through different means. The goal for cost of leadership is to be at the lowest production/operating cost possible. Differentiation is not cost driven put product/service driven. The goal being deliver the best product possible.

6) How would you define demand?

Demand can be defined as the number of products or services that the consumers would purchase at different prices.

What is depreciation and what does it do to cash flow?

Depreciation is the reduction in value of an asset with the passage of time. In relation to cash flow, depreciation adds back to net income a deduction made in income statement that was not a cash expense. Depreciation also affects cash flow by reducing the amount of cash a business must pay in income taxes.

How are business ethics and social responsibility related?

Ethical practice requires rational thought to determine the way we should act when fulfilling our obligations and duties, being compassionate and fair, and respecting the rights of others. The company as a whole, however, also bears a social responsibility to contribute to the greater good of society. An organization's stakeholders, customers, employees, industry groups, and even the laws and regulations, place pressures on organizations to act in responsible and ethical ways.

6. What are the differences between the existing, overserved, and non-customer categories?

Existing customers, this is when a company will introduce a product or service at the low end for customers who have a low level of income. Examples of companies that may introduce this strategy are Dollar General and Walmart. Companies may also suit the over-served customer group, this includes customers who see a product as "good enough" and are not fussed about upgrading that product or any new issues of that product. An example of this is discount airlines who serve a basic flight which is what would suit a over-served customer. Our book defines the non-customer category as the ultimate strategic move as it disrupts the marketplace with simple, customizable products examples of this include Facebook and Twitter as they appeal to all segments of the market.

15) What is the main purpose of the accounting function of a business?

Financial Accounting and Managerial Accounting differ in their intended users. Financial Accounting's main focus is recording, analyzing, and preparing all financial transactions into financial statements that accurately portray the company's financial position for external users such as banks, stockholders, etc. Managerial Accounting focuses on providing financial information pertinent to management within the company, or internal users.

What is the primary difference between financing through loans versus stock?

Financing through loans does not require a company to give up a part of the business when gaining capital as you will have to pay this money back with added interest, when you issue stock for sale you are offering up a part of your company to gain capital thus losing some control of your company.

4. What is the importance of goal setting to business strategy?

Goal setting is paramount to business strategy in order for a company to stay true to its vision and mission as it grows. It keeps the company accountable with tangible, written documentation of what a company would like to pursue.

13. What are the "five forces" that drive competition in an industry?

In the 1980s, Michael Porter identified the five sources of competition as the threat of new entrants to a market, bargaining power of suppliers, bargaining power of customers, threat of substitute products and degree of competitive rivalry.

10) What are the differences between internal and external stakeholders?

Internal stakeholders are entities within a business such as the employees, managers, board of directors and investors. External investors are entities not found within a business itself, but who are interested or are affected by the performance of the company such as consumers, regulators, investors, and suppliers.

Why is it important to understand working capital?

It is so important to understand working capital because it tells you whether or not you will be able to function at day to day operations and pay your bills. If you have no ability to these things, your business will not be able to function in the long-term.

What are some other important factors beyond the 4P's?

It's important to keep in mind access to the product. The invention of the internet has made Place somewhat irrelevant in the 4 P's. So long as there is access to the product there is potential to sell it. It is also important to keep in mind the budget. This will really set the tone for the marketing campaign built for the product.

Why would a company need to forecast sales?

It's important to predict the amount units a business will sell in the future because it will help to make better decisions on production schedules and allocation of resources to attract or retain customers.

8. What is operational effectiveness?

Operational Effectiveness means performing similar activities better than others. It is the practice that allows businesses to maximize the use of their inputs, better utilize resources, and achieve their goals. Operational effectiveness is primarily improving functional performance, trying to outperform other companies that may have a similar value proposition.

When faced with an ethical issue, what are some ways we can increase the number of alternative courses of action?

Our class text advises us to try and create three or more different solutions or courses of actions. The reason for this is it helps us think more creatively and make it easier to make decisions if we have many different possible courses of action it can help when trying to select a course that lies on the middle line of a compromise to keep people happy.

12) How would you illustrate the concept of "uncertainty"?

Our class text describes an example that if someone flips a coin, not knowing which side it will land facing up, demonstrates uncertainty. No one can predict if it will land on the "head" or "tail" side. It is important for decision makers to attempt to reduce uncertainty by collecting and deciphering the most relevant information about a decision situation.

13) How would you illustrate the concept of "risk"?

Our class text uses the example of flipping a coin to illustrate the concept of risk. If you were to place a bet on a coin toss with a friend and the wage was 20 cents, the the risk associated with this bet would be small. in contrast if this were a company or organization placing the bet but with 100,000 dollars, then the risk associated with this bet would be much much higher.

11. What is competitive advantage and what kinds of questions can we ask to help identify sources of it?

Our class textbook states that competitive advantage is when a company uses its resources in a way that allows it to gain a better, often more profitable, long-term position, in the markets in which it offers products and services. Our class text also states that some of the questions to ask to help identify sources of competitive advantage are: "What are we best at today and in the future?", "What can our organization do better than any other organization today and in the future?" and "How do we reach our customers today and in the future?".

4) What is the difference between performance effectiveness and performance efficiency?

Performance effectiveness involves establishing goals and monitoring how successfully you achieve them, whereas performance efficiency is how productive you are in managing and utilizing your resources as you go about making the decisions that coincide with those goals. Essentially, effectiveness means doing the right thing, efficiency means doing things right.

What are the 4P's?

Price Product Place Promotion

What is the difference between primary and secondary stakeholders?

Primary stakeholders are the individuals that are directly affected by the actions taken by the organization or company. Examples of primary stakeholders can be employees, customers, suppliers and investors. Secondary stakeholders are people who are indirectly affected in a positive or negative way examples of secondary stakeholders include competitors, vendors and the media.

8) What are the four conditions that must exist for the free enterprise system to exist?

Private property, freedom of choice, the right to keep profits, and an environment where fair competition can occur.

What is the relationship between revenue and net income on the income statement?

Revenue is used to determine net income. Revenue is the raw form of income or how much you make before expenses are deducted. Net income is the revenue once all the expenses are taken out of the revenue.

What is risk and how does it affect decisions about investment?

Risk is the possibility of losing some or all of an investment. Generally if the investment is high risk then it will have a high return. If an investment is low risk then it will have a low return on investment.

2. What does S.W.O.T. stand for and how does a SWOT analysis matter to business strategy?

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis is a planning technique utilized by management to make well-thought out and informed decisions in regards to strategy that seeks to match the skills or assets a company has with goals it wants to see happen.

How can one "segment" the market? Why is segmentation important?

Segmentation is important because is can give a company or organization a competitive advantage over another by segmenting the market and then targeting specific customers that will be attracted to your product or service. Segmentation can also improve your marketing efficiency by trying to target the right customers.

11) What is specialization?

Specialization is a measure of how broadly or narrowly the range of activities performed by a business is defined.

9. What is strategic positioning?

Strategic Positioning, as described within , means performing different or similar activities from your competitors in different ways. This is a businesses strategy of how it competes and serves customers in it's market, delivering a unique value mix that relies on the strength of its resources and competencies.

5) How would you define supply?

Supply can be defined as the number of products or services that a business would provide at a current price.

What is the primary focus of each of the five approaches to (theories of) business ethics?

The Utilitarian theory focuses on generating the greatest net good for the greatest amount of people. The Individual Rights approach focuses on respect for human dignity and emphasizes freedom, equality, and rationality. The Common Good approach looks at individuals as part of a greater community and therefore looks at decisions from its effect on a specific element of society as a whole. The Virtue theory depends on reflecting as to whether a certain action maintains a particular trait or not.

What are the accounts that make up Shareholder's Equity on the Balance Sheet?

The accounts that make up the shareholder's equity on the balance sheet are the common stock and retained earning accounts. The common stock account tells the value of what the owner's paid in as a direct investment in the company. The retained earnings is the portion of owner's profits that they choose to reinvest into the company.

What are the tradeoffs of selling products on credit?

The advantages of selling product on credit is that it will increase sales by letting customers have a product before they have paid for it. The tradeoff is that this creates an account receivable this meaning that you are effectively selling a loan to you customer that you will receive no additional income on.

What is the purpose of a balance sheet?

The balance sheet is a snapshot of what a business' assets and liabilities at a given time. This shows what the business can produce at any time for shareholders or for potential buyers and it is always produced at the close of the financial year for its shareholders. There are three parts of a balance sheet and they are assets, liabilities and owner's equity. The balance sheet will tell you if you have any equity left in your company.

What is the benefit of separating period and variable costs on the income statement?

The benefit of separating period and variable costs is that it helps to draw focus on the variable costs of production and to figure out ways to minimize those costs. By doing so, you increase your contribution margin and have the ability to pay for overhead or go into profit, thus improving your bottom line.

12. What are the characteristics of business resources that promote competitive advantage?

The characteristics of business resources that promote competitive advantage can be determined by asking if it is rare, easily imitable, and/or non-substitutable.

5. What are the characteristics of effective goals?

The characteristics of smart goals are specific, meaning clearly described and maintained. Measurable, this being the aspects that can be assessed. Achievable, this meaning challenging but attainable. Relevant, being important to the chosen strategy and lastly Time-Bound this meaning it is linked to a certain deadline or milestone. These characteristics make up SMART.

What are some examples of ethical breaches common to business?

The class texts states that some ethical breaches common to business are a boss promising an employee a day off to reward them for additional work then not following through, someone taking credit for someone else's work, doing a fake online review of a friend's business, calling in sick to go to the beach, sliding a personal purchase into a business expense account, copying a piece of software from work onto your home computer.

1) What are the four main business stakeholder groups?

The four main business stakeholder groups are owners, employers, customers, and society.

3) What are the four major activities involved in managing business?

The four major activities involved in managing a business are planning, organizing, leading, and controlling.

17. What are the four quadrants of the Balanced Scorecard? What is the central question that is asked in each perspective of the Balanced Scorecard?

The four quadrants are organizational capacity (learning and growth), internal business process, customer/stakeholder, and financial/stewardship. The central question asked in the balanced scorecard is how, and or what, the organization can do to give more productivity in each quadrant.

What are the four steps in the ethical decision-making process?

The four steps of the ethical decision-making process are: investigate the ethical issues at hand, identify the primary stakeholders directly affected by that issue, increase the alternative courses of action, and inspect the consequences of these alternatives.

What is the inventory turnover rate and how is it measured? James

The inventory turnover rate is the number of times inventory is sold and is calculated by the following equation - inventory turnover rate = cost of goods sold / inventory.

What are the major components of marketing research?

The major components of market research are organizing information and information gathering. Within information gathering there is defining the problem or opportunity, accessing available information, interviewing employees, gathering primary information, interpreting data, and lastly, making decisions and taking action. After all these steps have been met, managers access the results of the action.

What is marketing strategy?

The marketing strategy involves identifying the target market your business can serve better than it's competition, and tailoring that product's offerings towards that market.The overall goal of the marketing strategy is to deliver value to customers while generating a profit. The marketing strategy should analyze the market as well as the company's own capabilities and should focus on the target market they are best able to serve.

What might be the ramifications, financially and from a marketing perspective, of increasing the accounts receivable lag time?

The ramification of receivable lag time is that you will have sacrificed product of inventory with no receivable income and because of this cannot use the gained revenue instantly after the sale. It has ramifications for the marketing perspective as marketers need to know how much product is needed and to do this we need a sales forecast that is affected by increased lag times.

16. What makes the Balanced Scorecard "balanced"?

The scorecard is balanced because it covers the four basic functions of business.

1. What factors influence the strategic choices a company will face?

There are many different factors that can have an impact on the strategic choices a company makes. Those factors commonly include current opportunities and challenges as well as future trends, both in the company's industry as a whole and the markets it participates in.

What steps should you follow to collect information for marketing research?

There are seven steps that you should follow when collecting market research these steps are defining the problem or opportunity, assessing the available information, reviewing internal records and files, collecting outside data, organizing and interpreting data, making a decision and taking action and lastly assessing the results of the action.

9) What are the implications of the relationship between supply and demand?

They are directly related to one another and have a direct effect on one another. When supply drops demand tends to rise and when supply increases demand drops. It is very important to find an equilibrium point to keep the market in balance.

What is the triple bottom line?

Triple Bottom Line (TPL), is the viewpoint that involves an organization determining success in terms of financial, environmental, and social performance. This is sometimes referred to as a focus on people, planet and profits. This broader perspective of business success allows organizations to take a longer-term perspective and evaluate the future consequences of decisions.

When dealing with "marketing reality," what are the three questions that need to be addressed?

What do our customers really want? (Ambiguity) Will our envisioned offerings be successful? (Risk) Can we deliver what we promised (Conformance)

How can we tell the difference in the quality of different bonds?

When a company issues a bond, they are essentially issuing a form of long-term financing where the buyer of a bond is taking a risk by loaning money in order to earn interest on the loan. The level of risk is assessed by the securities and exchange commission, and given a rating based on how high or low the risk is; AAA being an excellent company with low risk, to a score of D for very poor, high risk companies.

What is the working capital and why does it matter?

Working capital is the cash available to fund the businesses' operations. It is important because without cash, you cannot pay your bills, suppliers, etc. and will cease to function successfully.

How does working capital relate to the cash flow statement?

Working capital is the cash available to run daily operations; therefore, it is related to the statement of cash flows as this statement breaks down where the working capital is going to: operating, investing, or financing activities.

7) How would define a market?

You can define a market based off customer demographics, or product demographics. You can use age group, income type, product type, industry type, or any other similar categories.

7. How does one grow or sustain a business in relation to each of these categories?

You can grow and sustain a business regardless of the strategies of the categories previously mentioned with the timing of a strategic move. This meaning it is critical to develop a growth strategy and consider all of the potential options and wait for the perfect time to execute a strategic plan.