PR 429 Quiz #2

Environmental Scanning

Monitor and interpret social, political, economic, ecological, and technological events to spot trends and conditions that could impact the industry/ organization - identify new opportunities and threats

Buy Side analysts

Mutual funds, pension funds, hedge funds - Fidelity, Vanguard, American Century, TIAA-CREF - Conducts research and makes stock recommendations for internal use at their own firm (does not submit estimates to "street consensus"/first call) - Portfolio manager- individual at a buy-side firm, responsible for making buy, sell, and hold decisions

Organic growth

Organic growth is the growth rate a company can achieve by increasing output and enhancing sales internally. This does not include profits or growth attributable to takeovers, acquisitions or mergers. Because takeovers, acquisitions and mergers do not bring about profits generated within the company, they result in what is instead considered inorganic growth.

Short Selling

People think of investing as buying an asset, holding it while it appreciates in value, and then eventually selling to make a profit Shorting is the opposite: investor makes money on with a shorted security falls in value Sale of a security that is now owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit

Bull Market

Period of generally rising prices Start is marked by widespread pessimism (when the crowd is most bearish) Feeling of despondency changes to hope, optimism, and eventually euphoria, as bull runs course Often leads the economic cycle Ex. 1983 to 2000 Since 2009

Investor Relations

Persuasive Communications to limited audience in a heavily regulated environment (publicly traded company) Strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company's securities achieving fair valuation Provodies a company information to investors to help them make informed buy and sell decisions

Quiet Period

Prior to a company's Initial Public Offering (IPO), the quiet period is an SEC-mandated embargo on promotional publicity. This prohibits management teams or their marketing agents from making forecasts or expressing any opinions about the value of their company. For publicly traded stocks, the four weeks before the close of a business quarter are also known as a quiet period. Here again, corporate insiders are forbidden to speak to the public about their business to avoid tipping certain analysts, journalists, investors and portfolio managers to an unfair advantage - often to avoid the appearance of insider information, whether real or perceived.

Financial Communications

Privately held company dealing with investors, shareholders and other parties who are interested in a company's shares or financial stability Private companies are not required to disclose any information on financial performance. Reasons to do so include: -Attracting private capital -Attracting suitor for a merger or acquisition -Attracting JV partner/key recruiting -Pre-IPO, starting to act like a publicly traded company to start establishing credibility in advance of an offering and its quiet period

4 P's of Marketing Mix

Product - Total package of benefits obtained by the customer - Breadth (how many different lines), length (how many items will there be in the lines to cover different price points), depth (how many types of a given product) Place - Marketing channel= set of mechanisms or market via which a firm goes to market - in touch with the customer from demand generation to sales to delivery of product Promotion - Communications strategy - What are the core functions of marketing communications? Demand generation and branding Pricing -Revenue models - Based on created value for customer

Regulation Fair Disclosure

Regulation Fair Disclosure (Reg FD) is a rule passed by the Securities and Exchange Commission in an effort to prevent selective disclosure by public companies to market professionals and certain shareholders. Reg FD states that when a publicly traded company or issuer of stock discloses any material nonpublic information regarding that issuer or its securities to a limited group of individuals, the issuer must make public disclosure of that information. Such disclosures must be made simultaneously if it is an intentional release of information. Non-intentional sharing of such information must be promptly followed with public disclosures. In the financial world, disclosure refers to the act of releasing all relevant information on a company that may influence an investment decision—making public both positive and negative news, data, and other details about its operations, or that impact its operations, in a timely fashion. Similar to disclosure in the law, the concept is that, in the interest of fairness, all parties should have equal access to the same set of facts.

Roger's Five Factors of Innovation Diffusion

Relative advantage (degree to which a product is better than one it replaces) Compatibility (degree to which a product is consistent with existing values and experiences) Complexity (degree to which a product is difficult to understand and use) Trialability (degree to which a product may be experimented with on a limited basis) Observability (degree to which a product usage and impact as visible to others)

Form 10K

Reports a company's annual results and forms the foundation for a firm's annual report - independently audited (Obligatory SEC filing)

Form 10Q

Reports a company's quarterly results. Unlike the 10K, these financials are unaudited (Obligatory SEC filing)

Growth Hacking

Sean Ellis coined the term in 2010 A person whose true north is growth. Everything do do is scrutinized by its potential impact on scalable growth. Marketing technique developed by technology startups which uses creativity, analytical thinking, and social metrics to sell products and gain exposure Part of the online marketing ecosystem, as in many cases growth hackers are using techniques such as search engine optimization, website analytics, content marketing, and A/B testing Focus on low-cost and innovative alternatives to traditional marketing Particularly important for startups, as it allows for a lean launch that focuses on growth first, budgets second

Secured debt

Secured debt is debt backed or secured by collateral to reduce the risk associated with lending, such as a mortgage. If the borrower defaults on repayment, the bank seizes the house, sells it and uses the proceeds to pay back the debt. Assets backing debt or a debt instrument are considered security, which is why unsecured debt is considered a riskier investment.

Razor Blade Business Model

Sell razor for cheap and then lock them into the blades (Kodak- camera and film)

Positioning statement

Solving the positioning problem enables the company to solve the marketing mix problem The marketing mixx (product, price, place, and promotion) is essentially the working out of the tactical details of the positioning strategy Our brand is single most important claim among all competitive Frame because single most important support

Adam Smith

- Wealth of Nations - Ideas it promoted generated international attention and helped drive the move from land-based wealth to wealth created by assembly-line production methods driven by division of labor. - Laissez-faire philosophies, such as minimizing the role of government intervention and taxation in the free markets, and the idea that an "invisible hand" guides supply and demand - A man would invest his wealth in the enterprise most likely to help him earn the highest return for a given risk level - Dominant school of thought through to Great Depression

Keynes

-The aggregate demand created by households, businesses and the government and not the dynamics of free markets is the most important driving force in an economy. -Free markets have no self-balancing mechanisms that lead to full employment. Keynesian economists urge and justify a government's intervention in the economy through public policies that aim to achieve full employment and price stability. - Greatly influenced governments the world-over in accepting their responsibility to provide full or near-full employment through measures (such as deficit spending) that stimulate aggregate demand.

Creditors

A creditor is an entity (person or institution) that extends credit by giving another entity permission to borrow money intended to be repaid in the future. A business who provides supplies or services to a company or an individual and does not demand payment immediately is also considered a creditor, based on the fact that the client owes the business money for services already rendered.

Debtors

A debtor is a company or individual who owes money. If the debt is in the form of a loan from a financial institution, the debtor is referred to as a borrower, and if the debt is in the form of securities, such as bonds, the debtor is referred to as an issuer. Legally, someone who files a voluntary petition to declare bankruptcy is also considered a debtor.

Fiscal year

A fiscal year (FY) is a period that a company or government uses for accounting purposes and preparing financial statements. A fiscal year may not be the same as a calendar year, and for tax purposes, the Internal Revenue Service (IRS) allows companies to be either calendar-year taxpayers or fiscal-year taxpayers. Fiscal years are commonly referred to when discussing budgets and are often a convenient period to reference when comparing a government's or a company's financial performance over time.

U.S. Securities and Exchange Commission (SEC)

A government commission created by Congress to regulate the securities markets and protect investors Also monitors the corporate takeovers in the US Composed of 5 commissioners appointed by President and approved by Senate Statutes designed to promote full public disclosure and to protect the investing public against fraud in the securities market

Stock Option

A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed upon price and date. There are two types of options: puts, which is a bet that a stock will fall, or calls, which is a bet that a stock will rise.

Venture Capital Firms

A type of professional investor that typically invests in private and fast growing companies- often investors in pre IPO companies, buy equity (don't give loans), the earlier you invest the higher the risk, they work with one another How does a fund work? - General practitioners set the goal for the fund - Go to people to invest - Once goal is met, fund is closed - Then meet with entrepreneurs to invest - Want 10x return on the fund - Profits shared

Accounting

Accounting is the systematic and comprehensive recording of financial transactions pertaining to a business. Accounting also refers to the process of summarizing, analyzing and reporting these transactions to oversight agencies, regulators and tax collection entities. The financial statements that summarize a large company's operations, financial position and cash flows over a particular period are a concise summary of hundreds of thousands of financial transactions it may have entered into over this period.

Annual Reports

An annual report is a publication that public corporations must provide annually to shareholders to describe their operations and financial conditions. The front part of the report often contains an impressive combination of graphics, photos, and an accompanying narrative, all of which chronicle the company's activities over the past year. The back part of the report contains detailed financial and operational information.

Institutional Investor

An institutional investor is a nonbank person or organization that trades securities in large enough share quantities or dollar amounts that it qualifies for preferential treatment and lower commissions.

Material Information

Any information about a company or its products that is likely to change the perceived value of a security when it is disclosed to the public.

What is business strategy?

Approach to a set of competitive moves that are designed to generate a successful outcome -- management's game plan for strengthening the organizations competitive position, satisfying customers, achieving performance targets

What does the Street want?

Bottom line focus (wants to know how a company will make them money) Different buying interest (customers want to know why they should buy your products) It's not about what you do (it's about how management makes decisions) Betting on the team (management is the most critical investment consideration) Handling tough questions (investors want to hear a compelling story)

Sell Side analysts

Brokerages and investment banks: JP Morgan, Morgan Stanley, Goldman Sachs - Conducts research, develops earnings estimates, establishes price targets, and provides stock recommendations to institutional and retail clients

Compliance

Certification or confirmation that the doer of an action (such as the writer of an audit report), or the manufacturer or supplier of a product, meets the requirements of accepted practices, legislation, prescribed rules and regulations, specified standards, or the terms of a contract. See also conformance.

Chapter 11 bankruptcy

Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor's business affairs, debts, and assets. Named after the U.S. bankruptcy code 11, corporations generally file Chapter 11 if they require time to restructure their debts. This version of bankruptcy gives the debtor a fresh start. However, the terms are subject to the debtor's fulfillment of his obligations under the plan of reorganization. Chapter 11 bankruptcy is the most complex of all bankruptcy cases. It is also usually the most expensive form of a bankruptcy proceeding. For these reasons, a company must consider Chapter 11 reorganization only after careful analysis and exploration of all other possible alternatives.

Chapter 7 Backruptcy

Chapter 7 of Title 11 in the U.S. bankruptcy code controls the process of asset liquidation. A trustee is appointed to liquidate nonexempt assets to pay creditors; after the proceeds are exhausted, the remaining debt is discharged. There are eligibility requirements to file Chapter 7, such as the debtor must have had no Chapter 7 bankruptcy discharged in the preceding eight years and the applicant must pass a means test. *Simplest and most common form This process is also known as a straight or liquidation bankruptcy.

Common Stock

Common stock is a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are at the bottom of the priority ladder in terms of ownership structure; in the event of liquidation, common shareholders have rights to a company's assets only after bondholders, preferred shareholders and other debtholders are paid in full.

Dodd-Frank Act

Compendium of federal regulations, primarily affecting financial institutions and their customers, that the Obama administration passed in 2010 in an attempt to prevent the recurrence of events that caused the 2008 crisis - Established new government agencies such as Financial Stability Oversight Council - Volcker Rule restricts the ways banks can invest and regulates trading in derivatives

Competitive Strategies

Consists of moves to attract customers, withstand competitive pressures, strengthen an organization's market position (narrower in scope than a business strategy) Overall low-cost leadership - Compete offensively on price and negotiate with large suppliers (Ikea) Broad differentiation - Build customer loyalty by differentiating from competitors' products (Starbucks) Best-cost provider - Give customers more value for the money by combining a low cost with an upscale differentiation (Lexus) Focused low-cost & Focused differentiation (Redbox) - Better service a niche target Concentrate on a narrow customer segment beating competition on lower cost - Offering niche customers a differentiated product customized to their needs

Corporate Reputation

Corporate reputation is the overall estimation in which an organization is held by its internal and external stakeholders based on its past actions and probability of its future behavior. While being something that is so vitally important, many companies do not give a second thought about corporate reputation.

5 C's of Marketing Analytics

Customer Needs - What needs do we seek to satisfy? Company Skills - What special competence do we possess to meet those needs? Competition - Who competes with us in meeting those needs? Collaborators - Who should we enlist to help us and how do we motivate them? Context - What cultural, technological, and legal factors limit what is possible?

The Street

Different types of financial analysts collectively known as the street Street Expectation: The Street expectation is the average estimate of a public company's quarterly earnings and revenues, that is derived from forecasts of securities analysts who provide research coverage on the company. The Street expectation is a closely-watched number that becomes prominent during the period when most public companies report their results. The term is derived from the fact that analysts of the biggest brokerages are typically based on Wall Street in the U.S. and Bay Street in Canada.

Innovation Diffusion

Diffusion of innovations theory is a hypothesis outlining how new technological and other advancements spread throughout societies and cultures, from introduction to wider-adoption. The diffusion of innovations theory seeks to explain how and why new ideas and practices are adopted, with timelines potentially spread out over long periods. The way in which innovations are communicated to different parts of society and the subjective opinions associated with the innovations are important factors in how quickly diffusion — or spreading — occurs. PEOPLE AND PRODUCT are the two ways to look at what drives this

Angel Investors

Early investors typically using their own money. Most were entrepreneurs themselves.

Earnings Call

Earnings call is a conference call between the management of a public company, analysts, investors and the media to discuss the company's financial results during a given reporting period, such as a quarter or a fiscal year. An earnings call is usually preceded by an earnings report. This contains summary information on financial performance for the period.

Financial Analysts

Financial analysts work in banks, pension funds, insurance companies, and other businesses. Financial analysts provide guidance to businesses and individuals making investment decisions. They assess the performance of stocks, bonds, and other types of investments. They want: 1. Financial Data 2. Management 3. Plans Major sources of info: - Quarterly and annual audited financial statements - Footnote disclosures to these statements - Financial news releases - Conference calls, site visits

Securities

Financial instrument that represents an ownership positions in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership represented by an option

Forward Looking Statement

Forward looking is a business term for predictions about future business conditions. The term is useful with regards to stockholders' consistently asking company management about what they believe will happen in the future so as to make bets accordingly. While no one can truly predict the future, management is often in the best position to speak about what the company has planned in the coming quarters and how this could dovetail with current trends.

Bear Market

General decline in the stock market over a period of time Transition from high investor optimism to widespread investor fear and pessimism Generally accepted measure is price decline of 20% or more over at least a 2 month period Ex. After stock market crash in 1929 and Great Recession

Inorganic growth

Inorganic growth arises from mergers or takeovers rather than an increase in the company's own business activity. Firms that choose to grow inorganically can gain access to new markets through successful mergers and acquisitions. Inorganic growth is considered a faster way for a company to grow compared to organic growth.

Insider Trading

Insider trading is the buying or selling of a publicly traded company's stock by someone who has non-public, material information about that stock. Insider trading can be illegal or legal depending on when the insider makes the trade. It is illegal when the material information is still non-public.

Form 8K

The current report companies must file with the SEC to announce major events that shareholders should know about between periodic reports (Obligatory SEC filing)

Sarbanes- Oxley Act

US federal law that set new or enhanced standards for all US public company boards, management, and public accounting firms - Public Company Accounting Oversight Board - Auditor Independence - CEO and CFO Certification of Results - Criminal Offenses for Fraud/ Records Tampering

Unsecured debt

Unsecured debt is a loan that is not backed by an underlying asset. Unsecured debt includes credit card debt, medical bills, utility bills and other types of loans or credit that were extended without a collateral requirement. This type of debt presents a high risk for lenders, also referred to as the creditor, since they may have to sue for repayment if the borrower doesn't repay the full amount owed.

Vesting Period

Vesting period refers to the time period required to achieve full rights/privileges associated with a profit-sharing or retirement plan offered by an employer. Many companies may give stock options or restricted stock to its employees. The employees do not have full control and ownership of this stock for a certain period of time

Enron Scandal

What business was Enron in? Enron was an energy and natural gas company based in Houston, Texas. It eventually expanded into the electricity business, and also attempted to enter cyberspace through a failed deal with Blockbuster for broadband services. What did Enron do that ultimately led to its demise? Enron's practices of misrepresenting earning reports, covering up its debt, and embezzling funds in the form of investments all led to its ultimate demise. These acts spiraled out of control in a manner similar to the Milgram Experiment: once the corporation accepted the idea of acting morally, it continued to do so without any limitations. By the summer of 2001, Skilling had resigned for "personal reasons", and stock prices had started to rapidly decline. Shortly after, the SEC launched its investigation into the company, and Fastow was soon fired. Enron eventually filed for bankruptcy, marking the end of its domination. What other unethical business practices was Enron engaged in? Enron's employees were blinded by money, and they grew hungrier and hungrier. Many analysts claim that the company was always doomed to go off the cliff, and it was astounding that these practices went on for so long. Over two billion dollars disappeared in pensions and retirement funds, and documents indicating fraud were destroyed by the accounting firm Anderson. In addition, the Bush administration had questionable ties with the company. Bush Senior helped secure billions of dollars in subsidies for Enron, and he also played a large role in getting Lay promoted. Enron was also involved in an oil scandal, in which there was great misappropriation of money by oil traders. There were offshore accounts, phony book records, and many other trails that led to suspicions regarding the actuality of the profits that were being made. Lay did not change anything even after he discovered what was happening, because he did not want to kill the golden goose. He even encouraged those involved to gamble more in order to maximize the amount of money made. When California passed a bill allowing for the deregulation of electricity, Enron developed multiple unethical strategies to game the market. For instance, it began shutting down power plants to create artificial shortages that allowed it to increase the price of electricity. What roles did Lay, Skilling, and Fastow play? Lay, Skilling, and Fastow all occupied some of the most senior positions at Enron. Lay was the founder, Skilling was the CEO, and Fastow was the CFO. Many called Skilling and Lay the captains of a ship that was initially thought to be too powerful to ever go down. Lay believed that energy markets could be deregulated; he asserted that government was the problem, not the solution. Despite knowing about many of the unethical practices that were going on, he refused to act upon them or stop them; instead, he played a large part in encouraging them. Skilling advocated for turning energy into a financial instrument that could be traded like stocks and bonds. He was largely responsible for making Enron the largest buyer and seller of natural gas in North America. He introduced the practice of mark to market accounting, which played a key role in the company's demise. This practice called for marking future profit on the day deals were signed. The profits could be whatever Enron said they were; they were very subjective, leaving great possibility for manipulation. Fastow was brought into Enron in order to cover up the fact that the company was becoming a financial fantasy land. He himself made a profit of over 45 million dollars. He stashed debt in many companies that were created solely to do business with Enron. One of the largest of these companies was LJM. Many banks invested in LJM amongst the others, but these companies' only purpose was to prop up Enron's stock price by making the debt disappear. This led to a practice of cheating a little more in each quarter, creating a momentum that could not be stopped.

Proxy Statement

document containing the information the Securities and Exchange Commission (SEC) requires companies to provide to shareholders so they can make informed decisions about matters that will be brought up at an annual or special stockholder meeting. Issues covered in a proxy statement can include proposals for new additions to the board of directors, information on directors' salaries, information on bonus and options plans for directors, and any declarations made by the company's management.

Mark to Market

played a key role Enron's demise This practice called for marking future profit on the day deals were signed. The profits could be whatever Enron said they were; they were very subjective, leaving great possibility for manipulation.