Business Foundations Midterm

Quick ratio

(current assets - inventory) / (current liability)

Working capital

(current assets) - (current liabilities)

Current ratio

(current assets) / (current liabilities)

Debt-to-assets ratio

(total liabilities) / (total assets)

Debt-to-equity ratio

(total liabilities) / (total equity)

2 reasons accurate Accounting is so important?

1. Helps managers and owners plan and control a company's operations and make informed business decisions 2. It helps outsiders evaluate a business

Corporate Governance

A board of directors represents shareholders, and the directors in turn select the corporations top officers Can be used in a broad sense to describe the policies, procedures, relationships, and systems in place to oversee the successful and legal operation of the enterprise

Sole Proprietorship

A business owned by one person Many farms, retail establishments, small service businesses Simplicity - it is easy to establish and requires less paperwork than other structures do, legally establish yourself as the owner Tax - Income tax is straightforward, personal income is easy to establish and you are taxed accordingly Privacy - company belongs to you Flexibility - do not need approval from a boss or anything, you can do whatever you want with your business DISADVANTAGES: financial liability, demands on the owner, limited managerial perspective, resources are limited, no employee benefits

ISO 9000

A globally recognized family of standards for quality management systems

Generally Accepted Accounting Principles (GAAP)

A set of accounting standards that is used in the preparation of financial statements Overseen by the Financial Accounting Standards Board (FASB), which is an independent, not-for-profit organization recognized by the US government

Supply Chain Management

A set of connected systems that coordinate the flow of goods and materials is a supply chain combines business procedures and policies with information systems that integrate the various elements of the supply chain into a cohesive system

Double-entry bookkeeping

A system that records every transaction affecting assets, liabilities, or owners equity

Income Statement

AKA profit-and-loss statement, shows an organization's profit performance over a period of time

The Accounting equation

Assets are valuable items companies own or lease, such as equipment, cash, land, buildings, inventory, and investments EQUATION: Assets = Liabilities + Owners Equity

Equation for Cost of Goods Sold

COGS = beginning inventory + net purchases - ending inventory

Calendar year VS. Fiscal year

Calendar year = Jan. 1 - Dec. 31 Fiscal year = any consecutive 12 months worth of time

S Corporation

Combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership

Management Accounting

Concerned with preparing cost analyses, profitability reports, budgets, and other information for insiders such as management and other company decision-makers

Financial Accounting

Concerned with preparing financial statements and other information for outsiders such as stockholders and creditors

Managing cash reserves

Financial managers also serve as guardians of a company's cash reserves, whether that cash is from investors who have funded a start-up venture or from profitable product sales in an established company An established company with many successful and profitable products can generate more cash than it needs for both ongoing operations and "rainy day" emergency funds

4 Steps to making a team and creating a group

Forming - establish a team with a leader etc. Storming - agree, disagree, argue, get the minds working Norming - behavioral norms established Performing - perform the task (Adjourning - disband the team) - not part of the 4

Global standards of Accounting

GAAP has helped standardize accounting and financial reporting for companies in the US, but situations across the world are very different

Benefit Corporation

Has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal

Organization Structure

Helps the company to achieve its goals by providing a framework for managers to divide responsibilities, distribute the authority to make decisions, coordinate and control the organization's work and hold employees accountable for their work

Merger

In a merger, two companies join to form a single entity, companies can merge by pooling their resources

Understanding systems

Looking deeply into a problem and comprehending it before trying to fix it is crucial, even if a solution is found, it may not always be the best one, so it is important to consider the implications of results

International Financial Reporting Standards (IFRS)

Maintained by the London-based International Accounting Standards Board, set world-wide standards for accounting

Leveraged Buyout (LBO)

Occurs when someone purchases a company's publicly traded stock by using borrowed funds ADVANTAGES: Hope to increase their buying power and their leverage in the marketplace DISADVANTAGES: Executives and ideals may not get along as well as people want

Acquisition

One company buys a controlling interest in the voting stock of another company

1. Risk Management

SCM can help companies manage the complex risks involved in a supply chain, risks that include everything from cost and availability to health, safety, and national security

Equity

Selling shares can dramatically change the way a company is managed, and in extreme cases can lead outsiders taking control of the company if they can purchase enough shares

Limited Liability Company (LLC)

Structure offers the advantages of limited liability, along with the pass-through taxation benefits of a partnership, not restricted in the number of shareholders they can have, and members participation in management is not restricted as it is in limited partnerships, do not have some potential disadvantages, such as benefits not being tax deductible, as they are for other types of companies

Sarbanes-Oxley

The informal name of the Public Company Accounting Reform and Investor Protection Act, passed in 2002 in the wake of several cases of fraud, provided many major changes to the way accounting works WHAT IT DOES? - Creating the Public Accounting Oversight Board - Outlawing most loans by corporations to their own directors - Requires corporate lawyers to provide evidence of financial wrongdoing - Require audit boards - Requiring CEOs and CFOs to sign accurate statements

Accounting

The process of capturing, identifying, and reporting a company's financial transactions

Limited Partnership

Two or more owners, one or more general partners manage the business, limited partners do not participate in management Same profits and tax as general partnerships Limited partners have limited liability, general partners have unlimited liability Establishment is same as general partnership

General Partnership

Two or more owners, one or more general partners, each is entitled to equal control unless agreement specifies otherwise Profits and losses flow directly to the partners and are taxed at individual rats, partners share income and losses equally All partners have unlimited liability Easy to set up

Non-GAAP Metrics (a controversial practice)

US public companies are required to report financial results that meet GAAP standards, but they can also publish "non-GAAP" results This practice is controversial and some accountants and investors are wary that companies really use non-GAAP metrics to obscure poor performance rather than to highlight areas of good performance

Corporation

Unlimited number of shareholders, no limits on stock classes or voting arrangements, owners are more likely to manage the business Profits are taxed at corporate rates, profits are taxed again at individual rates Investor's liability is limited to the amount of his or her investment More complicated and expensive to establish than a sole proprietorship A legal entity, distinct from any individual persons, that has the power to own property and conduct business Private corporations are not held by a lot of people and are mostly closed to the public ADVANTAGES: The ability to pool money by selling shares of stock to outside investors is the reason these ever came into existence, the potential for raising a lot of money and resources is much larger than other companies Investors can easily and quickly convert their stock into cash by selling it on the open market, a corporation can use shares of its own stock to acquire other companies Usually live for a very long time Limited liability offers protection that helps make corporate stocks an attractive investment DISADVANTAGES: Starting one is very expensive and the process can cost several million dollars You need to report regularly to make sure everything is running legally People must commit a lot of resources to convincing people to invest Changes in leadership are dependent on shareholders Double taxation sucks

Offshoring

When jobs go around the world in pursuit of lower labor costs, a variation known as offshoring Managers must consider such issues as time zone differences, transportation, quality assurance, responsiveness, and loss of direct control

Shareholder activism

When shareholders pressure management on matters ranging from executive pay to corporate social responsibility

Materials Requirements Planning (MRP)

Work backward from a company's sales forecasts to make sure it has enough of everything required to build those goods or perform those services in a timely manner, taking into account the firm's inventory levels and production capacity

Private Accountants

Work for corporations, government agencies, and not-for-profit organizations Their titles vary by function and include corporate accountant, managerial accountant, and cost accountant The controller is the one who reports to the vice president of finance or the chief financial officer CPA is a Certified Public Accountant In contrast to private accountants, public accountants are independent of the business, organizations, and individuals they serve

Budgeting

a budget is a financial guide for a given period, usually the company's fiscal year, or the duration of a particular project Volatile and uncertain situations can make conventional forecasting a dicey proposition because planners often can't make solid assumptions about major factors in their forecasting methods

Management by objectives (MBO)

a company-wide process that empowers employees and involves them in goal setting and decision-making

Financial plan

a document that outlines the funds a firm will need for a certain period of time, along with the source and intended uses of those funds

Enterprise Resource Planning (ERP)

addresses the needs of the entire organization, from manufacturing to sales to human resources, basically decides who and what to allocate to different jobs or projects

Line of credit

an agreed-on maximum amount of money a bank or other source is willing to lend a business

Maslow's Hierarchy

are all the requirements for basic survival such as food, clothing, shelter, and the like a theory by Abraham Maslow, which puts forward that people are motivated by five basic categories of needs: physiological, safety, love, esteem, and self-actualization.

Hidden Agendas

are private, counterproductive motives such as a desire to take control of the group, to undermine someone else on the team, or to pursue an incompatible goal

Core competencies

are those activities which a company excels and that give in the potential to create competitive advantages

4. Promoting sustainability

as a part of business that moves raw materials and finished goods, they have a huge impact on resources and waste and environmental impact

The drive to bond

being social people

Centralization

can benefit a company by taking advantage of top management's experience and broad view of organizational goals

3. Managing business relationships

can coordinate numerous relationships in the supply chain, close coordination between partners is very important

Retained earnings

cash that is kept by the company rather than distributed to shareholders over a period of time

Bonds

certificates that obligate the company to repay a certain sum of money that they are borrowing

A network structure

coordinates resources inside and outside the company to form a cohesive whole

2. Responding to customer needs

customers expect high quality products, delivery of goods, and requires well managed supply chains

Critical Path

determines how soon the project can be completed

Divisional structure

establishes self-contained sub-organization that encompass all the major functional resources required to achieve the goals of a company

Planning Systems

every company needs an effective and efficient way to acquire the materials it needs in order to conduct business

Long-term financing

financing that will be repaid in a period longer than one year ex. bonds, pensions, post retirement benefits

Short-term financing

financing that will be repaid within one year ex. wages, lease payments, income taxes

Functional structure

groups employees according to their skills, resource use, and job requirements

Venture Capital

happens when a company is growing in size and wealth, millions of dollars can be invested into said companies before firms qualify for most other forms of financing Essentially when an investor or another company believes in a startup or small companies potential to grow over time, they invest, and hope for a return

Mass Production (3 types of prod.)

identical goods or services are created, usually in large quantities

Just-in-time inventory management

in which goods and materials are delivered throughout the production process right before they are needed rather than being stockpiled in inventories

Current assets

include cash and other items that will or can become cash within the following year

Operating expenses

include selling expenses and general expenses to compute a firm's net operation income

A cross functional team

includes people from more than one department or functional area across the company

Systems

interconnected and coordinated sets of elements and processes that convert inputs into desired outputs, it is important for everybody in a system to realize the big picture, can ensure efficiency and collaboration

Managing inventory

inventory is another area in which financial managers can fine-tune the firm's cash flow, the company goal is to maintain enough inventory to fill orders in a timely fashion at the lowest cost

Private equity

involves any ownership in privately held companies purchase shares of private companies or acquire control of public companies with plans to take them private, eventually become delisting them from public stock exchanges

Risk/Return trade-off

involves balancing potential risks against potential rewards

Statistical Process Control

involves taking samples from the process periodically and analyzing these data points to look for trends and anomalies

Six Sigma

is a comprehensive approach that encompasses a philosophy of striving toward perfection

Trade credit

is a form of financing in which suppliers provide goods and services to customers without requiring immediate payment

A taskbot

is a software agent that can be programmed to handle a variety of routine tasks

Robot Process Automation (RPA)

is a software capability that does for knowledge work what robots do for manufacturing other physical processes

A team

is a unit of two or more people who work toward a shared goal and, unlike other work groups, depend on one another to achieve that goal

Scientific management

is an approach that sought to improve employee efficiency through the scientific study of work

A matrix structure

is an organizational design in which employees from functional departments and form teams to combine their specialized skills

A problem solving team

is assembled to find ways to improve quality, efficiency, or other performance measures a team of knowledgeable employees brought together to tackle a specific problem

Herzberg's Two-Factor Theory

is associated with dissatisfying experiences, and motivators are associated with satisfying experiences States that there are certain factors in the workplace that cause job satisfaction while a separate set of factors cause dissatisfaction, all of which act independently of each other

Debt financing

is borrowing money

Expectancy Theory

is considered by some experts to offer the best available explanation of employee motivation, connects an employee's efforts to the outcome he or she expects in their work and progress as an individual

A task force

is formed to work on a specific activity with a completion point

Hawthorne Effect

is in which the behavior of the Western Electric workers changed because they were being observed and given special treatment as research subjects

A virtual team

is one in which members work in at least two different locations and rely on technology to communicate and collaborate

A functional team

is organized along the lines of the organization's vertical structure and thus may be referred to as vertical team

Work specialization

is sometimes referred to as the division of labor, places employees and projects in certain domains of a company so that production can be more efficient

Departmentalization

is the arrangement of activities into logical groups that are then clustered into larger departments and unites to form the total organization

Motivation

is the combination of forces that drive individuals to take certain actions and avoid others in pursuit of individual objectives

Goal-Setting Theory

is the idea that carefully designed goals can motivate employees to higher performance

Job enrichment

is to make jobs more challenging

The drive to comprehend

learning and growing

Secured loans

loans backed by something of value, known as collateral

Unsecured loans

loans that require no collateral, instead the lender relies on the general credit record and the earning power of the borrower To increase return on these loans, most lenders insist that the borrower maintain some minimum amount of money on deposit

Fixed assets

long-term investments in buildings, equipment, furniture or fixtures, or transportation

Theory Y

managers assume employees are internally motivated, enjoy their job, and work to better themselves without a direct reward in return, whether they are satisfied or dissatisfied

A self managed team

manages its own activities and requires little or no supervision

Lean systems

maximize productivity by reducing waste and delays, are at the heart of many productivity improvement efforts

Inventory turnover ratio

measures how fast a company's inventory is turned into sales

Accounts receivable (AR) turnover ratio

measures how well a company credit and collection policies are working by evaluating how frequently accounts receivable are converted to cash

Value Webs

multidimensional networks of suppliers and outsourcing partners, can connect an entire ecosystem of partners and suppliers, and in some industries, can compete against one another as much as individual companies or people do established companies can outsource in order to narrow their own focus an excel at their core components

Return on equity

net income divided by the owners equity

Long-term liabilities

obligations that are due one year or more after the date of the creation of the balance sheet

Current liabilities

obligations that will have to be met within one year of the date of the creation of the balance sheet

Groupthink

occurs when peer pressures cause individual team members to withhold contrary opinion and to go along with decisions they do not really believe in or support

Theory X

oriented managers believe that people dislike work, have little ambition, and are unwilling to take responsibility - can be motivated only by the possibility of losing their jobs or by extrinsic rewards

mass customization (3 types of prod.)

part of the product is mass produced and then the remaining features are customized for each buyer

Return on sales

profit margin, or, the net income a business makes per unit of sales

Job Characteristics Model

proposed by Richard Hackman and Greg Oldman has proven to be a reliable way to predict the effects of five core job dimensions on employee motivation and other positive outcomes 5 Core dimensions: - Skill Variety - Task Identity - Task Significance - Autonomy - Feedback

Decentralization

pushes decision-making authority down to lower organizational levels while control over essential company wide matters remain with top management

Industry 4.0

refers to the digital transformation of manufacturing, moving from automated factories to smart factories

Engagement

reflects the degree of energy, enthusiasm, and effort each employee brings out his or her work

Matching principle of accounting

requires that expenses incurred in producing revenues be deducted from the revenue they generated during the same accounting period

Tracking Methods

resource management requires the ability to identify and track where everything is in the system at any point in time, whether this is through GPS tracking a delivery truck or observation in a factory, companies and corporations needs to track their flow of goods throughout the supply chain to be effective in their objectives

External auditor

review a client's financial statements to determine whether they have been prepared in accordance with GAAP

Equity financing

selling ownership shares in the company

The drive to defend

sense of justice can lead human beings to vigorously defend the people

Commercial paper

short-term promissory notes, or contractual agreements, to repay a borrowed amount by a specific time with a specific interest rate

Statement of cash flows

shows much cash the company generated, cycled through, and where it went

Production operations management

simply operations management, refers to overseeing all the activities involved in producing goods and services

Equity Theory

suggests that employee satisfaction depends on the perceived ratio of inputs to outputs

Agile organization

that allows employees to respond quickly to customer needs and changes in the business environment and to bring the best mix of talents and resources to every challenge

Accounts payable

the bills that the company owes to its suppliers, lenders, and other parties

Expenses

the costs that have arisen in generating revenues

Productivity

the efficiency with which they can convert inputs to outputs

Chain of command

the lines of authority that connect the various groups and levels within the organization, helps makes functioning smooth by making two things clear 1. who is responsible for what task 2. who has the authority to make decisions

Financial Management or Finance

the managing of allocation and spending of funds for a firm

Accounts Receivable

the money owed to a firm by its customers, is one way to manage cash flow effectively, the volume of receivables depends on a financial manager's decision regarding several issues

Credit Cards

the most expensive form of financing, but they are sometimes the only form available to business owners

Span of management

the number of people a manager directly supervises

Earnings per share

the profit earned for each share of stock

A committee

usually has a long life span and may become a more permanent part of the organization structure

Three-needs theory

was developed by David McClelland's model highlights three acquired needs: the need for power, affiliation, and achievement

Block Chain

when a new transaction is captured in a "block" that is appended to the previous block in a continuous chain, all participants can verify the authenticity of each transaction and new transactions are not added to the chain until they have been verified - No single entity can control the ledger, everyone can see and trace back each transaction - Can be public or private -Lower costs, fewer errors, faster transactions, greater transparency, auditing is easier, tighter network security, tighter data security, big data analysis

Factoring

when a third party takes over the process of getting payment from customers and advances a portion of the accounts payable amounts to the seller

Zero-Based budget

when each department starts from zero every year and must justify every item in the budget

Accrual basis of accounting

when revenue is recognized when a company makes a sale, not when they get paid for their service or product

Cash basis of accounting

when the company records revenue only when money from a sale is actually received

Depreciation

when the cost of a tangible asset is spread over a fixed amount of time

Customized production (3 types of prod.)

when the producer created a unique good or service for each customer