BA 101 Midterm Study Guide

Activity Ratios: How efficiently are assets and liabilities being managed?

A/R Turnover: Net Credit Sales / Avg. Accounts Receivable Inventory Turnover: COGS / Avg. Inventory

What are accrual and cash methods of accounting?

Accrual records when you are owed money. Cash accounts for when you actually receive the money.

What are the advantages and disadvantages to running a small business?

Adv: Independence/ Costs/ Focus/ Flexibility DisAdv: High Stress/ Undercapitalization/ Managerial inexperience or incompetence.

What are the two major types of long term funding?

Debt and Owners Equity

Leverage Ratios: Does firm have the "right" mix of debt and equity?

Debt to Equity: Total Liabilities / Total Equity Debt to Total Assets: Total Liabilities / Total Assets

What is the Small Business Administration (SBA) and what does it do?

Its a government agency that offers managerial and financial assistance to small businesses.

What is the lean startup?

Its a startup plan that builds your company faster and launch products quicker, with less funding and less development times.

What is creative destruction?

Its when you create something you simultaneously destroying something else. out with the old and in with the new.

What are the advantages and disadvantages of S Corp?

Liability and taxation are great however the ease to set up is not.

What is financial value? Where does it come from? How is it converted into a return?

Maximizing the wealth of shareholders. It comes from profits and cash flow. Dividends and realized capital gain.

What is the difference between public vs. private accounting?

public accounting involves being an independent third party that examines the financial statements and supporting systems of client companies to see if their financial statements fairly represent the results, financial position, and cash flows of the clients. Private accounting is setting up those systems.

What is bad about leverage?

you can owe a lot more money if it turns out bad.

How do companies fund these short term obligations?

• Collected revenue • Trade credit (accounts payable) • Line of credit (similar to a consumer credit card) • Commercial Paper • Short term loans (secured and unsecured) • Factor (company sells it's A/R at a discount)

Why is risk so important to business?

• The prime mover for business. Without a willingness to take risk business does not exist.

Maslow's Hierarchy of Needs

1) Physiological 2) Safety 3) Sense of belonging and need 4) Self Esteem 5) Self actualization

What were the five sources of funding mentioned in lecture for start-ups?

1. Bootstrapping 2. Friends and Family 3. Venture Capital 4. Angel Investors 5. Crowdfunding

What are the 3 ways it can be a path to competitive advantage?

1. Product Differentiation. 2. Cost Advantage 3. Time to Market

What three things must a business do to get to P (Profit) and not L (loss)?

1. There is Demand for the product 2. Business' ability to ATTRACT the demand. Customers choose you - not your competitor. 3. Control your Costs. C<R

What is a business plan?

A business plan can do an excellent job vetting the idea/opportunity and providing a blueprint for the future. 1. Obtain Funding ("sales tool"). 2. "Guide" action.

What is the Time Value of Money?

A dollar today is worth more than a dollar tomorrow.

WHAT is business? (two definitions or answers)

A group or individual who tries to earn a profit by providing products that satisfy a need.

What is a stakeholder? How is it a definition of business

A stakeholder is any person, organization, social group, or society at large that has a stake in the business. A business is a collection of stakeholders

What are the advantages/disadvantages for franchisee?

Adv: Management training and support/ brand name appeal/ standardized quality of goods and services/ national and local advertising programs/ financial assistance/ proven products and business formats/ centralized buying power/ site selection and territorial protection/ greater chance for success. DisAdv: Fees and profit sharing with franchiser, strict adherence to standardized operations/ restrictions on purchasing/ limited product line/ possible market saturation/ less freedom in business decisions.

What are the advantages and disadvantages of debt funding and equity funding?

Adv: You still retain control of money, interest tax is deductible DisAdv: Must be paid back and it may cause cash flow problems.

What are the issues with it? (Ambiguity)

Ambiguity about when infringement actually occurs and if it has caused economic harm.

What is the U.S. government's definition of small business? How many businesses meet this definition?

Any business with fewer than 500 employees. 99.93% of businesses are small.

What is open innovation?

Assumes that a firm can and should use external ideas as well as internal ideas.

What are the different organizational types?

C Coporation S corporation LLC Partnership Sole Proprietorship

What are the different types of economic systems?

Communism, Socialism, Capitalism and Mixed Economies

What are the differences between small and big businesses?

Complexity - small businesses are less complex Resource constrained Specialization Regulatory Burden

Liquidity Ratios: Can firm make required debt payments currently?

Current Ratio: Current Assets / Current Liabilities Quick Ratio: (Current Assets - Inventory) / Current Liabilities

What are the advantages and disadvantages of LLC?

Ease liability and taxation are all good.

What are the advantages and disadvantages of Sole Proprietorship?

Ease to set up is good. and taxation is good. The liability is awful and so is future scaling.

Why do entrepreneurs start businesses?

Entrepreneurs are willing to take a RISK because of the REWARD.

Laws/Regulations

Environment, Safety, competition and price controls.

What are the major sections of the business plan?

Executive Summary •Management Team •Company Description (including product or service) •Market Analysis •Competitive Analysis •Operations Plan •Funding Request •Financials •Risks "What's my opportunity cost?" •Appendices

What is the definition of Innovation?

Exploiting ideas. transforming creativity or invention into results.

What is the definition of franchisee and franchiser?

Franchiser: the company that sells the franchise. Franchisee: The purchaser of a franchise.

What is gaap and fasb?

Generally Accepted Accounting Principles Financial Accounting Standards Board.

What are the steps for starting a business in Oregon?

Go to secretary of state website, click n assume business name. and then register online and pay 50$

Profitability Ratios: Is firm succeeding at earning a profit and generating a return for shareholders?

Gross Profit Margin: Gross Profit / Net Sales Return on Investment: Net Income / Total Assets Return on Equity: Net Income / Total Equity

Blake Mycoskie video (Tom's). - Why did he choose to start a business instead of a charity?

He chose to start a business first because he didn't want to rely on donations and handouts.

What is liquidity?

How easily you can turn an asset into cash.

What is the difference between an idea and an opportunity?

Idea: A thought, conception, or notion that exists in the mind as a product of mental activity. Opportunity: A favorable set of circumstances that creates the need/desire for a new product, service or business idea.

Monetary Policy

Increasing/Decreasing Money supply, this impacts interest rates. Central Banks, The Fed

What is product/service innovation?

Innovating the actual product you take to market.

What is process innovation?

Innovation of new processes. e.g. the assembly line. can create greater quality/ less cost.

What are internal and external stakeholders? OSU example from lecture.

Internal : Employees, Managers, Owners External : Suppliers, society, government, shareholders, creditors, customers

What is radical innovation?

Involves major change,

Why is innovation important for business?

It can be a critical path for competitive advantage.

How does society affect business?

It dictates how businesses can profit. Things like demographics and consumer taste or preference do that. Societys role in government.

What are two major criticisms of free enterprise?

It does not distribute resources equally, and many may not be able to afford to buy goods at equilibrium price. / Negative Externalities

What are the issues with it? (Closed)

It is a closed system. I get to decide who gets to use it.

What is meant by the statement Innovation is derivative?

It is largely about finding new uses for old (existing) ideas. Applying and combining existing ideas in a new way.

What are the advantages and disadvantages of C Corp?

It is not easy to set up and the taxes are awful. The liability and future scaling are good though.

Why is innovation important for society?

It unleashes creative destruction and propels society forward. It is the engine of progress.

How does government affect business?

Monetary Policy, Fiscal Policy, Laws/Regulations

E.g. of creative destruction.

Movies. Netflix and Red box changed the way we got videos. Now we just stream everything. Death of Hollywood video and blockbuster.

Asset turnover ratio is what?

Net income/total assets. Its better if its higher.

What is disruptive technology?

New ways of doing things that disrupt or overturn the traditional business methods and practices.

What are the four basic monetary policy tools used by the Federal Reserve to affect money supply?

Open Market Operations Reserve Requirement Discount Rate Credit Controls

What is equity funding?

Outside investment Retained Earnings

What was the definition of risk given in class?

Probability of suffering damage. Uncertainty

What are the two factors that determine an individual/organization's willingness to take risk?

Profit and Need

R-C=P

Revenue - Cost = Profit

What are the characteristics that correlate with successful entrepreneurs?

Self Directed/ Self confident and resilient/ Optimism/ Action Oriented / Highly Energetic/ Tolerant of uncertainty willing to take and tolerate risk/ Competitive/ Passionate

What is Incremental innovation?

Small improvements to existing products and services. Like new operating systems for computers. Windows 7 - windows 10.

Fiscal Policy

Taxation, Spending, Deficit Debt

What is leverage?

The degree to which a business is utilizing borrowed money. A company with high debt is said to be "leveraged"

What is finance?

The function in business that acquires funds for the firm and manages those funds within the firm.

Risk and reward have a direct relationship, what does this mean?

The higher the risk the higher the reward.

Why is IP important to the innovation process?

The inventor or creator has been granted exclusivity with the full force of law behind him/her. The protection then leads to economic incentive to create or invent.

What is capital budgeting and what type of assets are included in it?

The process of analyzing the needs of the business and selecting the assets that will maximize its value.

What is financial structure?

The specific mixture of long-term debt and equity that a company uses to finance its operations.

What does "needs" mean for business?

There is a demand for it. e.g. Maslows hierarchy of needs

What are the issues with it? (Abuse)

Threatens inventors with a thicket/tangle of infringement suits. Some companies can monopolize via patents. Patent trolls, model based on buying patents and then suing based of infringement. Patent Wars.

How do companies improve cash flow?

Turn receivables (i.e. collections) Stretch payables Minimize inventory Project, Project, Project

State of the Economy

Understands how society, government, global environment, economic system have a relationship with business.

what is good about leverage?

Used wisely it can boost profits (borrow at one rate and invest at a higher rate).

What is the Innovator's Dilemma?

When firms fail when their core product is undermined by a "disruptive technology." A second definition is that firms led by excellent managers fail precisely by doing the thing excellent managers are supposed to do: listening to their customers

Is it better for a company to have high profitability ratios?

Yes

What does short term finance focus on?

funding inventory, payroll, accounts receivable, and rent and utilities.

What are the advantages and disadvantages of Partnership?

it has good ease and taxation however liability is poor.

A high inventory turnover ratio means what

it may indicate great efficiency or loss of sales due to insufficient stock levels.

What is free enterprise?

its capitalism. Where individuals own and operate all businesses.

What are different economic indicators

society, government, global environment, economic system

Demographics

the characteristics of human population and population segments. Diversity/aging/household structure

What is social entrepreneurship?

the idea that it is possible to do business on the human scale. that it is possible to make money and do good for the community.