Comm 1800 exam 2

Finance

"How businesses raise capital, invest in assets, and manage risk."

Target Market

- Who are we actively going to market to? Ex: Ryan Air's target market is a younger crowd bc it's cheaper= not very segmented Ex: United Airlines has so many different markets so they have 5-6 different classes= much more segmented

price

- capturing value Some people will pay more for a better car- price is not just price but relative value Is the exchange reasonable? Exchange can be based on: money, time energy Ex: On Ryan Air, money is your primary motive so it may seem reasonable, however if you are prioritizing time, it is not worth it because there are many stops.

promotion

- communicating value Design- can communicate a value through fonts, color, logos, etc. Ikea is blue and yellow bc it's Swedish and their store are big squares because they sell furniture in boxes Advertising- the final step Ex: Amazon logo arrow goes all the way from A-Z, it is also a smile because it will make customers happy Ex: FedEx logo has an arrow inside of it Ex: Gucci vs H&M logo

place

- creating convenience and comfort Availability- Ex: Shenandoah Joe- customers had to go to get it, not as easy to get as Starbucks, but if you do go, it is a customized experience Supply Chain

product

- creating value Goods, services, and ideas that satisfy demand

Product lifecycle/dynamism

- how long until a product wears out Ex: The product lifecycle for a car (Mercedes) is 6-8 years, but the market for cars is very dynamic VS, the product lifecycle in the tech field is really short and the environment is dynamic

Predatory Marketing

- marketing certain goods/services to certain people who are desperate and couldn't have otherwise gotten it Mortgages and car loans (women are more likely to get higher interest rates) Ex: Redlining- ended up depending on race

Banking institutions- 4 types

-Commercial banks (ex: Citi) -Savings & Loans- small community-oriented, not many left -Credit Unions -originally created to serve a certain group of people (ex: the navy, people who work for certain companies) Non-profit which means lower rates Have grown ex: Northwest Federal credit union Now anybody can join them Harder for other banks to compete because their rates are lower -Non-banks Ex: Fidelity (CSCNN)

Assigning Responsibility

-Delegation of Authority- up to a certain level, bosses let employees handle things on their own -Ex: Retail employees can handle money $50-$100 sometimes, but if it's more, they may pass it off to managers -Responsibility v. accountability -Who makes the decisions? (A boss, team, committee, etc.)

Sources of Structure

-Design- businesses choose the structure Ex: Zappos had a hollocracy where everyone is everyone's boss Ex: Apple, Steve Jobs was in control of everything -Context- environments affect structure Ex: American Airlines has to check every part of the plane; if something doesn't pass, they can't fly Ex: Dominion Energy

Structure

-Follows from the division of labor (Smith) -Results in a hierarchy (Weber) -Includes rules & regulations to control behavior

Departmentalization Specialization

-Functional: Marketing, HR, Operations -Product: snacks, drinks, sports-Pepsi -Geographic- U.S., Europe, Asia -Market- luxury, business, leisure

Inherent tensions in Structure

-Specialization vs Integration- with specialization, somebody has to manage all of it, integration all departments work together -Formality vs. Flexibility Nordstrom's biggest customer asked for help with tires, and they fixed them for her even though that is not something they do= flexibility

-The span of management- wide vs. narrow

-The span of management- wide vs. narrow -If the town is really spread out, one person may be in charge of 15 stores=wide -Larger- the bigger a business, the more decentralized -Exception= Steve Jobs because he made every decision himself, which is beneficial because it kept it centralized and made all products work together

Balance sheet

A = L +E Profitability-profit from ops Liquidity- cover short-term obligations Solvency - covers long-term obligations -How much stuff could you liquidate if necessary to pay off long-term debt Efficiency- ITO to generate revenue (ITO= Input, throughput, output) Leverage- amount of debt to finance operations (PSLEL)

Teams in Organizations Group vs Team

A group may have a shared interest/goal, a team is working toward a common goal, has a leader, and has different roles

Ethics of accounting

Accounting Fraud Future sales in the current quarter - eventually catches up with companies Kept debts/ obligations off the balance sheet Faked invoices to inflate revenue - made fake customers with real or fake invoices Companies that did so: Xerox, Enron, AOL, and Kmart

Liabilities

All obligations owed Taxes Debts (invoice, loan, etc.) Wages (legally obligated to pay a certain wage) typically negative

Assets

All resources owned/owed (land buildings, machinery, inventory, patents, etc.) Ex: Kodak had the original patent for a film camera Ex: BMW has a factory in SC ($12.5 billion) Ex: Amazon Net Inventory= $34 billion Ex: United Airlines (Airplanes= $48.5 billion) Ex: Google (cash=$111 billion and accounts receivable= $49 billion)

Accounting Equation

Assets = liabilities +equity

Equity

Assets claimable by owners Personal investments (loans, donated buildings, etc.) Accumulated profits- money that is left over that can be carried over Stock held

Pricing

Bait and switch- price something but it is unavailable and they try to sell you on something more expensive Hidden Fees (ex: Hotels.com)

Statement of Owner's Equity

Changes due to investments/withdrawls Supplemental to the balance sheet

Manage check clearing

Checks take money from one bank to another and are cleared through the Fed

Other teams

Commnitees- a generally permanent team Task Forces/Project Teams- specific change, once it's done, the team breaks up- temporary: GW created a budget task force Product Development Teams Quality Assurance Teams- checking cars Self-Directed Teams- put a team together and say "go" with little direction: GW put a team together and told them to find where they could save $15-20 million (CTPQS)

Promotion

Data Privacy Ex: Facebook Misleading product information (Ex: Ryan Air claiming to be the lowest emission) Ex: Cliff Bars had false claims about benign healthy and low sugar

Capital Structure

Debt (loans) vs equity (cash, stock) D/E ratio- how risky is the borrowing practice higher ratio= more risk

Marketing Research

Demographics on product reviews Ex: rental car people asked if somebody would buy a rental Data Brokers Ex: National Public Data

Product Strategy Steps

Develop and screen ideas (variation/selection)-idea phase (new flavor, colors, styles, etc.) Business analytics (internal selection) -Describe, predict, prescribe Product Development Ex: A car company designs a car, the first phase of product development is a model of the vehicle made from clay because it is easy to reshape, and then it becomes a steel prototype Test Market (external selection) Ex: Ohio is a common test market or Office Depot created a test market called Seeds: manufacturers pay Home Depot to send their products for free to their customers Commercialization (possible retention) (DBPTC)

Market- B2B and B2C

Ex: Boeing sells planes to airlines (businesses-B2B) Ex: United Airlines- B2C

Standards- designed to ensure the information you see in relevant, reliable, and consistent

Ex: GAAP (IFRS) -Allows companies to be compared Ex: SEC- transparent, accurate -Protect investors

Push vs. Pull

Ex: Starbucks: push because they build one on every corner Ex: Pokemon Go: pull because people kept demanding more

Distribution/logistics

Ex: UPS delivers packages for businesses and stores their inventory too- UPS used to hold all of Zappos shoes for them

Supervise deposit insurance

FDIC- Federal Deposit Insurance Corporation Ensures your account for up to $250,000 Banks are required to help pay for this if they are part of the federal system

Financial Accounting vs Mangerial

Financial-external GAAP (Generally Accepted Accounting Principles) Typically more historical - "Here is how we did" Used for comparison and tax purposes Precision and verifiability Allows them to be an auditor Standard rules and procedures Managerial-internal Planning perspective Timeless for control- can't plan/strategize if the numbers are really delayed Formats can vary

Assigning rules

Formalization Follows from Buraercary De facto vs. de jure- fact (may not be written down or official, but they're important) vs. jury (written down, checklist, and also important) Ex: AT GW, the unspoken rule to take the stairs if on floors 1-3 and the elevator if above 3= de facto, BUT somewhere else had an actual sign that said not to take the elevator unless you go to floor 4= de jure Hanbooks, rules, procedures- airlines and their flying checklist and UVA Health

Financial Statements

Gross Profit Margin income statement net profit margin

Gross Profit Margin

Gross profit /net sales For every $1 of sales, 0. Xx of gross profit

Positioning

How a brand is perceived Ex: Ikea in the U.S. is furniture for cheaper with medium quality, made for starter homes VS Ikea in Cina is an expensive, luxury European furniture store Maintain and improve brand equity Ex: Boar's Head and an outbreak- people died and were hospitalized Cigarette company was wiped out

Consumer Behavior

Individual Psychology Ex: people are more likely to buy stuff at eye level than knee level (some brands pay more to be higher up or on the end cap) Social Factors Ex: Influencers- cheaper yet spread the word Ex: Lots of Subarus in university town bc of a social construct Ex: Designer brands

Who uses accounting?

Internal stakeholders -Executives -Managers -Owners/investors External stakeholders -Governments, suppliers/distributors, customers -Competitors- can only view if the company is public -Ex: Trump refused to release the record bc it was private but somebody else leaked them

Limitations of financial statements

It does not capture non-financial factors (ex: doesn't capture if it's a really great place to work or they had a hard time and people don't forgive the company) Position, brand equity, cust sat On the other hand, great companies such as Bombas, aren't shown in the financial statements either Many estimates (ex: depreciation) "Creative accounting" possible- the numbers aren't guaranteed to be 100% accurate Ex: MCI Industry, country limit comparability Ex: RyanAir and United Airlines are in different countries- when going across different countries with accounting, they may be interpreted differently

Factors that affect capital structure

Lifecycle stage- e.g. startup vs midlife Industry- e.g., energy vs. tech Leadership/firm preference- risk tolerance (some people are more willing to take on risk) Capital budgeting Long-term investments- buildings Strategic direction- growth vs stability (need more debt for bigger growth) Alignment w/ long-term goals- ex: goals at Sears were misaligned (LILC)

Segmentation-subgroups

Look at their customer demographic (ex: straight vs curly hair for a shampoo)

Monetary policy

Managing the flow of money in the U.S. Buy/sell t-bills Reserve Requirement- the minimum amount that a bank must hold onto Discount rate-the interest rate that the Federal Reserve charges banks and other financial institutions for short-term loans Credit controls Open market operations- a central bank's buying and selling of securities in the open market to influence a country's money supply and credit conditions

Factors affecting the 4 Ps

Marketing research Consumer Behavior General and Specific environments

Four responsibilities of the federal reserve bank

Monetary policy Regulate institutions Manage check clearing Supervise deposit insurance (MRMS)

net profit margin

Net income/revenue (sales- adjust) For every $1 of revenue, 0.xx of income (gross profit margin only considers a company's cost of goods sold , while net profit margin also considers a company's operating expenses)

Statement of Cash Flows

Operating activities (ex: selling cars, companies want to balance out sales) Investing Activities (ex: Real estate sale, more occasional, once in a while event- "we're gonna sell this land to get some more money) Financing activities (Ex: loans)

Positioning

Positioning- how do we want to be seen by consumers Ex: Ryan Air is the "lowest fares, lowest emissions"- appealing to younger people who are more concerned about emissions Ex: United said "Fly the friendly skies"

The 4 Ps

Product, Price, Place, Promotion

Marketing Concept- establish relationships

Product- industrial revolution Sales- as supply exceeded demand (20s) Market- meeting customer needs (50s) Value- quality for the money (00s+)

Ethics and marketing (connections)

Promotion Pricing Predatory Marketing CSR+Marketing

Double-entry bookkeeping

Record every transaction twice Debit to one, credit to another Ex: Buy supplies with cash? Increases assets and decreases assets-now even Ex: Buy supplies with debt? Increases assets and increases liability debit=add money credit=take away

income statement

Revenue - Expenses = Net Income (or Loss)

Regulate institutions

Rules and Policies Approve/deny mergers for banks (ex: Wachovia)

CSR+Marketing

Satisfy consumers and enhance well-being Ex: Patagonia

Developing a marketing strategy

Segment→target→position

Future themes

Shift to a cashless society (Apple Pay, Google Wallet) Cryptocurrency (Bitcoin) Robo/AI investing (Fidelity does this) You tell them how much risk you want and give them money, AI does your portfolio for you Non-bank funding sources (Kickstarter, GoFundMe)

Time value of money

Small differences add up- the dollar you have today is worth less tomorrow

Segmentation & targeting

Total/undifferentiated Don't need to segment a market for ice cream because basically everyone likes it Segmented/differentiated Segment ice cream with flavors Niche/concentrated Ex: One ice cream company has 10 different flavors of just chocolate ice cream Micro/customized Coldstone customizes ice cream

Horizontal Specialization

how many different jobs- ex: assembly line

Vertical Specialization

how many levels (CEO to bottom entry line), they get taller as there is more to control

Treasury bonds

long maturities (20-30 years), pay interest every 6 months, sold at a discount

Treasury notes

mid-range (2-10 years), pay interest every 6 months, $100 increments

Treasury bills

short-term (less than 1 year), pay interest at maturity, sold at a discount