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COMM 200 Midterm Review

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Queen's University
COMM 200
Darren Mc Caugherty

COMM 200- Midterm Review Session 1 – What is Business? (Chapter 1) Identify a need → Develop a solution to satisfy the need → Deliver the solution → Earn a profit Growth typically follows an industry growth curve, which is composed of 4 segments: 1. Introduction: the formative period of industry; revenue is low and increasing slowly 2. Growth: industry explosion results in a rapidly increasing revenue 3. Maturity: growth rate cannot be indefinitely maintained and revenue begins to plateau 4. Decline: revenue decreases as the market become obsolete While these 4 phases can typically be found in all businesses, the duration of each is variable. Companies must come out with new products in order to prevent their company from a decline phase. All business operations have a social impact – on people, profit and planet. Typical Organization Structure: shareholders appoint a board of directors, who choose a President/CEO; below the President/CEO are the Vice-Presidents and then the managers The Business Model is based off of 4 fundamental resource areas: 1. Capital 2. Assets 3. Labour 4. Managerial Acumen The role of management is to create a vision for the organization, provide leadership and to develop short and long term strategies, which deal with the profitability, sustainable growth, resource allocation and social responsibility and sustainability of the organization. Business Planning Cycle: Situational Analysis and Resource and Capability Assessment → Strategy Formulation → Strategy Execution → Company Performance and Profitability → Company Growth and Expansion Value Proposition: The value, which customers derive from the product, has 5 categories 1. Product Benefits 2. Brand Benefits 3. Cost Benefits 4. Emotional Benefits 5. Service Benefits The sum of these benefits, which exceeds the price charged is the perceived value of the product. In business there are controllable factors (people, strategy, finance, and marketing) and there are uncontrollable factors (government, economy, competition, and technology). Competitive Business Strategies: Session 2: Ethics, Corporate Social Responsibility & Sustainability Sustainability challenges include climate change, pollution and health, energy crunch, resource depletion and capital squeeze. In the Consumption Model defects, excess and residuals are thrown out as waste. In the Resource Management Model, defects, excess and residuals are recycled, recovered, re- used or sold as inputs to other industries. In order to integrate environmental sustainability, the first step is to define sustainability within the organization. Then opportunities, threats and gaps must be identified followed by the building of the business case and the establishment of targets. The final step is the commitment of resources. Short term Benefits of Strategic Integration: corporate image and regulatory compliance Long Term Benefits of Strategic Integration: pricing power, enhanced efficiencies, customer retention, strong employee base, lower risk exposure, and new business opportunities Sustainability in terms of doing the right thing (waste management, health and safety, planet stewardship, energy and resource management, etc.) must be balanced with the ability to remain viable as a business (competitive advantage, capital costs, operating costs and risks, etc.). Ethics: a reflection of the moral principles or beliefs about what an individual views as being right or wrong. Ethical decisions are impacted by society, business culture, professional atmosphere and individual values. Zones of Decision Making: 1. Green Zone – accepted business decision-making principles govern organizational activities 2. Grey Zone – unclear decision-making principles could result in questionable practices 3. Red Zone – clearly recognized unethical behaviour Steps to Improving Business Ethics: 1. Top management must adopt and unconditionally support a corporate code of conduct 2. Communicate a code and expectations to employees 3. Communicate to suppliers and customers 4. Train management and staff in ethical implications of business decisions 5. Establish an ethics office (including protection of whistleblowers) 6. Enforce the code “It can take years to build a reputation but only a few seconds to ruin it.” – Warren Buffett Corporate Social Responsibility (CSR): the understanding that the purpose of an organization is to create shared value (business and society) by strategically integrating into its actions a partnership mentality with society, where the objectives of both parties are met. Strategic Approach: management’s primary orientation is toward the economic interests of shareholders Pluralist Approach: management should maximize profit but not at the expense of employees, suppliers and the community. The Social Audit: a systematic evaluation of an organization’s progress toward implementing programs that are socially responsible and responsive Double Bottom Line: social impacts and profits Triple Bottom Line: people, profits, planet Session 3: Understanding Financial Statements Capital Structure: a firm’s capital structure determines how a company finances its overall operation and growth through a mix of the following: current cash position, short and long term debt and common and preferred equity There are 2 types of financial transactions: 1. Operational Transactions: revenue and expenses 2. Capital Asset Transactions: investment and divestment There are 3 types of financial statements: 1. Balance Sheet: summarizes the firm’s financial situation in terms of assets, liabilities and owner’s equity; provides a good indicator of capacity and liquidity Assets = Liabilities + Owner’s Equity Assets can be broken down into current assets (cash, accounts receivable, inventory and prepaid operating costs) and non-current assets (long term investments, property, plant, equipment, less depreciation, intangible assets). Liabilities can be broken down into current liabilities (accounts payable and notes payable) and long term liabilities (long term bonds and mortgages). Owner’s Equity includes retained earnings and stock. 2. Income Statement: summarizes the operational expenses generated by a firm, against the expenses used to generate it; provides a good indicator of efficiency and effectiveness Revenue (Sales) – Cost of Goods Sold = Gross Profit Gross Profit – Operating Expenses = EBIT EBIT – Interest Costs = EBT EBT – Taxes = Net Profit 3. Cash Flow Statement: summarizes the sources and uses of the organization’s financial capital; identifies inflows and outflows of money during the period being analyzed; provides insight into the current and projected liquidity position of the firm An organization can raise capital by: 1. Equity Financing: selling shares or stock in the company; common or preferred stock holders are owners of the corporation 2. Debt Financing: issuing short or long term debt instruments; purchasers of bonds, debentures and mortgages are not considered owners of the corporation Liquidity: the amount of assets which an organization possesses which can easily be converted to cash Capacity: the ability of an organization to generate revenue and to grow its revenue streams Solvency: the ability to meet long term fixed expense requirements and to fund future growth Efficiency: the ability of the firm to effectively manage its operations and allocate resources Common ways of monitoring financial performance include trend analysis, comparative analysis, and absolute dollar analysis and ratio assessment. Debt to Equity Ratio = (debt ratio; measure of a firm’s leverage; high value more leveraged) Leverage Ratio = (debt ratio; measure of financial leverage) Current Ratio = (liquidity ratio; measure of how quickly a firm can convert assets into cash) Quick Ratio =
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