Study Guides (248,518)
Canada (121,606)
Business (1,240)
BU121 (203)

BU121 Final Exam Review.docx

29 Pages
Unlock Document

Sofy Carayannopoulos

` BU121 Final Exam Review A: Multiple Choice Finance and CVP Financial Management: The art and science of managing a firms money so that it can meet its goals  Closely related to accounting o Accountants collect and present financial data o Financial managers use the statements and info prepared by the accountants to make financial decisions  Financial managers plan and monitor firms cash flows to ensure cash is available when needed Key Activities of financial Manager:  Financial Planning: Prepare the financial plan, which projects revenues, expenditures, and financing needs over a given period  Investment (Spend money): Investing in the firms funds in projects and securities that provide high returns in relation to their risks  Financing (Raising money): Obtaining funding for the firms operations/investments and seeking the best balance between debt(borrowed funds) and equity (funds raised through the sale of ownership) Goal of Financial Manager: Maximize the value of the firm to its owners Financial planning  Forecasting o Short term forecasts (operating plans): project revenues, cost of goods sold, and operating expenses over a one year period o Long term forecasts (strategic plans): cover a period that is longer than a year, typically 2-10 years and take a broader view of the firm’s financial activities.  Budgets o Cash Budget: Forecast the firms cash inflows and outflows, and help the firm plan for cash surpluses and shortages. o Capital budget: Forecast outlays for fixed assets. They usually cover a period of several years and ensure the business has enough money to buy the plant and equipment it needs o Operating Budget: Combing sales and forecasts with estimates of production costs and operating expenses to forecast profits  Based on individual budgets for sales, production, purchases of materials factory overhead, and operating expenses How organizations use funds  Short term Expenses o Cash Management: Assuring liquidity: The process of making sure that a firm has enough cash on and to pay bills as they are due, and to meet unexpected expenses  Companies will try to keep keep current account balance low due to low interest, so financial managers invest in low-risk marketable securities o Manage A/R: Managers goal is to collect A/R as fast as possible while offering credit terms attractive enough to increase sales  Involves: Setting credit policies, guidelines on offering credit and credit terms, specific repayment conditions ( How long to pay and whether early payment discount offered), and deciding on collection policies o Inventory: Purchase of inventory needed by the firm  Long Term Expenditures o Capital Expenditure: Investments in long lived assets that are expected to provide benefits extending past one year. These include Building, Land, Equipment and machinery Obtaining Short-term loans  Unsecured Short-term Loans : Loans for which the borrower does not have to pledge specific assets as security o Trade Credit: The extension of credit by the seller to the buyer between the time the buyer receives the goods or service and when they pay for them. Buyer enters the books as A/P o Bank Loans  Line of Credit: An agreement between a bank and a business or an individual specifying maximum amount of short term borrowing available to the firm or individual  Revolving Credit Agreement: Allows the borrower to continue to have access to funds as long as the maximum has not been exceeded o Commercial Paper: Unsecured sort-term debt issued by a financially strong corporation. Issued in multiples of $100,000 for anywhere from 3-270 days  Secured Short Term Loans o Secured Loans: Loans for which the borrower is required to pledge assets as collateral or security  Factoring o A firm sells it’s A/R outright to a factor, a financial institution (usually a chartered bank or commercial finance company) that buys accounts receivable at a discount. Raising Long-Term Financing  Long Term Debt Financing o Term Loan: A business loan with an initial maturity of more than one year; can be secured or unsecured o Bonds: Long term debt obligations issued by corporations and gov’t. Issued in multiples of 1000 with initial maturities of 10-30 years. Coupon rate is % of bond’s par value that the issuer will pay each year as interest o Mortgage Loan: A long term loan made against real estate as collateral  Equity Financing o Selling Common Shares: Securities that represent an ownership interest in a corporation  Initial Public Offering: The first sale of shares to the public, in order to raise funds to finance continuous Growth. Ex. Tim Hortons offering 29 million shares of common shares in 2006.  Drawbacks: Expensive, no guarantee of selling o Dividends: Payments to shareholders from a corporation’s profits. Can also be paid in the form of more shares by replacing or supplementing cash dividends. o Retained Earnings: Profits that have been reinvested into a firm. Contain advantage over other sources of equity as they do not incur underwriting costs o Preferred shares: Equity Securities for which the dividend amount is set at the time the shares are issued. Priority over common shares. o Venture Capital: Most often used by small and growing firms that aren’t big enough to sell securities to the public. Venture capitalist invest for part ownership of the company Trends in Finance and CVP  CFO’s Role continues to expand o More highly visible and active in companies than ever before  Weighing the Risks o Enterprise Risk Management: A companywide approach to identifying, monitoring, and managing all components of a company’s risk. o Companies face risks:  Credit Risk: Exposure to a loss as a result of default on a financial transaction, or a reduction is a securities market value due to decline in the credit quality of the debt issuer  Market Risk: Risk Resulting from adverse movements in the level or volatility of market prices of securities, commodities, and currencies  Operational Risk : Risk of unexpected losses arising from deficiencies in a firm’s management systems and procedures Operations and Sustainability Production an Operations Management Operations Management: Management of the Production Process Production Process for Products and Services: Natural resources, Raw Material → Conversion Process → Products & Services Human Resources, Capitol Productions and Operation Management made of 3 types of decisions in 3 stages: 1. Production Planning – Made at the planning stage; Managers decide where, when and how production will occur. They obtain resources and determine site locations 2. Production Control – Decision making process focuses on scheduling, controlling quality and costs, and the day to day operations of running a factory or service facility 3. Improving production and operations – Focuses on developing more efficient ways of producing the firms goods & services Production Planning: Aspect of Operations management where the firm considers the competitive environment and its own strategic goals in an effort to find the best production methods Production Process Mass Production: The ability to produce many identical goods at once Mass Customization: A manufacturing process in which goods are made up to a certain point and then custom tailored to meet desires individual customers Job Shop: Manufacturing firm that produces in response to a customer’s order Converting Inputs to Outputs  Process Manufacturing: The basic input is broken down into one or more outputs  Assembly process: The basic input is combined or transformed into the output Production Timing  Continuous Process: A production process that uses long production runs lasting days-months without equipment shut-downs; used for high-volume, low variety products. Ex .Electric company  Intermittent Process: Short production runs used to make batches of different products. Used for customization; Ex. Job shops or a restaurant making a meal Location Where to make it:  Availability of Production inputs o Must assess availability of raw materials, parts, and equipment for each site as the cost can be up to 25% of expenses  Marketing Factors o Must evaluate how location will affect availability to serve customers  Manufacturing Environment o Some locations have a strong existing manufacturing base; when a large number of manufacturers exist in an area there is a greater availability of resources  Local Incentives o Incentives offered by countries can be an influence such as tax breaks  International Location Considerations o Labour costs are considerably lower in some other countries Designing the Facility  Process Layout o A facility arrangement in which work moves according to the production process. Workers performing similar tasks are grouped together, and products pass from one station to the next  Product Layout o Facility in which work stations are arranged in a line and products move across it  Fixed-Position Layout o A facility where the product stays still, and the machinery/workers move to it  Cellular Manufacturing: A start-to-finish focus o Combines Product and Fixed-position layout o Work cells are small self-contained production units that include several machines & workers in which complete all or most of the tasks required to finish the product Resource Planning Make or Buy  Firm must decide whether to produce or buy the materials from outside sources  Outsourcing: The process of buying the item material from an outside source instead of producing it yourself Inventory Management  The decision of how much of each type of inventory a firm will keep on hand, and the ordering, receiving, storing and tracking of inventory  Ways to determine best inventory levels: o Look at cost of holding inventory o Look at cost of reordering frequently o Look at cost of not keeping enough inventories on hand  Perceptual Inventory: Continuously updated list of inventory levels, orders, sales, and receipts Computerized Resource Planning  Materials Requirement Planning: Computerized system of controlling the flow of resources and inventory. Master schedule used to ensure materials, labour, and equipment needed for production are in right place at the right time  Manufacturing Resource Planning II: Complex computerized system that integrates data from many departments to allow managers to forecast and assess the impact of production plans on profitability more accurately Improving Production and Operations Putting Quality First  Quality and Productivity must go hand in hand  Quality: Goods and Services that meet customer’s expectations by providing reliable performance. Consumer’s measure by how well a good serves its purpose  Quality Control: The process of creating standards for quality, producing goods that meet them, and measuring finished products and services against them o Requires company -wide dedication to building excellence in operations  Total Quality Management: The use of quality principles in all aspects of a company’s production and operations o Recognizes all employees involved with bringing a product to customers contribute to its quality  Continuous Improvement: Constant commitment to seeking better ways of doing things to achieve greater efficiency and improved quality  Six Sigma: Relies on what needs to be done to ensure quality, measuring and analyzing production results statistically, and finding ways of improving and controlling quality o Remember wit DMAIC: Define, Measure, Analyze, Improve, Control Lean Manufacturing  Lean Manufacturing: Streamlining production by eliminating steps in the production process that do not add benefits customers are willing to pay for o Non-valued-added production process are cut, so the company can concentrate its production and operations resources on items essential to satisfying customers  Just In time (JIT): System in which materials arrive exactly when they are needed for production rather than stored Transforming with technology  Computer-Aided Design and manufacturing systems o Computer Aided Design: The use of computers to design and test new products and modify existing ones  Designs and test new products and modifies existing ones o Computer-Aided Manufacturing: The use of computers to develop and control the production process  Robotics: The technology involved in designing, constructing, and operating computer- controlled machines that can perform tasks independently o Can be mobile or stable  Adaptable Factories: Flexible Manufacturing System o Flexible Manufacturing system: A system that combined automated workstations with computer controlled transportation devices that move materials between workstations and into and out of the system  Expensive, but once in place , require little human labour  Quick Change with Computer-Integrated Manufacturing o Computer-Integrated Manufacturing: Combination of computerized manufacturing processes with other computerized systems that control design, inventory, production and purchasing Trends in Operations Management  Asset Management o In tight economy, must be careful of assets; wasted, manufactured, or misused assets are costly o Asset management software systems are solving this problem; automatically track materials, equipment and inventory  Modular Production o Involves breaking a complex product, service, or process into smaller pieces tat can be created independently and ten developing innovative products but also gives business a tool for meeting rapidly changing conditions.  Designing Products for Production Efficiency o Production Efficiency must begin before the first part reaches the factory o Many manufacturers are investing in new methods of integrating product design and engineering Human resources and Emotional Intelligence Achieving High Performance through HR Management HR management: The process of hiring, developing, motivating, and evaluating employees to achieve organizational goals HR Management Process 1. Job Analysis and design  Determines the employee needs of the firm and the jobs to be filled  Need the right number of people, with the right training, in the right job, to do the work when it needs to be done Job Analysis: Study of the tasks required to do a particular job well Job Description: Tasks and responsibilities of a job Job Specification: List of qualifications a person must have to complete a job 2. HR planning and forecasting  HR Demand forecast process: o Determining the number of people needed by some future time o Estimating the number of people currently employed by the organization who will be available to fill various jobs in the future 3. Employee recruitment  Internal Labour Market o Internal recruitment done through the use of information about an employee’s previous work experience, education and certifications, job and career preferences, performance, and attendance o Promotions and job transfers most common  External Labour Market o If Job recruitments cannot be found within the labour market, non- technical, unskilled, and other nonsupervisory workers are recruited through newspaper, radio, and job fairs  Electronic Job Boards o Use of the internet for recruitment ( 4. Employee selection  Initial Screening: application and interview  Employment testing o May be asked to take tests; mental-ability test  Selection interview o In-depth discussion of an applicant’s work experience, skills and abilities, education, and career interests  Background and reference checks o Check of legal history, reasons for leaving previous jobs, and possibly creditability  Physical Exam  Decision to hire 5. Training and Development  On the job training o Learns the job by doing it with guidance from a supervisor or co- worker  Off the job training o Employees learn their duties away from the job; in classrooms where films, lectures, role-play exercises and computer demonstrations take place 6. Performance planning and evaluation  Performance Appraisal: Comparison of employees actual performance to expected performance and whether they are a benefit to the business or not  Performance Planning Process o Performance Standards Established o Employee works to meet the standards and expectations o Employer evaluated employees work in terms of quality and quantity of output, and various characteristics 7. Compensation and Benefits  Factors affecting Pay o Pay structure and internal influences  Wages, salaries, benefits vary dependant on the importance of the job o Pay Level and external influences  Must be aware of competition wages. If competition is paying higher, firm may lose best employees  Types of Compensation or Pay o Hourly Wages o Salaries o Piecework and Commission o Accelerated Commission Schedule  Increasing commission rate for an increase amount sold  Ex. 3% on first $50,000, 4% on next $30,000 and 5% beyond $80,000 worth sold o Bonus Laws affecting Human Resource Management Law Purpose Applicability Charter of Rights and Freedoms Provides right to live and seek Takes precedence over all other employment anywhere in Canada laws Human Rights Legislation Provides equal opportunity for Comprised of federal, provincial, members of protected groups in and territorial laws with a common areas such as accommodation, objective contracts, provision of goods and services, and employment Canada Human Rights Act Prohibits discrimination Applies to Federal Gov’t agencies, Crown corps, and business under federal jurisdiction Employment Equity Act Removes employment barriers and Every employer must implement the promotes equality for the member Act and make every reasonable of : women, visible minorities, accommodation to ensure that aboriginal people, persons with people in the designated groups are disabilities represented in their organization. The degree of representation in each occupational group should reflect the Canadian Workforce and be consistent with their ability to meet reasonable occupational requirements Occupational Health and Safety Act Designed to protect health and All of Canada and the federal safety of workers by minimizing jurisdiction have occupational work-related accidents and illness health and safety legislation WHIMIS Designed to Protect workers by Canada wide legally mandated providing info about hazardous system materials in the workplace Trends in HR Management  Employee Diversity and Competitive Advantage o A company with a demographic employee profile looks like its customers may be in a position to gain a competitive advantage o To gain full competitive advantage, Top management must be committed to hiring women and minority individuals  Outsourcing HR and Technology o Many businesses purchased specialized software to perform the information processing aspects of many HR tasks o Other firms outsource to HR service providers  Organizational Culture and Hiring for Fit o Corporate Culture: Core values and beliefs that support the mission and business model of the firm and guide employee behaviour o Companies hire to fit with their corporate culture, as it can be a key aspect of developing employees into a competitive advantage for the firm Labour Relations and Negotiating Understanding labour relations in a unionized environment  Labour Union: An organization that represents workers in dealing with management over issues involving wages, hours, and working conditions Labour Relations process: 1. Union Organization  Group of employees within a firm might form union of their own  Or established union may target an employer and organize many of the firm’s workers into a local labour union 2. Negotiating a Labour Agreement  Collective Bargaining: Negotiating a labour agreement that provide for compensation and working arrangements mutually accepted to the union and management 3. Day-to-Day administering of Agreement  the daily administering of the labour agreement primarily through the handling of worker grievances and other workforce management problems Modern Labour Movement  Local Union: Branch or unit of National Union that represents workers at a specific plant or over a specific geographic area  3 main functions: o Collective Bargaining o Worker Relations and membership services o Community and Political Activities Negotiating union Contracts  Union Security o Closed shop: Must be on union to be hired o Agency shop: Not required to join union, but must pay a union fee o Most union security today is union shop; non-union workers can be hired, but then they must join within 30-60 days  Management Rights o When unionized, management loses some decision power o Management rights clause gives the employer all right to manage the business except as specified in the contract  Wages and Benefits o Cost of Living Adjustment: A provision in a labour contract stating wages must rise if cost of living does o Other contracts : Require lump sum adjustments: Wage stays the same for the contract period, but employee is paid a bonus once or twice in the contract  Job Security and Seniority o Higher Seniority = Higher job security  Grievance and Arbitration o Grievance: formal complaint, by employee or union, that management has violated some part of the contract o If problem not solved:  Grievance put in writing → employee, supervisor, one or more union members discuss grievance  → still unsolved, goes to top management  → still unsolved, goes to arbitration o Arbitration: The process of settling a labour-management dispute by having a third party make a decision Tactics for pressuring a contract settlement  When a contract expires and a new agreement has not be reached, the union is free to strike or engage in other effort to put pressure on the employer Lab manuals:  Sustainability 258-267 , 1mark  4 EI articles 280-308, 4 marks  2 Negotiating Articles 268-277, 2 marks  Case Analysis: Tips & tools 181-201, 1 mark *Only need to know key concept behind material, not the actual content of it B: Short Answer Finance and CVP (Including Part C: Problems) Stability Ratios  Measure a company’s ability to meet it long-term obligations by measuring the relationship between components of a firms capital structure o Shows a long term viability  Shows the results of the financial decisions that are made Debt to Equity or Debt to Net worth →  Rule of thumb: <1:1 Leverage  Measures degree of which a company has locked itself into fixed costs  Implies that given change in sales results in greater chance of profit  Rule of thumb: o <5:1 → low  Lower risk but higher cost of capital = lower return o 5:1 – 1:1 → average o >1:1 → high  Higher risk but lower cost of capital = higher return  Advantage: o Long term debt is cheapest source of capital because interest is tax deductible, and dividends are nt Higher return  Disadvantage o ↑ long term debt = higher interest payments which is a legal obligation, where dividends are not  Greater Risk of insolvency Interest Coverage Ratio  Helps asses risk characteristics of being highly levered  Rule of Thumb: o >3x, but should look at long run trends in earnings and variability in earnings Profitability Ratios Gross Profit margin  Used to asses a firms financial health  Serves as the source of paying additional expenses and future saving Net Profit margin  Tells you how much profit you make for every dollar you have in sales  Calculating from components of the income statement Return on Investment =  Used to evaluate efficiency of an investment  Most important Profitability ratio for investor Marketability Ratios Earnings per Share →  Portion of companies profit allocated to each outstanding share of common stock  Calculate fully diluted if preferred not available ( Net income/ #shares of common stock)  Serves as an indicator of a company’s profitability Price/Earnings Ratio  Helps gauge stock value and growth prospects  Why would people bid up price relative to earnings available? o If the P/E ratio is high, it means investors think that the expected future earnings of the company are going to be strong. When people see the positive feedback with a high P/E ratio, the higher confidence people will having in buying stock as they expect it to lead to continued earnings Yield Payout (This next part is kind of vague, it’s more of the kind of thing where you need to understand how to do the problems to understand everything completely) Operating Leverage - concept Degree to which the business is locked into fixed operating costs  Risk: Must sell more to cover fixed costs  Return: Once covered, leveraged effect on price occurs  Better to increase operating leverage as long as the risk of not meeting breakeven volume is not to high o You would rather be above the break even contribution that below it Breakeven – concept  Revenue = Expenses OR Revenue – Expenses =0  Breakeven is where Total Revenue = Total Costs  Breakeven Units  Breakeven Sales ( ) Contribution – concept  Most important concept  Contribution Margin: What is left over after covering variable costs that contributes toward covering fixed costs o = Price - VC o Measures how much better off the company is by selling once additional unit  Contribution Rate = Decision Point  Point where incremental (additional) fixed costs are covered by incremental contribution Process  What is the additional/incremental contribution?  Compare to the additional/incremental fixed cost  Better off? o Quantitatively o Qualitatively Operations and Sustainability Service vs. Manufacturing Both Transform raw materials into finished goods, but In a Service  Raw materials is the person with unsatisfied need or possession that requires care  Service is performed not produced o Performed: you look at more than just the outcome. If you operate McDonalds, you look at the way the burger has been cooked as well as the process of customer service and satisfaction  Focus on process as well as outcome o Judged on Quality of work and service  Characteristics are different o Intangible- experience key, customized, can’t be stored  Service is more customized – You get a different haircut from different barbers  Cannot be stored – You can’t store a cleaning lady in your closet  Ex. Insurance company – There is nothing tangible in insurance when providing your service  Customer is part of Process o Extent of contact affects the operation  Different in different businesses – A milk truck driver doesn’t affect the consumer, but a bus driver driving kids home from school does Impacts Capacity (implications for decisions)  Integrating of Marketing and Operations o Demand/ Capacity Trade-off  Manufacturing o Sets capacity slightly ahead of demand  It is extremely difficult to add later or sit idle  In short terms turn away customers or outsource at lower margins o Seasonality – shift demand and capacity requirements by pricing
More Less

Related notes for BU121

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.