International Trade is the system under which businesses, individuals, and governments trade goods and services. This exchange from many different National economies is what makes up the Global economy.
Imports and Exports
When we talk about international trade, we usually think in terms of imports (the goods and services a country buys from outside) and exports (the goods and services one country sells to the rest of the world). When a country exports more than they import, they are said to have a “trade surplus” – this means more money is flowing into the economy than flowing out. If a country has a “trade deficit”, more money is flowing out than in.
Trade Deficits and Surpluses
Trade deficits need to be funded by either trying to increase exports in the future, or through saving and borrowing. Since this pulls money out of the economy, the economy needs to grow at a higher pace to account for the loss. Having a trade deficit is not necessarily a bad thing. For example, developing countries may run a trade deficit while importing high-tech communications materials and construction equipment, which is used as the foundation for future growth. While they may have a trade deficit every year on paper, the growth it generates can result in a long-term net benefit.
Trade surpluses, on the other hand, act as extra cash being added to the economy. This can act as a direct injection to fuel growth, allowing companies in this country to re-invest the profits to grow. However, too big of a trade surplus is also dangerous. This is because if more cash is being added to the economy than is being used to drive growth, it will cause higher levels of inflation. Generally speaking, countries with large trade surpluses re-invest the profits in the long run through imports. Just like yearly trade deficits, most countries try to level out their trade surpluses in the long run.
What Decides International Trade
International trade happens when it is more beneficial for one country to buy a good or service from another country than make it themselves. This happens because of Comparative Advantage and Specialization.
Comparative Advantages and Specialization
A “Comparative advantage” is when one person, company, or country has a natural advantage in producing one good or service over someone else. Comparative advantage is at the heart of international trade.
For example, the United States has extensive oil reserves in Alaska, Texas, and other parts of the country. This gives the United States a comparative advantage for producing oil and gasoline compared to Japan, which has very little oil reserves.
In Japan, this makes gasoline more expensive because it needs to be imported. This has encouraged their car makers to focus on building smaller, more fuel-efficient cars compared to American car makers. This is an example of specialization – a focus for one company or economy to actively develop one of its industries in one area that makes it different from the others. Once an industry becomes specialized, it gains its own comparative advantage relative to other countries.
In the real world, this presents a perfect opportunity for international trade – the United States exports oil and gas to Japan, and imports small fuel-efficient cars and car parts.
Geography
How close countries are geographically also plays a major role in international trade, specifically because of shipping. It costs a lot more to ship goods farther distances. In fact, big countries may import and export the same goods to and from different places. The United States exports oil to Japan from its oil fields in Alaska, while simultaneously importing oil from Canada. The Alaskan oil fields are much farther away from American oil refineries than the Canadian oil fields in Alberta, so both countries benefit by the import/export arrangement.
Benefits of Trade
International trade means that each country can benefit from the specialization and comparative advantage of other countries. In the example above, Japan could try to replace oil with another fuel source it creates domestically instead of importing, but this would cause a massive increase in prices.
Likewise, the United States can drive more of its own resources into developing smaller and more efficient engines, but this would drive up the cost to its consumers. This means international trade drives prices down, which is a big benefit to consumers.
Trade and Growth
Trade is also an essential component of growth for developing countries. Many developing countries use an “Extraction and Industrialization” growth model. For example, Canada used to be famous for exporting animal skins, gold, and lumber. The Canadian Economy used these exports to import industrial machines in the 1800’s, which they used to build railroads, schools, and cities.
Over time, the resource extraction started to be less important than the other industries that they had built, with more of the economy becoming diversified over a wide number of fields. Today, the Canadian economy still does have a significant amount of mining and oil production, but it is also a world leader in biotechnology, computer science, and medical research – specializations they were able to develop by first using their natural comparative advantage through international trade.
Restricting International Trade
When two countries trade, they both benefit. However, these benefits are not felt equally. In the example of Japanese and American oil and car trade, American consumers benefit from cheaper, fuel-efficient cars, but American car manufactures lose business and profits.
Some governments put restrictions on international trade in protect their own industries.
Reasons for Barriers to Trade
There are three main reasons why countries put up barriers to international trade.
Developing Specialization
One country may be intending to specialize in the production of some good or service, but they do not yet have a comparative advantage on the international market. For example, Indonesia is one of the world’s leaders in the production of fabric and textiles, but 30 years ago they were just starting their development.
To encourage the industry to grow, the Indonesian government restricted imports of textiles from other countries by putting on heavy taxes. These taxes were then used to buy their own production equipment, and subsidize their own domestic textile industry. This allowed Indonesia to develop its own industry, shielded from international competition. This, in turn created new jobs and investment opportunities, with the idea that the long-term growth generated from specialization will be greater than the short-term cost to consumers to pay more for clothes.
Unfair Comparative Advantage
Countries also restrict trade when they believe the other trading partner has an “unfair” comparative advantage. For example, when Indonesia applied its tariff to textile imports and used the profits to subsidize its own production, China saw this as an unfair burden to its own textiles industry and applied its own tariff to Indonesian imports.
These types of retaliatory tariffs mean that both countries lose: Indonesia’s textile industry’s efforts to specialize are hurt by their inability to export to China, while Chinese companies are hurt by their inability to export to Indonesia. The customers in both countries are hurt by higher prices for textiles. This makes putting up trade barriers risky – it may help a country specialize, but it runs the risk of retaliation from other countries.
Special Interests
In these textile scenarios, the customers are the clear losers (faced with higher prices) and the domestic businesses are the clear winners (enjoying higher prices and subsidies to grow). However, it is not an even split. Most customers will only notice prices going up by a small percentage, while the affected businesses will see their profits soar.
This means these companies have a big incentive to lobby the government for stronger protections, while consumers may not even realize what they are missing. When the government is evaluating tariffs and restrictions, the businesses who gain are usually very loud proponents, while average citizens may not even be aware what they are losing. If the effort to specialize does not result in long-term growth, it can mean a handful of powerful businesses simply profit at the expense of a large number of consumers.
Free Trade Agreements
To combat unfair competitive advantage, retaliatory tariffs, and special interests, countries will enter into Free Trade Agreements. These agreements severely limit the types of tariffs that can be put in place, with clear rules for both parties.
Even with Free Trade agreements, countries can agree together on some trade restrictions. For example, Indonesia and the United States have a bilateral trade agreement. The United States allows Indonesia to restrict imports of textiles from America, but on the condition that they need to give American aircraft manufacturers preferential treatment for imports. This allows Indonesia to continue to protect its growing textile industry while also allowing the United States to profit from its own comparative advantage in aircraft manufacturing.
Currency Exchange and Forex
Different countries use different currencies, which can cause problems with international trade. Every time a country imports a good, it needs to exchange some of its own currency for the currency it needs to make the trade.
This means there are two market forces happening with each transaction: Supply and Demand of the good or service itself, and the Supply and Demand of each country’s currency determining the exchange rate.
Foreign Exchange
The market for currencies is known as “Forex”. Every currency trades against all other currencies to find equilibrium prices. If you have heard that the U.S. Dollar is getting “Stronger” or “Weaker”, it refers to how it is trading in the Forex market.
If a currency is getting “Stronger”, it means it can buy more of some other currency. For example, if $1 USD was able to buy 1 Euro last year, but it can buy 1.1 Euros this year, the US dollar is “Strengthening” against the dollar. We say that a currency gets weaker if it can buy less of some other currency.
Foreign Exchange, Exports, and Imports
Strengthening and weakening of currencies plays a huge role in international trade. For example, imagine a shop in France that sells glassware. They normally charge 10 Euros for 100 glasses. If an American company wants to buy these glasses last year, they would pay $10, and get 100 glasses.
However, to buy those same glasses next year, it only costs the American $9, because the dollar got stronger. This means if a currency gets stronger, it gets easier to import from other countries.
Conversely, if a currency gets weaker, it means it is easier to export. Over that 1 year, the French glassmaker’s prices dropped by 10% for Americans. American glass manufacturers will start to lose business to the French imports, even though nothing about the actual production costs changed in either country.
Manipulating Forex
This means that countries trying to boost its own economy will try to “weaken” its own currency by using government resources to buy up many other currencies, driving up the price of other currencies and driving down the price of their own. This makes it easier for their own businesses to export, while automatically making it more expensive to import from outside. Weaker currencies generally favor businesses by raising prices, while stronger currencies benefit consumers by lowering prices.
The international community does not like currency manipulation – there are many international treaties in place to restrict how governments can buy and sell each other’s currencies to try to prevent it. This lesson is part of the PersonalFinanceLab curriculum library. Schools with a PersonalFinanceLab.com site license can get this lesson, plus our full library of 300 others, along with our budgeting game, stock game, and automatically-graded assessments for their classroom - complete with LMS integration and rostering support!
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The Consumer Price Index is the most basic way to measure inflation. Economists pick a set “basket” of goods, and simply compare their prices between years. For example, the CPI can include milk, eggs, bread, televisions, computer monitors, compact cars, circular saws, and hundreds of other products. The “basket” will have one of each item.
The biggest disadvantage of the GDP Deflator is that it is very hard to calculate. Instead of having a basket of a few hundred specific products like CPI, the GDP deflator needs price AND quantity data from thousands of different products every year.
One of the biggest factors that ended the Great Depression was the outbreak of World War II. When war was declared, it caused a dramatic shift in the way the government was spending money, and simultaneously transformed the workforce. Unemployment went from near 30% of all potential works down to almost zero, partially because the army drafted millions of people into military service (removing them from competition for potential jobs), but also because there was a dramatic increase in spending to private companies to build weapons, farmers to grow food for the allied armies, and dozens of other industries for war materials.
The impact of social protections are usually unbalanced between those who benefit (or are harmed) from the change, and those who are protected by the regulation. For example, when states began requiring Barbers to get a license in order to cut hair for money, many barbers switched professions, and the remaining ones increased prices between 10% and 15%. This was a huge impact on barbers – some lost their jobs, while others saw a big pay increase. For everyone else in the economy, there was so little change that it may not have been noticed.
There are two main ways the government tries to control the economy – through “fiscal policy”, and “monetary policy”. You can tell them apart both by who is doing the control, and what type of impact it has.
One of the constant political “hot topics” is whether to cut taxes to fuel growth. If we look at the “Sledgehammer and Scalpel” view of fiscal policy, this makes sense – putting more money into people’s pockets will drive growth across the economy.
Whenever you buy something, the “dollar cost” is the actual money you spent on the purchase, but you lose more than just money when you spend it. You also lose the potential to spend that money on something else – this is what is known as the “Opportunity Cost”.
Your own personal time value of money is what determines how much you spend and save. This is the Japan versus Kitten problem that you face every day: whatever you spend today, you cannot save up for a bigger (and potentially better) purchase in the future.
Apple (
The main difference between managerial accounting and financial accounting is not that financial only focus on financials and numbers. Both of these rely heavily on numbers and interpreting them. The biggest difference is drawn from managerial accounting focusing also on operational reports throughout the company, and also not being held to certain compliance laws that financial accountants must obey. To be able to understand the more specific differences, we should start with a definition of both.
A fixed cost is an initial cost taken on by the company. It is a one time charge that is not contingent on the amount of something manufactured. On the other hand, a variable cost is something that is charged per unit manufactured. This process is important in this situation, because if a company can forecast how much they will need something, then they can choose one or the other. If the amount that they are outsourcing is lower when the calculation is completed than the initial fixed cost of setting up the facilities, then it would be better to outsource. However, should they be better off to produce in house should they be making a larger amount of products. This will make much more sense once the numbers are introduced.
Cost allocation is the process of assigning cost to different cost objects. A cost object can be anything from square footage to a headcount in an office. Essentially, you can value something and add your cost to something in order to find a fair way of spreading it out.
Market segmentation is the process of dividing a market of potential customers into groups (segments) based on different characteristics. Because of the different strategies that are used for different consumer groups, it is easier for marketers to personalize campaigns, and engage new customers. This is how target marketing matches marketing efforts to the needs of a specific market segment. By putting the target market into segmented groups, marketers can be more efficient with their time and potentially save money on campaigns. This is a more cost effective way for the company to market their business.
Demographic Segmentation is the most important criterion for measuring a target market. Marketers usually have good ideas about how big different demographic segments are based on measurable statistics, which can easily be retrieved from the census bureau online. Once they know the size of each demographic, they can use polling data to find the specific tastes and preferences of each group. Groups are usually defined by:
Psychographic Segmentation divides the target based on socio-economic class, personality, and lifestyle preferences. There is a scale that is used and it ranges from the highly educated being at the top, all the way down to the uneducated and unskilled at the bottom. Marketers use this type of segmentation to figure out consumers based on their education, economic status, social status and working class. some categories include:
These tools above are used in market segmentation and there are different ways that all three of these tools are put together in order to find the perfect market to advertise their product. For instance, a business that sells high tech baby supplies will need to identify a target market. The business will look at the demographics and take a poll on anyone within the millennial age that are more likely to have children and what they prefer as their supplies. Next, they will look at the geographic and psychographic segment and narrow the market to those who have upper management jobs who can afford the high tech baby supplies and who live in maybe an urban region where technology is used in people’s lives every day. Narrowing the target market saves time and money by focusing only on the potential customers who would be most interested – sending advertisements for high-tech baby supplies to retired males is likely just wasting money.
Brokers help individuals trade securities, the security type will change depending on the broker, but they usually fall into these categories:
“Brokers” are people who bring two interested people together to make a trade, they are the “middle man” of the transaction. “Dealers,” on the other hand, are usually directly involved in the transaction. Dealers would be like a storefront, they buy goods from their own suppliers, then sell them to the final consumer.
The buy or sell process within a brokerage account is called Trade Execution. Trade execution is an investor confirming the desire to buy or sell an investment or security. Once the investor signals their intention to place a trade, it starts the Trade Capture process.
All securities and investments have a cost. The cost may come in the following forms:
“Ford Motor Co. engages in the manufacture, distribution, and sale of automobiles. It operates through the following segments: Automotive, Financial Services, Ford Smart Mobility, and Central Treasury Operations. The Automotive segment includes the sale of Ford and Lincoln brand vehicles, service parts, and accessories worldwide, together with the associated costs to develop, manufacture, distribute, and service the vehicles, parts, and accessories. The Financial Services segment includes its vehicle-related financing and leasing activities at Ford Motor Credit Company LLC . The Central Treasury Operations segment engages in decision making for investments, risk management activities, and providing financing for the Automotive segment. The Ford Smart Mobility segment designs, builds, grows, and invests in emerging mobility services. The company was founded by Henry Ford on June 16, 1903 and is headquartered in Dearborn, MI.”
A company’s culture involves different aspects of their organizational beliefs, image, and structure. This includes the company’s mission statement, how they handle public relations, and how they handle their employees. If a company has a good public and private standing, then their culture would be considered a strength. However, if they have a bad public image, such as Comcast, or internal employee discontent, like Google, you could deem their culture to be a weakness that needs be improved.
Matrixed management is a bit more difficult. This management structure attempts to combine the strengths of both horizontal and vertical management. Many larger companies are trying to move into a matrixed structure, but the details are still being tweaked. This type of structure is not as old and well researched as the others, so companies are still trying to see what the benefits and disadvantages are. It is also much harder to integrate, because it requires a thorough understanding from both executives and those who report to them.
Threats in your SWOT analysis will consist of problems that could arise for your company due to either internal or external threats. Employee discontent, expiration of a patent, or legal issues would all be considered internal threats that could potentially harm future business operations. External threats, which can consist of competitor innovation, government regulation, or an economic recession could also pose a serious threat to business operations. When analyzing for threats to a company, the primary concern is whether something will negatively impact business operations. If something positively impacts business operations, it would be considered an opportunity.
According to documents filed in the US District Court of Massachusetts by the Securities and Exchange Commission, Fields and Latorella created a number of fictitious companies including one called Omni Data Services (ODS) which the two executives falsely charged for services from LocatePlus which it did not actually provide but which Omni Data paid for using funds routed from LocatePlus to ODS through the other fake entities which the executives created in order to hide their illegal activities.
Naturally, laws exist to protect stockholders from this sort of fraud. Both Fields and Latorella plead guilty to violations of the Securities Act of 1933 and the Securities Exchange Act of 1934, receiving both prison time and orders to pay restitution in an amount exceeding $4.9 million. The third conspirator, O’Riordian plead guilty to separate securities fraud charges.
Because criminals fail to consider or don’t care how their actions affect other people, citizens, even though governments have created laws in the hopes of limiting fraud and law enforcement agencies to punish those who do.
Once the information in any case becomes clear, the next step is to identify any violations of laws or regulations.
The truth of the matter is that a successful marketing strategy is deeply rooted in a firm’s ability to build positive relationships with consumers by consistently providing a high-quality product, exemplary service, and an outstanding customer experience. This ability is often referred to in the business world as the firms’ value proposition. In other words, what unique offerings does the company propose to the consumer to entice them to want to buy their products or services over the competition’s?
The function of marketing at its core is to make a business’ product or service more relevant and desirable, as well as ultimately transform that product or service from a desire to a necessity for the targeted market. The end customer can vary widely in identity, goals, and desires.
For most people, the corporate bond market is often not as well known as the stock market, but it plays an equally important role in the finance world. Say a company like McDonald’s needs $1 million to open 10 new restaurants, but does not have enough cash to pay for it. Or, perhaps they do have enough cash available, but they prefer to save it or invest it in other areas of the business, rather than burning through all of it for this new restaurant expansion. In this scenario, the likely solution would be to issue debt. With the help of a major bank, like Goldman Sachs or Morgan Stanley, McDonald’s would issue (sell) $1 million worth of debt (bonds). The bonds are put into the financial market for investors around the world to buy. Each time a company sells bonds, there is a fixed maturity and interest rate pinned to the bonds. The maturity, which can range anywhere from a few months to 30 plus years, is the date when McDonald’s has to pay the investors back the full amount they borrowed.
Regular, guaranteed, and (usually) higher dividend payments, plus you get paid back first if the company goes bankrupt – who wouldn’t buy preferred stock over common stock? Preferred stock is not as prevalent as common stock, making it much harder to actually get these shares. If you look at the thirty largest U.S. companies based on their total stock value, only four have preferred stock outstanding. They are Wells Fargo (
Selling additional shares of stock can come at a cost to the current stockholders because it reduces their proportional ownership in the business. This is called dilution. Putting it into context, consider the example of the startup technology company selling additional stock. If there were 10 original investors who collectively purchased 10% of business – for simplicity, assume they each got 1 share. Next, let’s assume that the additional 10% sold from the new issuance were bought by 10 different investors who also each receive 1 share. Originally, each investor owned 1 share out of the 10 shares total. Now, after the additional issuance, that same investor owns 1 share out of 20 total. This dilutes the shareholders proportional ownership in the company. This can cause the Earnings Per Share (EPS) and value of the stock to decrease.
Advertisements are a great way to spread knowledge about a product or service, but sometimes the messages in advertisements are questionable. Vintage advertisements from the 1950s and 1960s, for example, were created in an era with far less oversight. Today, many of these ads are seen as more offensive and unethical than persuasive. If you look at an ad for Camels cigarettes from the 1950s, you’ll see a doctor smiling while holding a cigarette, with the caption, “More doctors smoke Camels than any other cigarette”. This ad is hypocritical since doctors spend their careers advocating for healthy lifestyles. It also sends a message to society that if doctors are smoking then it must not be bad.
Culture has a big influence on ethical principles since it refers to a set of values and attitudes that are shared among a group of people. However, not all cultures are the same which makes ethics vary among countries. Ethical standards should be relevant to international markets and should be equal in all markets, meaning that ethical practices carried out in the home country should be carried out internationally as well. Avon (
Moral idealism is a moral philosophy that no matter what the outcome, individual rights must always be protected. This philosophy can be found in the ethical practice of informing consumers of safety hazards in a product or service, or recalling a defective product no matter the cost, so long as consumers are protected.
Some characteristics of the working class that could affect their buying decisions include limited post-secondary education, some occupy unskilled work positions, and may travel long distances to get to their work places. For example, a restaurant dishwasher (who is part of the working class) would typically purchase his groceries in places where those in the upper class would not necessarily shop in.
While businesses such as manufacturing plants purchase goods and services to turn them into consumer goods that are then consumed by the end-user, there are also groups in the marketplace whose goal is not to make profits. These include government institutions and non-profit organizations. For example, the government branch responsible for building and maintaining interstate roads buy asphalt and gravel from businesses to use for highways. These highways are not built for profits per se, but mainly to facilitate travel.
“Psychographics” is the study of consumer lifestyles. While demographic studies see individuals as parts of specific groups, psychographics aims to create a more wholesome profile of the consumer as part of a small group within the target market. For example, a psychographic analysis of an individual born after 1998 would show her preference of watching documentaries on Netflix rather than watch a documentary on cable channel. The same analysis done on a male university student would show his preference to hailing from a ride-sharing app rather than taking a cab.
Dividend Amount
As a shareholder, in addition to receiving dividends, you can vote on certain corporate restructuring plans that the board of directors proposes to the shareholders. Corporate Restructuring means making the business leaner through possibly merging departments, eliminating debt, or possibly merging or being acquired by another company. A recent example now is Valeant Pharmaceuticals (
During the acquisition, the two main payments are similar to dividends: they can come in the form of cash (direct cash payment to each shareholder for their shares) or stock (shareholders of the acquired company are given shares of the new company). Generally speaking, the company acquiring the target overbids the current stock price. PPG’s bids for Akzo Nobel will be used below as an example.
Clothing
At one point, a company’s plans become so big that it needs public financing to support future development, and so they sell stock to raise the cash needed to grow. This point is when a private entity becomes public. A public corporation is financed by the ‘public’ which means millions of investors, and which means huge capital. The most significant step in creating the corporation is its registration as a legal entity. A state issues articles of incorporation to the firm that legally recognizes the status of the corporation as an independent entity. The certificate of incorporation identifies the name, address, and the field of operation of a new corporation and describes the stocks to be issued.
Issuance by subscription is the case of selling shares on ‘loan’, where investors do not have to pay the full amount at once. However, paying a part of the amount gives the investor a subscription status, which means he/she will be assigned with the particular amount of shares. This investor cannot enjoy the rights, and the shares are not officially counted and recorded as issued until the full amount is paid.
Preferred: 13,000,000/24,500,000 * 23,000,000=12,204,081.6
Preferred stock gives its shareholders the ‘preferred’ status among other shareholders. Therefore, the price per preferred share is usually higher than for a common share. However, the dividends that are paid to preferred shareholders are fixed and do not evolve with the company growth and development. This limits preferred shareholders from gaining from the company’s price growth. For this reason, it is very common for preferred shares to be convertible.
Dividends are the payment the investors gain in return for their investment. Dividends can be paid monthly, quarterly, or semi-annually depending on the company’s dividend payout policy. Companies are not liable to pay out the dividends until they declare it. This means in bad years, many companies simply do not declare dividends, instead building up cash reserves. If they can, companies usually have an incentive to pay dividends, since it is a good sign of the company’s financial position that helps to raise the share price overall. This means , for most companies, dividends are paid on a regular basis. When the company declares the dividends, they become a liability for the company, and are located under dividends payable account.
The balance sheet shows a company’s assets, liabilities, and equity. Aptly named, a balance sheet must balance where the value of the assets is equal to the value of the liabilities plus equity. Just by glancing at a company’s balance sheet you could gain a firm understanding of how solvent they are. You would be able to see how much cash is available and how close to maturity their debts are. This would allow you to see if a company can meet its short-term obligations. However, being solvent requires a company to meet both their short and long-term debts, which you wouldn’t be able to accurately forecast using the balance sheet alone. Therefore, just looking at the balance sheet wouldn’t tell you enough.
When considering a company’s long-term solvency using their income statements it’s important to take note of a few key numbers. If you’re trying to gauge whether a company will meet their long-term debt obligations, you’ll need to look at their income from business operations. This includes the company’s Total Revenue, Marginal Revenue, Output, and Profit.
The other major thing to worry about when looking at a company’s financial statements is whether they are being truthful. Now this does seem kind of nefarious, but these things do happen. In 2001, it was discovered that the energy company, Enron was using various illegal and unethical financial accounting methods to move around their debts and cash flows to make the company seem profitable. Essentially, they were transferring their debts to subsidiaries and claiming that they were provided cash; they were selling their debts to themselves with cash that they provided. No money or debt ever moved in or out of Enron, it just appeared that way in their financial reports.
Business is surrounded by risks – if they are not properly managed, the business will shut down.
Having already experienced the loss, the business must defend against the spread and growth of the loss. This seen in a global business where factories, warehouses, and other infrastructures are located in many different places in different parts of the world. If a factory in Lima, Peru explodes and all the inventory and supplies are destroyed, there is still a factory in nearby Rio De Janeiro, Brazil to fulfill customer orders. Another example, by compensating workers for work-related injuries with wages that could have been earned, plus extra to cover expenses of the injury, adequate time to recover, and anything else the employee may require, which also involves changing work conditions, the company will reduce further losses from fines and penalties carried out by government, health, and safety agencies by doing right by those who are harmed and getting things right with the law. This is a case where spending extra money up front reduces the probability of a bigger loss down the line.
When a business commits a crime, the consequence can range from hefty fines to imprisonment (if specific individuals are definitively linked to the crime). For example, this happens when many people get sick or die when using a company’s product or service and management knowingly signed-off on the inclusion of life-threatening materials. More commonly this is accounting fraud, where the management of a business knowingly manipulates their financial statements.
Cash budgeting allows an organization to set a goal and move toward that goal. This is important because each organization has a finite amount of resources and these resources need to be used effectively. Management uses cash budgeting to manage the cash flows of an organization. For example, employees must be paid every two weeks. The cash budget allows management to forecast whether or not they will have enough cash to pay their employees. If there are shortfalls of cash, the budget may be adjusted to correct problems before payments are due.
Leading is about taking the lead: initiating, inspiring, and motivating workers. It is about fostering passion to continue to work and exceed expectations, improve standards for product quality and manufacturing, set industry standards for quality and production, and generally being a great example for others to follow. When managers lead workers, they are helping them realize that managers objectives and goals coincide with their personal ambitions, in addition to the company’s overall mission, vision, and goals.
This is also known as Democratic leadership, because everyone gets heard and everyone is included in the decision-making process. This type of leader knows that they cannot move mountains by themselves, so they collaborate with those around them and establish long-lasting, meaningful relationships. They understand the importance of networking in achieving objectives and goals. People working under this leadership style tend to feel more satisfied with their work and feel more valued for their contributions. Situations where creativity and innovation are integral work best with this leadership style, such as in software and hardware development companies, product engineering, and so on.
Transformational leaders are also known as change leadership because this leadership style tries to effect changes (making a difference) as the purpose of management. This type of leader sees everything and everyone as something that can be improved and revolutionized. Transformational leaders represent the best in human and business standards in that they seek to improve employee morale by seeing value in them, make the workplace better by spreading positivity, exemplify high moral standards, emphasize ethical considerations, use logic and reasoning to win people over, and providing workers with options and opportunities.
The manager will take the lead in this phase by doing research on what company problems need to be fixed or addressed in some way, and directing those qualified to obtain needed information. Next, they will gather everyone involved to introduce a structure to the plan to make it more achievable to gain perspective on what direction the manager and company should go with this. After considering everyone’s input and suggestions, the manager has a better idea of what needs to be done to solve the problem and contain any issues that may arise.
In an income statement, Operating Cash Flow (OCF) is similar to Earnings Before Interest and Taxes (EBIT). Both show how much cash a business can generate from normal operations. It excludes other major items in an income statement that impact net income (interest and taxes). These items are excluded because they are not operational expenses.
The process begins with a company discussing the pitch for an IPO with bankers. The company selects book runners and co-managers who will be responsible in selling the newly issued stocks for the primary bank. The company must file the registration forms and discuss the timing of the IPO. The bankers then conduct due diligence, a process by which they speak to customers, do research and analysis on the industry and trends, figure out the legal situation, and sift through the financial statements and make sure there are no irregularities. The S-1 form is filed after the due diligence, which releases the historical financial statements, key data, and other information investors would like to see before making a purchase decision.
Finally, stock price fluctuations deal with the concept of risk. There are two types of risk, systematic and unsystematic. Systematic risk is an event that can affect the stock market as a whole. Unsystematic risk is specific to the company or industry. Beta is the measure of the volatility a stock has in comparison to the market as a whole. A beta greater than 1 represents a stock that will move higher than the market in periods of growth but decrease more in periods of decline.
In the old west, a brand served as a symbol which quickly communicated a message of who owned that brand. Today, a brand performs the same function and much more. A company’s brand communicates the company’s image or how the business wants to present itself to and be perceived by the public.
Another ethical and legal issue in planning business advertising is copyright infringement. This occurs when a business purposefully or inadvertently uses legally protected images, trademarks, or other material in advertising without the permission or remuneration of the protected material. Using a photograph taken from the internet for an ad may represent the image you want, but the photographer who took the shot and owns its copyright will probably sue you.
Broadcast advertising includes, AM and FM radio as well as broadcast and cable television. Each of these media methods appeal to varying audiences and therefore their use must be part of a comprehensive business advertising plan. For example, AM radio stations hold a different demographic of listeners than FM radio stations. Cable news networks possess different audiences than cable movie channels, and broadcast stations seek a variety of viewers.
One more modern method of measuring print advertising response is the Quick Response or QR code. Businesses use these computer-generated digital images for various purposes, but they prove highly effective for measuring advertising response for print media. Most product packaging (a form of print media) possess a QR code which customers can scan on their smartphones. Most QR codes contain the company’s URL web address giving customers access to special offers or content, but they also provide nearly instant feedback to companies who planned ahead and insisted on placing a QR code on labeling or advertising.
From this point, we can interpret the value of a stock use this ratio to determine if it is a high growth or flawed stock. First we take a look at Nordstrom and how to interpret its P/E ratio. Their current P/E ratio is 23.61. Next we look at Macy’s, with a P/E ratio of 11.81. High P/E ratios correlated with higher growth stock due to investors finding more value in a companies share price. If this holds true, Nordstrom is seen as a better buy than Macy’s because investors expect more growth in the future.
This specific financial ratio has been very useful over the past year with regards to the slump in retail stores due to online shopping. Nordstrom has a P/S ratio of 0.530 and Macy’s has a P/S ratio of 0.280. This is a great tool for valuing an asset in comparison to another in terms of sales. This ratio shows that Nordstrom’s current market cap is much lower than it could be in terms of their revenue compared to Macy’s – per dollar value of the company, Macy’s is making more sales.
To use this model, start by taking the risk-free rate of return, then adding in how you think many different variables will impact the price. Each “b” in the formula is another factor you think will have an impact, and you can have as many factors as you want. You could base the formula off of the inflation rate, exchange rates, production rates, etc. The possibilities are endless.