Macro and Microeconomics (PDF)

macro economy + micro economy -deals with economy as a whole like + i...

macro economy + micro economy -deals with economy as a whole like + interaction - deals with individual agents like production, growth, numbers, deficits, crisis households, firms, workers, organizations Business Administration S 199 setting and achieving managing recourses goals operational efficiency management demand and supply accounting economies project planing, life-cycle management leading, management deciding economic principles economic indicators scarcity of recourses efficiency world has limited resources produce max output for given input →not enough to meet all human needs/ wants measured →maximum principle by decision what to produce →based on importance, demand ↓ productivity (wheat: beer vs bread?) output input minimum principle VS maximum principle minimal input of recourses maximal output with fixed input effectiveness (cost, labor, material asses achievement of goals measured - by optimum principle X profitability optimized ratio revenue →minimal input with maximal output - - 1 income - 1 expense revenue - expenses = income sales - cost = profit economic elements internal (directly affected) ↑ -employees -owners satisfy provide -shareholders -management Si economic needs economic goods organizations -worker’s council -physiological/ existential -goods -privat (food, water, living space) -materials -public stakeholders -basic needs -services external (indirectly affected) (personal+socio economic) -micro economy -luxury (costumers, suppliers, competitors) (car, bigger than needed) -macro economy economic good (investors, unions, government, media) -satisfy human wants/needs -has exchange value organizations material non material consumer -private households consumer producer rights services (private needs) single-use product single-use product (licenses, patents) -public households -food, toilet paper -oil, sand (collective needs) durable-use product durable-use product -clothing, car -machines, IT economic units types of economic goods production oriented -intermediate -private organizations („ingredients“ like engine, windows) (firms) -complementary -mixed organizations („extras“ like tires, radio) (TV, radio) -final („end-product“ like car) -public organizations -substitution („instead of“ like e-car) (schools, museums) market market economies definition: place to exchange economic goods or services plan economy (socialism) -centrally regulated prices types: labor market -no privacy/ private belongings capital market -government based sales market procurement (purchase) market market economy (liberalism) -private, individualized -self-regulated market criteria: structure (region, product groups, distribution) →competition, supply&demand volume (quantity) -no government involvement quality substitution goods social market economy competition -market economy BUT government is involved to ensure social justice →laws, regulations operational turnover process # -structured and systematic transfer of responsibilities, tasks, and workflows -ensuring a smooth transition during changes in personnel, organizational restructuring, or when handing over specific roles or projects S functional structure & = => cross functions basic functions 1. purchasing of financial resources -accounting -marketing -controlling -sales 2. purchasing of production factors -non consumable # (buildings, machines) -HR -production -consumable -top management -R&D 3. production of goods/ products (energy, materials, water) -IT -immaterial -supply chain management (licenses, patents, rights) -legal issues -procurement 4. marketing and sales of goods -human (services, labor, knowledge) 5. repayment of credits and loans -information (development, criticism, numbers) operational management 1. converts resources into goods/ services value chain management →goal is to improve productivity!!! value chain: value-adding activities a firm performs by…lowering labor cost aimed to create highest value automate production value adding integrate people in overall operations system people technology : procurement production upstream - marketing downstream distribution capital input transformation output goods R&D~ - sales equipment process services materials information strategy -coordination+collaboration (sharing info, flexibility) - -technology investment (logistics easier/ faster) -organizational process (evaluate/ improve processes) -leadership (support, promote, facilitate) often managed through -employees (training, benefits, motivation) value chain perspective -culture+attitudes (respect, trust, tolerance) business sector/ industry definition: group of companies that are related to each other based on their primary business activities types: tourism, automotive, nutrition, finances,… structure: companies types: based on production factors labor-intensive high labor cost → service companies E investment-intensive high non-consumable resources → manufacturing companies material-intensive high raw-material costs/ high consumable recourses → manufacturing companies energy-intensive high energy costs knowledge-intensive high percentages of scientists or engineers Germany sizes (2022: 3.435.478 registered companies ( *2/3 should be fulfilled European Commission sizes T analyzing companies social yield business sector production factors > - company size →headcount, revenue social yield  business location site-related factors: ↓ Selection labor ↳ based on importance raw materials utilities costumers logistics infrastructure environment real estate taxes politics clusters analysis ↳ relative M weight X. = companies according to life-cycle degree of geographical spread local startups regional product or process national innovations international in any branch →inland production, export abroad multinational/global high-growth company →production and subsidiaries in multiple countries product or process innovations biotechnologies, information and communication technologies dynamic environment/ lack of resources level of internationalization short company history external financing incumbent large product and service portfolio long established low risk high credibility internal financing MNE (multinational enterprise) producing or delivering goods/ services in multiple countries home country=management headquarters host country=other operating locations legal entity determining factors: avoiding personal liability, raising capital, distribution of earnings, employee participation, taxes and costs, publicity and audit governance: management and control rights, influence of owners, minority protection types in Germany: sole proprietorships cooperations → one owner, private person (private limited companies GmbH, stock cooperation AG, partnerships societas europaea SE) → shareholders, company is a “legal person” (general partnerships OHG, limited partnerships) → SE: at least 2 EU-states are founders → partners, one or many private persons => Sole proprietorship OHG KG GmbH AG SE + easy and inexpensive to + simple setup + limited liability for + liability limited to + operate across EU positive set up + shared decision-making + limited liability for investments member states and workload owners aspects + full control over + combined resources and limited partners + credible and + issue shares to raise + liability is limited to decisions expertise of partners + flexibility in roles professional image capital investments + direct access to profits + profits flow directly to + no corporate taxes + flexible ownership and + company continues + various management + simplified tax structure partners share transfer even if shareholders models (no corporate taxes) change (one-tier or two-tier (personal income) + business continuity + flexibility + privacy with minimal ensured system) disclosure requirements -unlimited personal liability -high setup costs and negative -unlimited personal liability (debts) -unlimited liability for €25,000 minimum -requires significant -requires significant -limited access to capital general partners legal and legal and aspects -heavy reliance on -complex decision-making -limited partners can’t capital administrative effort -potential for conflicts between manage administrative work owner’s skills and time -strict accounting and -expensive to set up partners -risk of partner conflicts -high formation and -business ends if the -profits are shared among reporting rules and maintain ongoing compliance owner leaves or dies partners -complex management -complex EU costs -business continuity may be at structure regulations and -strict regulations and risk if a partner leaves or dies -potential double reporting reporting requirements taxation examples of governance: intern-company cooperations forms: goals: growth →internal and external synergy →know-how and rationalization risk diversification →new products and markets finances improvement of production →quality, quantity,… improvement of sales →volume, market shares,… improvement of procurement →purchasing conditions R&D company diversification: horizontal - →enlargement of existing portfolio with related products on same performance level similar target group vertical I →undertake operations at different stages of value chain forward (upstream)and backward (downstream) integration lateral →completely new and unrelated product and market =  organizing arranging and structuring work to organization accomplish organizational goals organizational elements: task: what is obligatory to do to achieve defined goal Type of the work to be performed (research, marketing, production) Object of work (raw materials, services) Equipment, tools Place Time Person operations: how the tasks should be particularly done in terms of time, place and personnel Tasks are grouped in operational elements Operational elements are put in the sequential organizational principle: order Month-end Competence is an authority to make all necessary actions and measures to fulfil the task Responsibility is an obligation to fulfil the task position: several work packages, which represent a process organization principle: particular task complex Performing positions – subordinated to Meeting deadlines line managers, no managerial authority deadlines of order delivery and production completion are matched Leading positions – have subordinates Time minimization and can be subordinated design lead time of processing without waiting time Staff position (Stabstelle) – take part in I the decision process of leading positions Capacity utilization achieve the highest capacity utilization and thereby the lowest idle times, (consulting and support ) Central services – fulfil centralized expert where the resources are not used tasks. Instruct others in terms of fulfillment of these tasks (documentation management) correlation of organizational structure and processes: order-2-cash (o2c) purchase-to-pay (p2p) process: process: connects procurement and finance departments performed in the sales, supply chain and finance departments organizational design … departmentalization T divisional strategic business units (SBU) „how are jobs grouped allocation to top-line process that involves decisions about… pro: together?“ specific focus on strategies 1. functional flexibility 2. geographical easier to manage · … work specialization 3. product transparency „how is labor divided?“ more motivation 4. process T con: increase productivity 5. costumer efficiency loss efficiently use diversity high administrative expenditure humans diseconomies trends potential deviation competition between the divisio costumer departmentalization: getting and keeping customers emphasizes monitoring/ functional pro: responding to customer needs specialization cross-functional teams: resource efficiency diverse skills are needed synergy effects team composed of various market functional specialist interdependencies con: coordination Y difficulties overload T low motivation no strategic thinking = … chain of command “who is is the boss?” authority … span of control →line: direct work “how many many managers are needed?” →staff: assist work responsibility → obligation →accountability unity of command Matrix Org. factors to determine pro: con: similarity and complexity of employee tasks two perspectives lack of transparency physical proximity of subordinates customer focus confusion over accountability the degree to which standardized procedures efficiency high coordination costs optimization are in place conflict density problem-solving power struggles and sophistication of the organization’s information multi-perspectivity displacement system strength of the organization's culture trend larger span of control speeds up decision-making increases flexibility … centralization & decentralization closer to costumer “At what organizational level are decisions made?” empower employees centralization reduce costs → decisions take place at upper levels of the organization decentralization → lower-level employees provide input or actually make a decisions → higher flexibility and responsiveness … formalization → employee empowerment “how standardized an organization’s jobs are?” extent to which employee behavior is guided necessary for consistency and control →highly formalized: explicit job descriptions, organizational rules, clearly defined procedures modern organizations structure should facilitate goal achievement traditional principles and logics are very formal and problematical for long-term strategy implementation modern organizations agile organizations holocrazy characterized by empowerment self-coordination (less hierarchy) linked project groups organizational citizenship behavior example: Spotify (high autonomy and high alignment, own squad mission & goals, self-organizing, cross-functional) modern working forms telecommuting contingent employees work at home linked to workplace by computer temporary, freelance, or contract workers whose → improves employee engagement employment is contingent on demand for their → reduces sickness rate services →allows to spare office square BUT → reduces employee communication-> isolation flextime → less transparency and control for management employees have to work specific number of hours a week but are free to vary those job sharing within certain limit two people or more split one full-time job human resource management process external factors affecting process  strategy worst error in strategy is to compete with rivals in the same dimension strategy schools unique strategy position strategy levels types of corporate strategies growth goal to expand number of markets or products, either through current business or through new one stability continues to do what it is currently done Porter’s 5 forces framework renewal five competitive forces that shape strategy address what’s currently declining performance → retrench (short-run, used for minor performance problems) → turnaround (when drastic measures are needed) competitive strategies (Micheal Porter)  Nov 1. definition of mission and vision Peter Drucker‘s classic questions: What is our business? strategic management Who is the customer? What is of value to the customer? What will our business be? What should our business be? 5. evaluate results assumption's evaluation 3. formulate strategy → effectiveness? corporate → adjustments necessary? business evaluation of implementation progress functional → controlling of applied measures → implementation of controlling delta-analysis → actual/plan analysis 2. strategic analysis (SWOT) --- external: opportunities, threats → economic, demographic, political, legal, sociocultural, technological, and global components internal: strength, weaknesses → financial, physical, human, and intangible 4. implement strategies change management → John Kotter “8 stages approach” people strategic flexibility → change attitudes, expectations, ability to recognize major external perceptions, behaviors changes, toquickly commit → team building, consultations, feedback resources and to recognize when a strategic decision was a mistake  management manager - someone who coordinates and oversees work of other people so goals can be achieved good characteristics transparency inspire professionally and personally clear visions energize coworkers to accomplish fairness things empathy provide guidance with problems acknowledgement provide feedback support help to improve performance good communication keep informed of organizational coaching changes roles empowerment managing functions 1. planning ang goal setting provides direction reduces uncertainty minimizes waste & - =>  - 2. organizing # work specialization departmentalization chain of command credibility: span of control followers perceive someone as honest, competent, centralization & decentralization and able to inspire formalization honesty is important trust: integrity →honesty and truthfulness competence →technical and interpersonal 3. leading consistency building trust and credibility →reliability, predictability, good judgment motivation theory loyalty designing motivating jobs →willingness to protect physically and emotionally openness →willingness to share ideas and information designing motivating jobs: job enlargement horizontal expansion of jobs motivation theories: by increasing job scope (number of tasks required in a job) and frequency with which those tasks are repeated →lead to more job satisfaction job enrichment vertical expansion of jobs by adding planning and evaluating responsibilities → employees are empowered to assume some tasks → job depth (control employees have of their work) 4. controlling process of monitoring, comparing, and correcting work performance only way to know if and why organizational goals are being met three-step process of measuring actual performance, comparing it, and taking managerial action to correct deviations or inadequate standards financial controls are used for control and measurement of goal achievement →ratio (KPI) analysis management information system provides needed information on regular basis → focus on processed and analyzed data budgets are planning and control tools → indicates how much resources to which activities → provide quantitative standards to measure and compare balanced scorecard (BSC) → performance management tool → looks at four perspectives: financial benchmarking customer → search for best practices among markets internal process → lead to superior performance people/innovation/growth → standard of excellence to measure and compare → BSC reflect organization‘s strategy  financial accounting accounting language of business method companies use to communicate financial information to employees and public process of identifying, recording, and summarizing economic information and reporting it to decision makers (managers, owners, investors, and politicians) financial reports characteristics prepared by management provided to outsiders annually and quarterly (US) and half-yearly (Germany) primarily about past transactions and events tell very little about future transactions, events, or circumstances financial statements balance sheet income statement statement of cash flows statement of stockholders’ equity balance sheets shows financial status of organization at particular point in time intangible assets rights (patens, licenses, copyright, brands and trademarks) goodwill (acquired) self-developed intangible assets (product development costs, software), if special criteria are fulfilled not physical asset other assets property, equipment (land, buildings, technical facilities, machinery, office equipment) inventories (merch, supplies, parts, goods owners equity non current liabilities current liabilities held for purpose for sales) assets minus liabilities long-term short-term provisions: accounts receivable paid-in capital (share provisions: tax provisions (sale on credit) capital) provisions for short-term borrowings retained earnings pensions cash, cash equivalent accounts payable (bank accounts) (accumulated profits less long-term accumulated losses less borrowings: bank result when company dividends) loans bought goods/ materials on credit entity organization or sector of organization that stands apart from other organization and individuals as separate economic unit  balance sheet transactions rules of debit and credit every transaction of a company or entity affects the balance sheet equation at least two accounts will be affected for every entry recorded → such accounting process is called “double-entry” bookkeeping international accounting GAAP (Generally Accepted Accounting Principles) IFRS (International Financial Reporting Standards) Memorandum of Understanding between IASB (EU) and FASB (US) convergence between IFRS and US-GAAP as objective acceptance of IFRS Financial Statements by SEC since November 2007 for foreign issuers SEC (Securities & Exchange Commission) government agency responsible for regulating capital markets in US HGB (Handelsgesetzbuch) German GAAP BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht) provides supervisory and legal control for financial ministry basic accounting concepts (IFRS) revenue - expenses = income revenues net assets received from customers in exchange for delivery of goods or services expenses net assets given up or consumed when delivering goods or services to customers income (profit, earnings) revenues less expenses during some reporting period rules: calendar year Jan 1 to Dec 31 fiscal year starts anytime, ends 365 days later annual financial reports interim periods weekly, monthly, quarterly quarterly financial reports profit & loss accounts revenue booking cost of goods sold (an expense) expenses income statement cost of products the business sold to operating expenses (Profit and Loss (P&L) statement) customer that generated revenue recurring expenses that pertain to firm’s report of all revenues and expenses routine, ongoing operations that pertaining to a specific time (non-operating) expenses period depreciation not related to firm’s principal operations, net income is remainder after i.e., the unusual and/or infrequent flows deducting all expenses from systematic allocation of acquisition revenues cost of long-lived assets to the periods net loss is the difference between that benefit from use of assets revenues and expenses when land is not subject for depreciation expenses exceed revenues because it does not deteriorate over time cash cash flow money in bank accounts and on hand cash equivalents T cash flow statements → maturity less than 90 days and purpose easily and quickly convertible into explains change in an helps predict future cash flows cash (very low probability of change account “cash” from evaluates how management generates in value) beginning to end of and uses cash money market funds reporting period determines a company’s ability to pay treasury bills interest, dividends, and debts when they are due identifies specific increases and decreases in a firm’s productive assets structure cash flow activities free cashflow (Net) Operating Cash flows less capital expenditures = Free Cash Flow negative → must go outside of company to finance capital expenditures if for growth = ok if for reinvestments only = bad positive → own operations can finance growth and essential capital expenditures = good  a liquidity ratios financial ratios liquidity company’s ability to pay its immediate financial obligations with cash and near- cash assets current ratio= working capital ratio the higher a company’s current ratio is, the more assurance creditors have that company will be able to pay them in full and on time debt ratios alternate ways of expressing debt burden of company the higher the ratio, the riskier the firm and thus the higher the interest rate it probability ratios must pay when borrowing market ratios auditing audit required particularly for large and medium sized corporations examination of a company’s transactions and the resulting financial statements with regards to whether Financial statements comply with respective accounting standards adequate internal Control system is implemented summarized auditor´s report is published within the annual report  cost resource sacrificed or foregone to cost accounting achieve a specific objective measured as monetary amount that must be paid to acquire goods and objectives and fields services actual cost cost incurred (a historical cost) as distinguished from budgeted cost differentiation fixed costs same (fixed) over different volume levels examples: rent, utilities, taxes, insurances variable costs change in total in a time period in direct proportion to changes in volume due to change in direct proportion to the changes in volume, cost per unit is constant examples: material costs, costs of production(wages and salaries) total costs at any volume are sum of fixed costs and variable costs at that volume components cost-volume-profit analysis (CVP) shows how profit will be affected by alternative sales volumes, selling prices, and costs based on a simple profit computation that establishes a relationship between revenues and costs to use effectively, decision makers must understand how costs behave at different volume or activity levels T/M 14 break-even-point analysis sales = variable costs + fixed costs margin-of-safety analysis can measure risk associated with company´s operations excess of sales over break- even point amount by which sales can fall before company incurs a loss profit-sensitivity analysis answers questions about how profits would change, if selling price, units sold, or costs change target-profit analysis profit the company wants to make over a given period can be used to determine sales necessary to earn a target profit contribution margin difference between estimated sales revenue and variable costs can be computed either on a per unit basis or in total → per unit computation = estimated sales revenue per unit - variable costs per unit → total contribution margin = estimated total sales revenue - total variable costs > variable costing method overhead / indirect costs PESTEL SWOT