BUS 201 Lecture Notes PDF

BUS 201 Lecture Notes - BUS 201 Chapter 1 LABOR The people who work for a company represent the first factor of production—labor. Sometimes called “human resources,” labor is the mental and physical capabilities of people. CAPITAL Capital refers to...

BUS 201 Lecture Notes - BUS 201 Chapter 1 LABOR The people who work for a company represent the first factor of production—labor. Sometimes called “human resources,” labor is the mental and physical capabilities of people. CAPITAL Capital refers to the funds required to start a business and to keep it operating and growing. INFORMATION Information includes the specialized knowledge and expertise of people who work in businesses, as well as information contained in market forecasts and various other forms of economic data. Information is a key factor of production because, unlike land, labor, and capital, information can be shared without being diminished. People usually think of e-commerce as being business-to-consumer (B2C) transactions, such as buying household goods from Amazon for personal use. But business-to-business (B2B) transactions far exceed B2C transactions in dollar value. In a market economy, B2C and B2B exchanges take place without much government involvement. How Government Influences Business Government plays several key roles in the Canadian economy, and each of these roles influences business activity in some way. The roles government plays are outlined below. GOVERNMENT AS A CUSTOMER The government buys thousands of different products and services from business firms, including office supplies, office build- ings, computers, battleships, helicopters, highways, water treatment plants, and management and engineering consulting services. Many businesses depend on government purchasing, if not for their survival then at least for a certain level of prosperity. Total government expenditures in 2019 were $428.3 billion.13 This represented a major increase in spending from prior years. Part of this increase is accounted for by the Investing in Canada Plan, in which the federal government committed to spend $180 billion in infrastructure improvements (highways, bridges, waterways, terminals, better high-speed internet access and connection for remote communities, etc.).14 Deregulation A reduction in the number of laws affecting business activity. 10 Chapter 1 Understanding the Canadian Business System Competition Act Prohibits a variety of business practices that lessen competition. GOVERNMENT AS A COMPETITOR The government also competes with business through Crown corporations, which are accountable to a minister of parliament for their conduct. Crown corporations such as Hydro-Québec and Canada Post generate billions of dollars of revenue and account for significant economic activity in Canada. Crown corporations exist at both the provincial and federal levels. BUS 201 GOVERNMENT AS REGULATOR Federal and provincial governments in Canada regulate many aspects of business activity through administrative boards, tribunals, and commissions, but there is a continuing debate about how much influence gov- ernment regulators have and how much they should have. From 1935 until 2012, the Canadian Wheat Board regulated the price of wheat and prohibited farmers from sell- ing their wheat directly to U.S. elevators. Instead, farmers were required to sell their wheat through the Wheat Board. The reasons for regulating business activity include protecting competition, protecting consumers, achieving social goals, and protecting the environment. Promoting Competition Competition is crucial to a market economy, so government regulates business activity to ensure that healthy competition exists among business firms. Without these restrictions, a large company with vast resources could cut its prices and drive smaller firms out of the market. The guidelines for Canada’s competition policy are contained in the Competition Act, which prohibits a variety of practices (see Table 1.1). The Act prohibits agreements among companies that are designed to reduce competition. Formerly, the government had to prove that such agreements reduced competition, but recent changes to the legislation mean that the mere existence of a conspiracy is assumed to be proof that competition has been reduced.15 Another major change is the dramatically increased fines for misleading marketing practices by corporations (formerly $100,000 for the first offence, now $10 million).16 In recent years, Loblaw has been under the microscope on the issue of competitive fairness. First, when Loblaw acquired Shoppers Drug Mart, the Competition Bureau imposed limits on how much the company could squeeze Shoppers’ suppliers by demanding that those suppliers reduce their prices. Loblaw was also required to sell 18 stores and 9 pharmacies because the Bureau was concerned about anticompetitive practices.17 A few years ago, Loblaw along with six other companies, including Metro, Walmart, and Sobeys, were accused of conspiring to inflate the price of bread for a period Table 1.1 The Competition Act Sectio Prohibits conspiracies and combinations formed to unduly lessen competition in the production, transportation, or n 45 storage of goods. Persons convicted may be imprisoned for up to five years, fined up to $1 million, or both. Sectio Prohibits illegal trade practices. A company may not, for example, cut prices in one region of Canada while selling at a n 50 higher price everywhere else if this substantially lessens competition. A company may not sell at “unreasonably low prices” if this substantially lessens competition. (This section does not prohibit credit unions from returning surpluses to their members.) Sectio Prohibits giving allowances and rebates to buyers to cover their advertising expenses, unless these allowances are n 51 made available proportionally to other purchasers who are in competition with the buyer given the rebate. Sectio Prohibits marketing (promotion) activities that are false or misleading. Includes telemarketing activities. n 52 BUS 201 Sectio Prohibits the deceptive notice that a person has won a prize if the recipient is asked to pay money as a condition of n 53 winning the prize. Sectio Prohibits charging the higher price when two prices are shown on a product. n 54 Sectio Prohibits pyramid selling (a participant in the plan receives compensation for recruiting other individuals into the plan). n 55.1 Sectio Prohibits resale price maintenance. No person who produces or supplies a product can attempt to influence upward, n 61 or discourage reduction of, the price of the good in question. It is also illegal for the producer to refuse to supply a product to a reseller simply because the producer believes the reseller will cut the price. Sectio Prohibits bait-and-switch selling. No person can advertise a product at a bargain price if there is no supply of the n 74 product available to the consumer. (This tactic baits prospects into the store, where salespeople switch them to higher-priced goods.) This section also controls the use of contests to sell goods and prohibits the sale of goods at a price higher than the advertised one. stretching back over a decade. According to the Competition Bureau, these companies committed illegal activities that violated the Competition Act.18 There is now a class action lawsuit against Loblaw and these six other companies.19 Protecting Consumers The federal government has initiated many programs that protect consumers. The Office of Consumer Affairs administers many of these. Important legislation includes the Tobacco and Vaping Products Act (which prohibits cigarette advertising on billboards and in stores), the Weights and Measures Act (which sets standards of accuracy for weighing and measuring devices), the Consumer Packaging and Labelling Act (which stipulates labelling requirements for products), the Textile Labelling Act (which regulates the labelling, sale, importation, and advertising of consumer textile articles), and the Food and Drugs Act (which prohibits the sale of food that contains any poisonous or harmful substances). In early 2019, Health Canada proposed new tougher regulations to limit ads aimed at kids for unhealthy foods that surpass the daily maximum of salt, sugar, and saturated fats. In response, food and beverage, retail, and media companies protested and claimed that the proposals are overly strict and would have unintended negative consequences.20 Achieving Social Goals Social goals, which promote the well-being of Canadian society, include things such as universal access to health care, safe workplaces, employment insurance, and decent pensions. All these goals require the interaction of business firms and the Canadian government. But the decisions of foreign governments—as they pursue their own social goals—can also affect Canadian businesses. Protecting the Environment Government legislation designed to protect the environment includes the Canada Water Act (which controls water quality in fresh and marine waters), the Fisheries Act (which controls the discharge of any harmful substances into water), and the Canadian Environmental Protection BUS 201 Act (which establishes regulations for airborne substances that are a danger to human health or the environment). In public–private partnerships (called P3s), the government pays a private-sector company to build, finance, and operate organizations such as hospitals and transit lines. But studies show that P3s cost more money than the traditional approach in which the government puts up the money and then hires contractors to do the necessary work.25 Lobbyist A person hired by a company or an industry to represent its interests with government officials. We can determine whether a particular action or decision is ethical or unethical by using a three-step model to systematically apply ethical judgments to situations that may arise during business activities:12 1. Gather the relevant factual information. 2. Determine the most appropriate moral values. 3. Make an ethical judgment based on the rightness or wrongness of the proposed activity or policy. Given this information, we need to determine the most appropriate moral values (Step 2). There are four commonly used ethical norms we can apply to make this determination. Utility. Does a particular act optimize what is best for those who are affected by it? Rights. Does it respect the rights of the individuals involved? Justice. Is it consistent with what we regard to be fair? Caring. Is it consistent with people’s responsibilities to each other? Corporate social responsibility (CSR) The idea that a business should balance its commitments to individuals and groups that are directly affected by the organization’s activities. Organizational stakeholders are individuals and groups that are directly affected by the practices of an organization and therefore have a stake in its performance. Truth in advertising means that advertising claims must be demonstrably true, but it is not hard to find examples where this principle is violated Stealth advertising occurs when companies pay individuals to extol the virtues of their products to other individuals BUS 201 Morally objectionable advertising involves portrayals of individuals or products that offend customers’ sense of decency Advertising of counterfeit brands is a problem in many different product lines, including perfume, luggage, pharmaceuticals, designer clothing, shoes, cigarettes, watches, sports memorabilia, golf clubs, and fine wines, to name just a few. financial mismanagement can take many forms, including improper financial management, misrepresentation of finances, cheque kiting, and insider trading. Improper Financial Management Executives may make bad financial decisions, pay themselves outlandish salaries and bonuses, or use investor money to buy expensive personal items like yachts or $10,000 watches. Misrepresentation of Finances Cheque Kiting This involves writing a cheque from one account, depositing it in a second account, and then immediately spending money from the second account while the money from the first account is still in transit. Insider Trading Using confidential information to gain from the purchase or sale of stock is called insider trading. How an organization responds to whistle-blowing gives some insight into its actual stance on social responsibility. Private sector: The part of the economy made up of companies and organizations not owned or controlled by the government. A well-written business plan is formally structured, easy to read, and avoids confusion. Organizing the information into sections makes it more manageable. The amount of detail and the order of presentation may vary from one venture to another and according to the intended audience (if the plan is intended for potential investors, it will require more detail than if it is intended for internal use by the entrepreneur). An outline for a standard business plan is provided below. II. Executive Summary. One- to three-page overview of the total business plan. Written after the other sections are completed, it highlights their significant points and aims to create enough excitement to motivate the reader to continue. IV. Company Description. Identifies the type of company: manufacturing, retail, and so on. Also describes the proposed form of organization: sole proprietorship, partnership, corporation, or cooperative. A typical organization of this section is as follows: name and location, company objectives, nature and primary product or service of the business, current status (startup, buyout, or expansion) and history, if applicable, and legal form of organization. VI. Marketing. Has two key parts: the market analysis and the marketing plan. The market analysis convinces the reader that the entrepreneur understands the market for the product or service and can deal effectively with the competition to achieve sales projections. The marketing plan explains the strategy for achieving sales projections. VIII. Management. Identifies the key players—the management team, active investors, and directors—and cites the experience and competence they possess. Includes a description of the management team, outside investors and directors and their qualifications, outside resource people, and plans for recruiting and training employees. X. Supporting Details/Appendix. Provides supplementary materials to the plan such as résumés and other supporting data. BUS 201 I. Cover Page. Name of venture and owners; date prepared; contact person and their address, telephone and fax numbers, and email address; Facebook and LinkedIn information; and name of organization the plan is being presented to. The easier it is for the reader to contact the entrepreneur, the more likely the contact will occur. III. Table of Contents. Lists major sections of the plan with page numbers for both the body and the appendices. V. Product or Service Description. Describes the product or service and indicates what is unique about it. Explains the value added for customers—why people will buy the product or service, features of the product or service providing a competitive advantage, legal protection (patents, copyrights, and trademarks, if relevant), and dangers of technical or style obsolescence. VII. Operating Plan. Explains the type of manufacturing or operating system to be used. Describes the facilities, labour, raw materials, and processing requirements. IX. Financial Plan. Specifies financial needs and expected financing sources. Presents projected financial statements, including cash budget, balance sheet, and income statement. Bootstrapping Doing more with less. here are two main types of financing—debt and equity (see Chapter 15). Because a business is at its riskiest point during the startup phase, equity is usually more appropriate and accessible than debt. However, most new venture founders prefer debt because they do not want to give up any control to outsiders. To obtain debt financing, the entrepreneur must have an adequate equity investment in the business The most common sources of equity financing are as follows: BUS 201 Multiple Organizational Environments: - Economic - Technological - transportation - electronics - ai - social media - Political-legal - labor laws - trade laws - Socio-cultural - consumer habits (fitness, etc) - what has become popular, what society asks for Pestle Analysis of: Nike Political: ○ Climate and market stability in different countries ○ Political instability affects the market ○ Policy changes disrupt supply chains, consumer demand, etc. Economy ○ Economic growth and stability Socio-cultural: ○ Ad campaigns ○ Staying on trend with types of clothes released ○ How and who they market to Technological: Creating and testing new features for clothing Legal: ○ Where materials/ supplies are sourced ○ How clothes are made ○ Who makes them ○ Copyright protection ○ Product safety and liability laws Environment: ○ Environmental impact of creating the clothes Chapterr Corporate Social Responsibility (CSR) - Stakeholder model of responsibility: - Employees - Investors - Community - Environment - Suppliers - Customers - Other (sometimes a yes, i.e. governments) BUS 201 ^^Here to remind us it's not just one or the other, we need to consider all parties as a whole Customer Responsibility Issues Rights of consumers ○ right to what's promised ○ rights to return Unfair pricing Ethics in Advertising Approaches to CSR ➔ Lowest Level of Social Responsibility Obstructionist Stance Defensive Stance Accommodative Stance Proactive Stance ➔ Highest Level of Social Responsibility LECTURE: WEEK 4 Small business LECURE: WEEK 5 Barriers to International Trade Social and Cultural Differences ○ Language barriers may cause inappropriate naming products ○ Value differences how often do people shop? ○ Behavioral differences Economic Differences ○ Government involvement in different industries ○ Level of economic development and financial infrastructure is it a cash economy? is financing available how many use credit cards? Legal and Political Differences ○ Quotas restricts the number of certain imported products, indirectly raises prices by reducing supply ○ Tariffs tax charged on imported products, discourage sale of imported goods ○ Subsidy government payment given to a domestic business to help it compete with foreign firms, can have a negative effect on producers abroad ○ Protectionism BUS 201 practice of protecting domestic business at the expense of free-market competition ○ Local-content laws Requires products sold in a country to be partly made in that country Business Practice Laws ○ Businesses entering new markets encounter problems in meeting strict regulations and bureaucratic barriers ○ Cartels Any association whose purpose is to control supply and prices for given product Nothing can be done when governments form a cartel Private sector businesses can be prosecuted ○ Dumping - many countries forbid Selling a product for less than the comparable price charged at home country Overcoming Barriers of Trade GATT - General Agreement on Tariffs and Trade ○ Its purpose was to reduce or eliminate trade barriers by encouraging nations to engage in negotiations and agree on limits WTO - World Trade Organization ○ Promote trade by encouraging members to adopt fair trade prices ○ Reduce barriers by promoting negotiations ○ Establish fair procedures for resolving disputes EU - European Union ○ Agreement among major European nations to eliminate trade barriers Global Context of Business International Business Going International? ○ Is there international demand for your firm's product? ○ Can the product be modified to fit a foreign market? ○ Is the foreign business climate suited to imports? ○ Does the firm have or can it get the necessary skills and knowledge to do business? International Organizational Strategies import/export via Independent Agent Licensing Arrangement Establish a Branch Office Choose Strategic Alliance Substantial Foreign Direct Investment LECTURE: WEEK 6 The Management Process Functions of Management (PLOC) Planning BUS 201 ○ Determining what the business needs to do and the best way to achieve it ○ Planning connects to organization as “we use and are thinking how we can use resources to implement the plan” Leading ○ Guiding and motivating subordinates to meet objectives Organizing ○ Determining how to Controlling ○ Managers monitor the firms performance Types of Managers Top ○ Responsible for overall performance Middle ○ Responsible for implementing decisions of top managers First line ○ Responsible for supervising employees Areas of Management Marketing Managers ○ Financial Managers ○ Operations Managers ○ Human resource Managers ○ Information Managers ○ What is Accounting? Accounting A comprehensive system for collecting, analyzing, and communicating financial information Accounters prepare performance reports for owners, the public, and regulatory agencies. Bookkeeping Recording accounting transactions Accounting Information Systems (AIS) Organized procedure for identifying, measuring, recording, and retaining financial information Info used in accounting statements and management reports Users of Accounting Information Business managers Employees and unions Investors and creditors Taxing authority Government regulatory agencies BUS 201 Controller - Chief accounting officer - Ensures that the AIS accounting system provides the reports and statements needed for planning, decision making, and other management activities - Other activities requires diverse types of accounting specialists Two Main Fields of Accounting 1. Financial Accounting a. Keeps external parties informed about the firm’s financial condition i.e. i. Unions ii. Consumer groups iii. Shareholders iv. Government agencies 2. Managerial Accounting a. Directed at internal parties (managers, other employees) b. Provides information to facilitate planning, forecasting, and decision making Professional Accountants (Chartered Professional Accountant (CPA)) 1. Chartered Accountants CA (CPA, CA) a. To become: earn uni degree, complete educational program, pass national exam b. CA firms typically provide audit, tax, and management services. c. CAs focus on external financial reporting (certifying for various interested parties–shareholders, lenders, the Canada Revenue Agency, etc.) 2. Certified General Accountants CGA (CPA, CGA) a. To become: complete education program and pass a national exam; to be eligible, required to have an accounting job within a company b. CGAs can audit corporate financial statements in most provinces c. Also focus on external financial reporting 3. Certified Management Accountants CMP (CPA, CMA) a. To become: uni degree, pass two part national entrance exam, complete strategic leadership program while gaining practice in a management accounting environment. The Accounting Cycle 1. Analyze transaction documents (e.g., sales slips, travel expenses, payments to employees, and so on) 2. Record transactions in a journal 3. Transfer entries from the journal to a ledger 4. Do a trial balance 5. Prepare financial statements (i.e., income statement, balance sheet, and statement of cash flows) 6. Analyze the financial statements (e.g., using ratio analysis) Asset - Anything of economic value owned by a firm or individual BUS 201 - Assets = Liabilities + Owners’ equity Current Assets ○ Include: cash, money in the bank, and assets that can be converted into cash within a year ○ Converting something into cash is called liquidating ○ Assets are normally listed in order of liquidity. Fixed Assets ○ Land, buildings, equipment have long term use or value ○ As they wear out their value depreciates Intangible Assets ○ Have monetary value ○ Usually include the cost of obtaining rights like patents, trademarks, and franchise fees ○ Goodwill is the amount paid for an existing business beyond the value of its other assets Liability - Any debt owned by a firm or an individual Current Liabilities ○ Debts that must be paid within one year like accounts payable Long-term Liabilities ○ Debts that are not due for at least one year Owner’s Equity - Any positive difference between a firm’s assets and liabilities - Assets - Liabilities = Owners’ equity - If a company's assets exceed its liabilities, owners equity is positive; if liabilities outweigh assets, owners equity is negative and assets are insufficient to pay off debts Retained earnings = Net profits - Dividend payments to shareholders Balance Sheets Provide detailed info about the accounting equation factors Income Statements - Aka “profit-and-loss statement” ○ Revenues - Expenses = Profit (or loss) - Profit or loss or “the bottom line” is the most important figure for any business enterprise Revenues ○ Funds that flow into a business from the sale of goods or services ○ Revenue recognition is the formal recording and reporting of revenues in the financial statements ○ The matching principle states that expenses will be matched with revenues to determine net income for an accounting period Cost of Goods Sold ○ Shows the costs of obtaining materials to make the products sold during the year ○ Gross profit (gross margin) = Cost of goods sold - Revenues Operating Expenses ○ Resources that must flow out of a company for it to earn revenues BUS 201 ○ Selling expenses result from activities related to selling the firm’s goods or services Includes salaries for salesforce, delivery costs, advertising expenses ○ General and administrative expenses Management salaries, insurance, maintenance ○ Total Operating Income - Income taxes = net income Statements of Cash Flows - Cash flow management requires the development of a statement of cash flows, aka a companies yearly cash receipts and cash payments Cash flows from operations: transactions involved in buying and selling goods and services Cash flows from investing: net cash used in or provided by investing Cash flows from financing: net cash from all financing activities FINAL EXAM Course syllabus says chapters it’s on HB2 lead pencil Bring ID Time: 90 mins Part A multiple choice: 40 questions/ points Part B Part Blong answer questions: 24 One bonus worth 2 marks