financial environment of business - my finance classmyfinanceclass.com/files/82430028.pdf ·...

Business Finance© Thomson/South-Western

Chapter

Financial Environment of Business

2

2.1 BASIC ECONOMIC SYSTEMS AND PRINCIPLES

2.2 LEGAL FORMS OF BUSINESS2.3 TYPES OF FINANCIAL MARKETS2.4 GLOBAL FINANCIAL ACTIVITIES


Chapter 2Slide 2

Lesson 2.1

Basic Economic Systems and PrinciplesGoals

Identify and describe basic economic principles.Discuss how economic decisions are made.


Chapter 2Slide 3

Termseconomicsscarcitychoiceresourcesdemandsupplymarket pricemarket economy


Chapter 2Slide 4

Understanding Economics

state of the economyfactors that drive the economy


Chapter 2Slide 5

DEFINING ECONOMICS

economicsthe science of decision making about the allocation of scarce resources

Economists are scientists who study how decisions can be made that result in the best match of needs and resources.


Chapter 2Slide 6

ECONOMIC PRINCIPLES

Scarcity and Choicescarcity

when wants and needs are greater than can be satisfied with the available products and services

choicedeciding which wants and needs will be satisfied and which will go unsatisfied


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resourcesthe means that are available to develop solutions for unsatisfied wants and needs

natural resourcesmaterials in the world around us

renewablenon-renewable

Limited Resources


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human-made goods used in the production of other products and services

human resourcespeople and their skills

capital resources


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demandthe amount of a product or service that individuals want to buy to satisfy their needs and wants

supplythe quantity of a product or service that has been produced by businesses with the hope of making a profit from sales to customers

Supply and Demand


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market pricethe price at which an equal number of products will be produced and purchased

The price of a product or service provides the balance between supply and demand.


Chapter 2Slide 11

Describe three important principles of economics.


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Making Economic Decisions

microeconomicseconomic decisions related to the choices of individuals and businesses

macroeconomicseconomic decisions made at a national level


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1. What products and services will be produced?2. How will the needed products and services be produced?3. For whom will the products and services be produced?

When planning economic activity for a country, three important decisions should be considered:


Chapter 2Slide 14

TYPES OF ECONOMIC SYSTEMS

traditional economyeconomic decisions are made the same way they have always been madelittle government influence or control

command economythe government has primary influence on economic decisions


Chapter 2Slide 15

based on the combination of decisions made by individual consumers and businesses

market economy


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THE U.S. FREE ENTERPRISE ECONOMY

Most countries have a blend of the three economic systems.free enterprise economy

mixed economyindividual and business freedomgovernment regulations for fairness


Chapter 2Slide 17

1. Right of Private Ownership2. Freedom of Choice3. Competition among Businesses4. Consumer Influence on Economic Activity5. A Limited Government Role in the Economy

Principles of a free enterprise economy include


Chapter 2Slide 18

What is the difference between microeconomics and macroeconomics?


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Lesson 2.2

Legal Forms of Business

GoalsRecognize differences in the legal forms of business ownership and organization.Explain financial implications of the business ownership decision.


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Terms

sole proprietorshippartnershipcorporationlimited liability company (LLC)


Chapter 2Slide 21

Organizing a Business

form of business ownershipdetermines the financial, managerial, and legal responsibilities of business owners


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IMPORTANCE OF THE ORGANIZING DECISION

Careful financial planning and adequate financial resources are necessary for a successful business.

plan to encourage profit potentialplan for taxesplan for investor compensation


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ROLE OF GOVERNMENT

In a free enterprise economy, government is involved with

legal requirementscitizen protectionfair environment for businesses

taxationfunding for government organizations


Chapter 2Slide 24

LEGAL FORMS OF BUSINESS OWNERSHIP

sole proprietorshipowned and managed by one personalmost no legal requirements

partnershipowned and managed by two or more people under the conditions of a written legal agreement


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a distinct legal entity formed by completing legal documents in a specific stateowned by one or more shareholdersmanaged by a board of directors

limited liability company (LLC) a hybrid of a partnership and a corporationmore financial protection for investors than a partnershiplegally more simple than a corporation

corporation


Chapter 2Slide 26

Why should business owners carefully consider the legal form of ownership for their business?


Chapter 2Slide 27

Analyzing Forms of Business Ownership

Many factors influence the decision of how to organize a business.

the amount of individual responsibilitythe complexity of managing the businessdifferences in legal requirements


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SOLE PROPRIETORSHIP

the owner has total responsibility for and control over the business

financingdebttaxes


Chapter 2Slide 29

PARTNERSHIP

from a financing viewpoint, similar to sole proprietorships

partners provide or obtain financingpartners are responsible for debttaxes are assessed at the individual tax rate of each owner


Chapter 2Slide 30

limited partnersare investors liability is limited to the amount of their investmentdo not participate in daily operations

limited partnership


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CORPORATION

private corporationcan limit

the number of ownerswho is allowed to purchase stock

public corporationstock is sold on the open market

ownership and management are separate


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stockholder liability is limited to the amount investedprofits can be taxed twicedividends

a percentage of corporate earnings allocated to each share of stock

corporations have a higher success rate


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majority of corporations are taxed according to Subchapter C of the IRS code

Subchapter S corporationsprofits are not taxed at the corporate ratestockholders pay individual taxes on their earnings

Subchapter C corporations


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LIMITED LIABILITY COMPANY (LLC)

relatively newownership restricted to partnerspartners have limited liability for firm’s debtsincome is taxed at the individual rate of each owner


Chapter 2Slide 35

Why does the corporate form of ownership offer more likelihood of greater initial financing than either the sole proprietorship or partnership?


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Lesson 2.3

Types of Financial Markets

GoalsDiscuss the purpose and general structure of financial marketsDescribe the major types of financial markets.


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Termsfinancial marketfinancial returnfinancial risktermcommodity marketscapital marketsstock marketmoney markets


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The Need for Financial Markets

Money allows companies to obtain the resources they need to operate their businesses.Money is the resource that allows consumers to meet their wants and needs.


Chapter 2Slide 39

EXCHANGING FINANCIAL RESOURCES

financial marketan organized process for the exchange of capital and credit

stock marketsbond marketscommodity marketscurrency markets


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PRINCIPALS OF FINANCIAL EXCHANGE

financial returnprofit earned from an investment

financial riskthe possibility that an expected return will not be achieved

termthe length of time the invested money is controlled by others


Chapter 2Slide 41

How is financial risk related to financial return?


Chapter 2Slide 42

Common Financial Markets

Financial markets help to identify the supply and demand for a specific resource in order to determine its current market price.


Chapter 2Slide 43

COMMODITY MARKETScommodity markets

trade raw materials and other basic production resources

spot marketsproducts are bought and sold for immediate delivery

futures marketscontracts are negotiated for the sale of products at a future date


Chapter 2Slide 44

STOCK MARKETS

stock marketthe organized exchange of the ownership shares of public corporations

stock exchangeswhere the buying and selling of stocks occurs


Chapter 2Slide 45

OTHER FINANCIAL MARKETS

capital marketsfinance intermediate or long-term debt of one year or longer

bonda financial instrument that obligates the issuer to pay the bondholder the principal plus agreed-upon interest at the end of a designated period

bond marketoffers newly issued bondsbuy and sell existing bonds


Chapter 2Slide 46

buy and sell financial instruments for short time periods of a year or less

treasury billsshort term securities offered by the federal government

certificates of deposit (CDs)commercial paper

money markets


Chapter 2Slide 47

PRIMARY AND SECONDARY OFFERINGS

primary offering (initial public offering)when an organization makes stock available for the first time or issues new bondsthe organization receives the proceeds of the IPO

secondary offeringwhen an investor resells stocks or bonds


Chapter 2Slide 48

What is the difference between a primary and a secondary offering?


Chapter 2Slide 49

Lesson 2.4

Global Financial Activities

GoalsRecognize the importance of global business.Identify several types of international financial activities.


Chapter 2Slide 50

Terms

global businessforeign currencyexchange rateforeign exchange market


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Going Global

global business (multinational business)

a company that transcends national boundaries and is not committed to a single home country


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IMPORTANCE OF INTERNATIONAL BUSINESS

Over the last 20 years, the magnitude of international investments has grown substantially.


Chapter 2Slide 53

market expansionto increase operating efficiencies and reduce coststo reduce legal hurdlesdiversificationincrease return on investments

Reasons companies might make international business investments include:


Chapter 2Slide 54

PROBLEMS FACED IN INTERNATIONAL BUSINESS

Businesses need to considerlanguage and cultural differencesgovernment instabilitygovernment’s role in businessfluctuating monetary values


Chapter 2Slide 55

List several reasons businesses may want to make multinational business investments.


Chapter 2Slide 56

International Finance

International business involves the flow of money from one company to another across country borders.


Chapter 2Slide 57

FOREIGN CURRENCIES AND RATES OF EXCHANGE

foreign currencythe currency of another country

exchange ratethe value of one currency in terms of another

foreign exchange marketwhere one currency is exchanged for another


Chapter 2Slide 58

INTERNATIONAL CAPITAL INVESTMENTS

There are multiple ways for businesses to participate in the global economy.

investing in foreign businessesinvesting in foreign stock markets


Chapter 2Slide 59

What determines a country’s foreign exchange rate?


Chapter 2Slide 60

Performance Indicators Evaluated

Demonstrate knowledge and understanding of management and international business concepts.Communicate research in a clear and concise manner both orally and in writing.Demonstrate teamwork skills needed to function in a global marketing environment.


Chapter 2Slide 61

Demonstrate effective persuasive and informative communication and presentation skills.Recognize economic, social, legal, and technological trends that affect global marketing.Develop a written international marketing plan.

Demonstrate an understanding of price and international exchange rates.


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Think Critically

1. Why is it important to understand the culture when developing a marketing plan?

2. Why is insurance an important issue when conducting international business?


Chapter 2Slide 63

4. Who are two professional experts that a business should contact for advice when considering expansion into international markets?

3. Why is it important to understand the economic system of the country where you want to conduct business?

financial environment of business - my finance classmyfinanceclass.com/files/82430028.pdf ·...

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