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Management Exam 2
| Term | Definition |
|---|---|
| equation for assets | Assets=liability + shareholder equity |
| equation for profit | sales - expenses |
| Income statement | snapshot in time of a companies???? |
| decisions play out in 4 ways when it comes to finances | ability to pay debt, profits generated form a firm's assets, how the firm is finances(debt/equity), rate of return on owners' equity investment |
| liquidity | the degree to which a firm has working capital available to meet maturing debt obligations |
| current ratio | measure of a company's relative liquidity, determined by dividing current asset by current liabilities |
| equation for current ratio | current assets / current liabilities |
| return on assets | measure of a firm's profitability relative to the amount of its assets |
| equation for return on assets | operating profit margin / total assets |
| debt ratio | measure of what percentage of a firm's assets is financed by debt, determined by dividing total debt by total assets |
| return on equity | measure of the rate of return that owners receive on their equity investment, calculated by dividing net profits by total owners' equity |
| types of assets | tangible and intangible |
| Choosing between debt and equity financing factors | the potential profitability for the owners, the business's financial risk, who will have voting control of the business |
| Low debt and high equity | lower return on owners' equity investment, less financial risk, owners' share control with new investors |
| High debt and low equity | higher potential return on owners' equity investment, more financial risk, owners do not have to share control with new investors |
| Line of credit | an informal agreement between a borrower and a bank as to the maximum amount of funds the bank will provide at any one time |
| 5 C’s of credit | Character, capital, capacity, conditions, collateral |
| Business angel | private individual who invests in early-stage companies |
| Venture capitalists | individuals who form limited partnerships for the purpose of raising venture capital from large institutional investors. |
| Small Business Administration (SBA) | does not loan money to people, but they can serve as a guarantor of loans made by financial institutions. Make you a more favorable candidate for a loan from a bank |
| Operations | processes used to create and deliver a product or service |
| Operations management | planning and control of a conversion process, - Bringing together input (raw materials, equipment, labor) and turn them into outputs (products and services) |
| Inputs can include | money, raw materials, labor, equipment, information, energy |
| Demand management strategies | operational strategies used to stimulate customer demand when it is normally low ex: happy hour deals |
| Reasons for inventory management | meet customer demand, be less dependent on a supplier, protect against stockout, benefit from sales or quantity-based discounts, protect against price increases |
| Costs related to inventory | storage, theft, weathering, spoilage, cost of capital, transaction costs, insurance and security, disposal costs |
| Physical inventory system | method that provides for periodic counting of items in inventory |
| Cycle counting | method for counting different segments of the physical inventory at different times during the year |
| Perpetual inventory system | method for keeping an ongoing current record |
| Two-bin inventory system | method of using two containers for each item in inventory, one to meet current demand and the other to meet future demand |
| Quality | features of a product or service that enable it to satisfy customers stated and implied needs |
| TQM / Total quality management | all-encompassing management approach to providing high quality products and services |
| Outsourcing | contracting with a third party to take on and manage one or more of a firm’s functions |
| Coops / cooperative purchasing organizations | organizing in which small business combine their demand for products or services to negotiate as a group with suppliers |
| Working capital management | management of current assets and current liabilities |
| Working capital cycle | daily flow of resources through a firm’s working capital accounts |
| Cash conversion period | time required to convert paid-for inventory and accounts receivable into cash, the greater the potential cash flow problems for the firm |
| Accounts payable | money owned to other people |
| Capital budgeting analysis | analytical method that helps managers make decisions about long-term investments, 3 techniques: investor prefers more cash rather than less cash, investor prefers cash sooner than later, investor prefers less risk |
| Value | most important components of your offering, how you relieve pain and create gain for your customers |
| Price | specification of what a seller requires in exchange for transferring ownership or use of a product or service |
| Credit | agreement between a buyer and a seller for delayed payment for a product or service |
| Average pricing | approach in which the total cost for a given product is divided by the quantity sold in that period in order to set a price |
| Freemium strategy | strategy that offers customers basic features at no cost based on the idea that they will upgrade to the advanced products or services at subscription prices ex. Free trials |
| Elasticity of demand | the degree to which a change in price affects the quantity demanded |
| elastic demand | demand will change if the price changes |
| inelastic demand | demand will not change if the price changes |
| Prestige pricing | approach based on setting a high price to convey and image of high quality or uniqueness |
| Break-even point | how many units need to be sold to break even/revenue=costs |
| Contribution margin | difference between the unit selling price and the unit variable cost and expenses |
| Markup pricing | approach based on applying a percentage to a product’s cost to obtain its selling price |
| Penetration pricing strategy | technique that sets lower than normal prices to hasten market acceptance of a product or service to increase market share, discourages new competitors from entering a market niche, sacrifices profit margin |
| Price skimming | technique that sets very high prices for a limited period before reducing them to more competitive levels |
| Follow the leader pricing strategy | technique that uses a particular competitor as a model in setting prices |
| Consumer credit | alternative to cash whose use provides assurance to a seller that a buyer has a satisfactory credit rating ... |
| 4 credit questions | can the buyer pay as promised? Will the buyer pay? If so, when will the buyer pay? If not, can the buyer be forced to pay? |
| Bad-debt ratio | expense ratio that reflects the efficiency of credit policies; bad debts divided by credit sales |
| business risk | possibility of losses associated with the assets and earnings potential of a firm |
| market risk | uncertainty associated with an investment decision |
| pure risk | uncertainty associated with a situation where only loss or no loss can occur |
| real property | land and anything physically attached to the land, such as buidings |
| personal property | any property other than real property including machinery, equipment, inventory, and vehicles |
| replacement value of property | cost of replacing personal property and rebuilding real property at today's prices |
| ACV actual cash value | insurance term that refers to the depreciated value of property |
| peril | cause of loss, either through natural events or through the actions of people |
| direct loss | loss in which physical damage to property reduces its value to the property owner |
| indirect loss | loss arising from an inability to carry on normal operations due to a direct loss of property |
| torts | wrongful acts or ommisions for which an injured party can take legal action against the wrongdoer for monetary damages |
| personal risks | risks that directly affect individual employees but may have an indirect impact on a business as well |
| risk management | ways of coping with risk that are designed to preserve the assets andearing power of a firm |
| steps in the process of risk management | indentify and understand risk, evaulate severity of risks,select method to manage risk,implement decision, reiew and evaulate |
| loss prevention | keeping a loss from happening |
| loss avoidance | choosing not to engage in hazardous activities |
| loss reduction | lessening the frequency, severity, or unpredictability of potential losses |
| risk financing | expense ratio that reflects the efficiency of credit policies; bad debts divided by credit sales |
| most valuable benefits offered by a small business | health insurance |
| surge Pricing | charging a higher price at busier times of the day/week |
| four things you need to have a tort | duty, breach of duty, causation, damages |
| key person life insurance | money that helps cover things after a key person in the business dies |
Created by:
Grace.Jensen