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Prof Joanne Hinton...

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1 Ch 1 2 types of policies in Canada  Monetary o Responsibility of bank of Canada o Sets interest rates (8x/y)  Represents what banks can borrow from canada at  Currently 1.5%  Expected to go up in oct  Impacted by inflation Consumer price index (CPI) measures inflation  Fiscal o Government o Look at revenue & expenses o Revenue – income tax o Expenses – highways, military, hospitals www.sedar.com – lists public companies Canadian tire -> parent company (public) Marks, sportcheck -> subsidiaries (private) Revenue – sales (of finished goods) Expenses – wages, interest, taxes, utilities, depreciation, cost of goods sold (cgs) Sales – cgs = gross profit Gross profit – expenses = profit (net income) Consolidated financial statement Consolidated – owns other companies Financial statement includes all rev & exp for all companies

Economic System – allocates a nations resources among its citizens Economic systems differ in terms of who owns & controls the factors of production  Command Economy – govnt controls all/most production decisions Economic basis: supply & demand o Communism – govnt owns/operates all industries o Socialism – govnt heavily involved. Owns & operates critical industries (ie utilities). Individuals allowed to own non-critical businesses  Market Economy – individuals control all/most factors of production & make all/most production decisions. Political basis: encourages profit; private ownership/entrepreneurs o Mix Economy – mix of command & market. Trends in an mixed market economy:  Privatization: converting govn’t firms to privately owned companies (ie, hydro 1, air can)  Nationalization: private to govn’t (ie, GM 2008)  Deregulation: reducing laws and govn’t intervention (ie airline industry) o Capitalism – no govt involvement. Buyers/sellers have freedom of choice. Open market is the mechanism for exchange of goods/services Factors of Production – resources used by firms to create goods and services

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Natural resources – land, water, trees Labour – the people Capital – resources to buy items. Funds needed to start & operate a business. Sources include borrow, profits, selling shares. Entrepreneurs – people who accept responsibility & risk in creating & operating a business Information – knowledge/expertise; market forecasts / economic data; can be shared

Interactions between business and government  Customer  Competitor  Regulator – regulates through administration boards, tribunals & commissions. They promote healthy competition between businesses. o Protects consumers (Ie tobacco act, food/drug). o Achieves social goals (OSH) o Protects environment (Canada water act)  Taxation Agent o Fiscal policy o Revenue taxes (federal, provincial, municipal, income tax)  Income tax Progressive revenue tax – a tax that is progressive if those with higher incomes pay a higher of their income on taxes Regressive revenue tax – if those with lower income pay a higher % of their income in taxes (ie gst) Restrictive tax – taxes on gas, alcohol, tobacco; govn’t receives $; also trying to control amount of product used  Provider of Incentives o Aid/financial assistance o To stimulate growth o ACOA/EDC  Provider of Essential Services o Highways; postal service; military; education; emergency services; health Supply – the willingness & ability of producers to sell the products/services Demand – willingness of consumers to buy products/services Supply/demand curve Shortage – lack of supply. Limited supply will shift curver to the left (a shortage drives prices up) Surplus – reduces prices; abundance of supply; curve shifts to right (a surplus drives prices down)

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Labour force = employment unemployment #

Unemployment Rate = unemployment labour force

Participation rate = labour force population

Employment Rate = # employed population

Output Market - goods - services

Firms - Supply products in output market - demands resources in input market (buy)

Households - demand products in output market - supply resources in input market

Input Market Labour; Capital; Entrepreneurs Information; Natural Resources

Private Enterprise occurs in a market economy with little govn’t restriction. Under this system individuals  Can own property  Have freedom of choice  Have the freedom to earn profits  Have freedom to compete Competition  Occurs when businesses vie for the same resources or customers in a particular market or industry  Motivates business to operate efficiently  Forces business to make products better or cheaper

Market capitalization (market value / market cap) = # of shares in the marketplace (issued) x market price/share Market price – the interaction of buyers and sellers Like an auction – someone will ask a price and someone will bid a price As the amt changes, it is not reflected in the books of comp Based on objective factors (ie release of fin state, news) & subjective factors (unsubstantiated rumours) Stock exchange – ny, Toronto, Nasdaq (tech comp typically on Nasdaq) Bid – highest price anyone will pay to buy stock (stock = shares) Ask – lowest price anyone will accept to sell stock

4 Beta – score of 1 or less mean stock is in line with market (tech companies typically more volatile) Score of 1.26 – 26% more volatile EPS – price earnings = market value Earnings per share Dividend – sharing the profits of the comp Yahoo.com/finance – appl for apple stock

(LO 1-5) Private enterprise Market economy – relies on a private enterprise system Degrees of competition are influenced by:  The # of firms competing for the same consumers $  The similarity of their products/services in the eyes of the consumer This influences the firms by :  Giving them more, or less, control over price depending on various factors  Making it more difficult to compete, or not, depending on various factors

Degrees of Competition  Perfect Competition o Many sellers o Product is basically identical o Relatively easy to enter the industry (doesn’t have a high cost of capital) o Individual firms have no control over price o Ie, Canadian agriculture (wheat produced on one farm is same as another)  Monopolistic Competition o Not the same as monopoly o Few to many sellers o Product is seen as unique by some buyers (but not all) o Differentiated brands have some (minor) control over pricing o Ie, nike, adidas  Oligopoly Competition o A few large suppliers dominate o High barriers to entry (costly to enter competition) o Products are seen as similar o Prices gravitate toward a common “market price” o Ie, automobile industry; gas retailers, wireless  Monopoly Competition o One producer and source of supply o Unique product o Complete control over price o No competitors o In Canada monopolies are not allowed, except for natural monopolies (ie nb power)

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5 External environment - Factors beyond an organizations boundaries that cannot be controlled (ie competition) Boundaries: SWOT  Internal o Strengths (ie, good cash reserve) o Weaknesses (ie, poor management)  External o Opportunities (ie, new invention with a market overseas) o Threats (ie, customer taste change, postal strike) Organizational boundaries – that which separates the organization from its environment Dimensions of the external environment  Economic environment – key economic goals o Economic growth o Economic stability o Full employment  Technological environment  Research and development o Research is typically an expense to a company o If part of the research can be developed, then it can be switched to development, and becomes an asset as a “patent”.  Political-legal environment o Barriers to trade o How does business interact with gov (gov regulation)  Socio-cultural environment o Taste may change over time o Food preference (ie, by country) can be different  Business enviro o Product life cycle  Global enviro o Trade barriers – man made barrier that can be changed  Emerging challenges and opportunities o Social media o Outsourcing

6 Economic Environment The conditions of the economic system in which an organization operates Key Economic Goals  Economic growth (gdp)  Economic stability (and the threats to it) Condition in an economic system in which the amount of $ available and quantity of goods/services are growing at the same rate. 3 threats to eco stability: o Inflation (interest rates go up; people don’t buy as much, then people don’t work as much as factories don’t sell as much) o Deflation (prices going down) o Unemployment (the level of joblessness among people actively seeking employment)  Full employment Inflation  Occurs when there is a widespread price increase in an economic system  Decrease the purchasing power of your money  People have more money to spend but there may still be the same quantity of products to buy (therefor a price increase)  If substantial then the bank of Canada will raise interest rates – tight monetary policy  Consumer price index (CPI) - tool used to measure inflation Deflation  Prices are falling  Bank of Canada will reduce interest rate – easy monetary policy (so that people can borrow and spend $) Unemployment Level of joblessness among people actively seeking work in an economic system  Frictional – people are out of work temporarily while looking for another job  Seasonal – unemployment is nature of job (fishing, construction)  Cyclical – out of work because of a downturn in the business cycle (layoffs)  Structural – people are unemployed because they lack the skills used to perform their job

Economic Growth Overview  The Business Cycle the typical pattern of short-term ups and downs in an economy (peak, recession, trough (bust), recovery) o Interest rates often decrease in a recession; inflation increases with a peak & interest rates go up  Recession – 2 consecutive quarters (6m) when the economy shrinks  Depression – occurs when trough of the business cycle extends 2 or more years  Aggregate Output and the Standard of Living o Aggregate output – Tool to measure economic growth. The total quantity of goods/services produced by an economic system during a given period. o Standard of living – total quantity and quality of goods/services that a country’s citizens can purchase with their currency o When output grows more quickly than the population:  The quantity of goods/services per person goes up  The system provides relatively more of the goods/services the people want  If these 2 occur, people will benefit from a higher standard of living 

Gross Domestic Product (GDP) and Gross National Product (GNP)

7 GDP – value of all goods and services produced by a national economy within a given period through domestic factors of production. Companies that are operating here (not necessarily country where ownership is). Growth depends on output increasing at a faster rate than the population. o GNP – the value of all goods/services produced by a national economy within a given period regardless of production location (Canadian owned company operating in another country) Productivity o Standard of living improves through increases in productivity o Measure of economic growth that compares the output of an economic system with the resources that are needed to produce the output  Measure growth and productivity in terms of GDP and standard of living in terms of purchasing power parity of a systems currency  Purchasing power parity – a principle that exchange rates are set so that prices of similar products in different countries are about the same Balance of Trade o Value of all exported products minus the value of imported products o Trade deficit – imports are greater than exports o Trade surplus – exports are greater than imports o (overall we have a surplus; deficit with US) National Debt o Amount of money that a government owes its creditors o Increase by the amount of a budget deficit o Decrease when an economy has a budget surplus o

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Stabilization Policies Fiscal & Monetary Policies used to stabilize prices and smooth out fluctuations in output (productivity) and unemployment  Fiscal Policies – responsibility of govn’t (income tax, highways, education, military)  Monetary Policies – bank of Canada (sets interest rates) Bank of Canada can influence aggregate markets by influencing the supply of money Bank of Canada website Core functions Monetary Policy – Inflation-control target – want it between 2 & 3 Flexible exchange rate Bank’s governing council – bank of Canada Target for the overnight rate – Prime + something – their rate plus what they ad Technological Environment Technology - All the ways a company creates values for its customer  Knowledge, work methods, physical equipment, etc  Social media and internet technology are now a major part of the job search and recruitment process

8 Research and development (R&D) Basic – some research. Not trying to come up with new product; enhancing current. Applied – trying to develop a product and have rights to product. Patent. Patent – limited life, 20 years. Can buy and sell but cannot renew. But can be renewed if there is a new enhancement. Nottingham spirk – often contracted by comp (ie Rubbermaid). Comes up with patents and sells to companies Political-Legal Enviro  Reflects the relationship between bus and gov (ie regulations) o Free trade agreements; barriers to trade  Pro or anti bus sentiment  Political stability  International relations (ie customs, holidays, working days)  Manmade – can be changed Socio-Cultural Environment  Customs, values, attitudes and demo characteristics of the society in which an org functions  Consumer taste can change (ie, clothing, food)  Preferences and tastes can vary across and within national boundaries  Ethical compliance and responsible business behaviour o Corporate social responsibility (CSR) o Businesses must be aware of their stakeholders  stakeholders (people who are affected by the decisions of the comp) shareholders, employees, customers, suppliers, environment Business Environment  Industry Environment o Each business firm operates in a specific industry and each industry has different characteristics. (ie airline industry is very different from beverage) o The intensity of competition in an industry has a large influence on how a company operates o Porters Five forces model is used to analyze the competitive situation in an industry Managers are going to evaluate these 5 forces and set their own competitive strategy  Industry Rivalry (ie coke vs pepsi) In order to compete there could be intense price competition, advertising, try to differentiate itself with customer service  Threat of New Entrance New competition entering your industry. Sometimes it’s easy, sometimes not (cost to enter)  Bargaining Power of Suppliers The amount of bargaining power suppliers have in relation to buyers helps determine how competitive an industry is. If a few suppliers – tend to have great bargaining power Power of suppliers – could be influenced by the # of substitute products  Threat of Substitutes if there are many subs avail in an industry then industry is competitive  Bargaining Power of Consumers If a few buyers and many suppliers – the buyers have a great deal of bargaining power (ie Walmart to their suppliers)

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threats of new entrants

bargaining power of suppliers

industry rivalry

bargaining power of consumers

threat of substitutes

Emerging challenges and opportunities in the bus enviro  The most successful firms are getting leaner by focusing on their core competencies (focusing on what they are good at)  The skills and resources with which an org competes best and creates the most value for owners  Outsourcing – not core activity. o Paying suppliers and distributors to perform certain business processes (ie payroll)  Growing role of social media – using the internet, word of mouth, marketing, to spread product info (viral marketing/buzz marketing)  Business process management – moving away from department-oriented organizations (cutting out department boundaries) towards process-oriented teams. Decision making is faster and more customer oriented Materials and operations are coordinated, and products get to customer more rapidly (just in time manufacturing – lean manufacturing – producing just what is needed. No extra inventory avail) Redrawing Corporate Boundaries Acquisition – one comp buying and other (one parent, one subsidiary) Merger – two companies coming together  Horizontal – two comps come together, neither is parent  Vertical – one comp is a supplier or customer to the other  Conglomerate mergers – big companies – many industries not in common  Can be friendly or hostile takeovers  Hostile – the acquiring comp buys enough stock/shares from the other comp to take control Company taken over might not like. Puts out a Poison Pill Poison Pill – a defence tactic that management can adopt to make a firm less attractive ie, will put more shares out so it’s more expensive (has to buy more shares) Gogale – search poison pill  Michael kors bought Versace – larger market share of the high end clothing market Divestitures - Selling part of an existing business Spinof - setting it up as a new corp (ie pepsi and taco bell)

Employee-owned corp  Employee stock ownership programs (ESOP). Not many comps in canada (westjet – employees all own stock)

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Motivates employees to work harder, increase value of shares

Strategic alliance  Two or more companies temp join forces  Often called a joint venture  The comps are still separate. Join for a period of time to work together on something (Ie oil comps come together to devel oil sands in alberta) Subsidiary and Parent Corp  Subsidiary is owned by parent  Parent owns subsidiary corps  Canadian Tire – Parent – public company o Marks, sportcheck, golf stores – private companies o All of the subsidiary’s finances are on the consolidated fin statements for Can Tire. o Once a public company is purchased by another, they become private Quick-check questions 1. A 2. C 3. C (bank of can controls interest rates through monetary) 4. B 5. D

11 Ch 3 Ethics Ethics – Standards or moral values that dictate what is right and wrong If you cross the law, ethics mean nothing Culturally based Formed by a society’s expectations Vary by person and by situation – everyone develops his/her own code of ethics Can be influenced by Family Peer group Experiences Ethics in the Workplace Managerial ethics are the standards of behaviour that guide managers in their work Business ethics refers to ethical or unethical behaviour by a manager/employee of an organization 

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Behaviour toward employees o Hiring/firing practices o Wages o Working conditions o Employers who know you need the job and will pay as little as possible Behaviour toward the organization (code of conduct) o Code of conduct o Conflict of interest o Accepting gifts o Confidentiality / honesty Behaviour toward other economic entities o Customers o Competitors o Shareholders o Suppliers

Steps to Assessing Ethical Behaviour 1. Gather the relevant factual information 2. Analyze the facts to determine the most appropriate moral values a. Utility – does the act epitomize what is best for those who are affected by it? b. Rights – Does it respect the rights of the individuals involved? c. Justice – Is it consistent with what we regard as fair? d. Caring – is it consistent with people’s responsibilities to other? Newspaper test – do you want it in the newspaper (news) 3. Make an ethical judgement based on the rightness or wrongness of the proposed activity or policy Ethical Dilemma is a situation in which both sides of an issue can be supported with valid arguments. Ethical Lapse is a situation in which an individual makes a decision that is morally wrong or unethical (could be illegal). Written Code of Ethics  Increase public confidence in a firm  Helps stem the...