PAGE 1 Chelsea Chapman BA Final Study Guide Lecture 10 -FINANCE “The waste of money cures itself, for soon there is no more money to waste.” –MW Harrison What is Finance? What type of assets do we need to achieve the goals of the organization? How do we get the funds we need to acquire the assets? GOAL of the firm Maximize the value of the firm to its owners (owners are the shareholders Does this conflict with social responsibility? CSR (corporately socially responsible) large corps have found you can do both if you select what you do carefully Build good stakeholder relationships (Ford Motor Company Key responsibilities of finance EVALUATE the firm’s recent financial performance PLAN for the effective use of financial resources MANAGE the firm’s working capital Net working capital (current assets - current liabilities EVALUATE long-term investment opportunities DETERMINE the appropriate strategy to meet the firm’s long term financial needs HOW? (LTD Stock How does Finance evaluate the firm’s performance? (Ratio analysis Current ratio Inventory turn Debt-to-Equity Earnings per share Debt-to-Assets Return on equity Return on assets Financial Planning: Providing a road map for the future 1. Preparing budgets Pro Forma Statements (projecting into the future) Cash Budgets 2. Analyzing/managing cash flows Managing “net working capital” (CA-CL) 1. Commercial Paper (corporate “IOU” pays higher interest rates to raise quick cash (market securities 2. T Bills (treasury bills, debt IOU’s issued by US gov’t (maturity of one year or less) 3. Money Market Funds Managing AR (accounts receivable – asset) 1. Setting credit terms 2. Establishing credit standards 3. Planning for capital expenditures (LONG-TERM) Finance Careers Corporate Finance, Securities and Investment, Banking, Financial Planning, Real Estate, Insurance and Risk Management Organizational Structure of the Finance Function (SEE CHART) Chief Executive Officer (CEO), then Chief Financial Officer (CFO) and the CFO is head of the Treasurer, the Vice President for Financial Management and the Controller Lecture 11 –WAL-MART CAPS Tool Kit (invented for optimization Change is constant “Save people money so they can live better” Let people spend the least amount of money possible ($4 prescriptions Worldwide stores (6,643 Greenfield (when you start something from scratch Acquisition (acquire a business from someone else Wal-mart’s 3 Basic Beliefs 1. Respect for each individual 2. Provide outstanding Customer Service 3. Strive for Excellence Founder (Sam Walton Importance of culture Be able to adapt to the surroundings Strategy (buy as cheap as they can and ship it for the least amount possible so customers can save $$$ EDLP (Every Day Low Prices Sustainability (leaving things nicer then when you found it Reduce their footprint on the world Smaller packaging/less waste 3 Main Job Functions in Most Retails 1. Store Operations 2. Merchandising 3. Logistics/Supply Chain Replenishment at Wal-Mart Inventory control (try to keep as low as possible Reasons for low in-stock Low order fill rate Bad forecasts Seasonal profiles Under-forecasted demand Reasons for over-stock Forecasts too high Over ordering Products left over from earlier (”residue” If a certain product has a defect on it and everyone else like it, then… Product Recalls (take product off the shelves and it won’t be able to be sold Block the UPC label (UPC (Universal Product Code…bar code) so it can’t scan Job Hunters V-lookup (function in Excel Brings pieces in different spread sheets together Crucial in what companies are looking for Be able to adapt to change and be a team player! Lecture 12 –CAREER INFORMATION PRESENTATION Jeannine Wirth, Career Services Consultant Generalist Broad spectrum of responsibilities Work on different things at the same time Specialist Focuses on one area of HR (human resource) Typically have some special technical knowledge HR is very accepting of women, not male dominated Specialist areas Workforce planning and employment Recruiting strategy Interviewing and recruiting Administering selection tests Processing hirings, transfers and terminations Entry level (interviewer or recruiter **High energy, personable…you are trying to sell your company HR Development Conducts training Career planning and counseling Entry level (training or orientation/on boarding specialist **Organizational development (need to be comfortable in times of change, be a “big picture thinker” Total Rewards Job analyst Write job descriptions Conduct and analyze compensation surveys Analyze, administer, and monitor benefits **Strong speaking and orientation skills Employee and Labor Relations Interpret union contracts Negotiate collective bargaining agreement Resolve grievances Entry level (labor relations, employee relations specialist **Good people skills, able to deal with conflicts, communication skills Risk Management Health and safety (safe working environment) HRIS Manager (HR computer systems (computer skills) Global HR (company understands it needs to globalized and is prepared to expand Placement and Salary Info (I think this still has to do with Career Services?) Business Placement Results Defined by… Continuation of boom job market War for talent increasing Economic recession likely Entry-level job market may not be hit as hard as mid-level and upper level job market 2008 college hires predicted to rise 8% from last year Increased participation in job fairs Slight decrease in on-campus recruiting Increase opportunity in accounting and logistics, sales Increase in students going to graduate school Decrease in attending MBA programs directly out of college Job search in a soft job market Soft job market (a job market where there aren’t as many jobs. Market is tight Target the same role in a new industry or new role in the same industry STRATEGY is most important Getting your foot in the door and work up to desired position Volunteer in your field to gain experience working elsewhere Inform everyone you know that you are job searching (NETWORK Invest certifications or build technical skills Research growth industries (find something you like Ask these questions Am I being realistic with my target goals and objectives? What is working and what isn’t? What haven’t I don’t that I can start doing? Whose help do I need? Back up plan (contingency plan On-campus recruitment 2112 interviews 409 job postings on Hire-A-Vol Internships 30% of May 2007 CBA grads had internships 52% received an offer from their internship SALARY Have a good understanding of typical entry-level salaries in particular geographic locations Salary.com Take into account cost-of-living factors (homefair.com) Avoid salary-talk until the job has been offered College of Business Relocation info: Knoxville 45% TN 21% GA 9% Carolinas 7% What you see… Large fortune 500 type companies Standard entry-level positions Good salaries Great opportunities What you don’t see… Investment banking Sports teams Consulting International Advertising/PR **Network for these kinds of companies!** Lecture 13 –FINANCE: SECURITIES and INVESTMENT Financial intermediation Financial System (3 areas of Finance Institutions and Markets Investments Financial Management They all overlap in the middle Making Use of Leverage Leverage (selling bonds Equity (sale of stock Appropriately used debt can prop up earnings for shareholders Properly used leverage can prop up earnings for shareholders Security Markets Long-term funding for business Place to buy/sell securities (investments) Used for long-term investments Capital Markets Intermediate long-term debt and capital stocks Primary Markets (IPO’s) (a company can issue stock at beginning of a day and get money back at the end of the day Initial public offering Initiating company gets the profit Secondary Markets Selling/trading shares of stock between stock owners Money goes to owner who sells stock and not to the company Investment Banker Assist sale/issue of new securities Underwrite issues (says they will buy a certain percentage of company’s stock being issued By purchasing a share early, it may or may not underwrite stock Sells to institutional investors IPO can be hired to simply put it together (institution investors Bond Market A formal legal contract where bond issuer pays a % of interest either semi-annual or annually and agrees to pay bond holder back the initial bond More risky than a CD, etc. Will learn to value bonds later on Coupon/interest rate Denomination ($1000) Principal Maturity date Classes of bonds Unsecured (debenture) bond(issued on good name of company with no assets backing it Secured bond (some assets are pledged to back the bond Bonds Advantages No vote (not giving up any part of company Interest payment is tax-deductible Can be repaid before maturity date with call provision (call provisions can be added to bond to protect the company if interest rate decreases greatly…can pay the bond holders back Temporary source of funds Disadvantages Increase debt Legal obligation to pay interest or holders can have the company file bankruptcy Must be repaid on maturity date Special bond features Sinking fund (can periodically pay out some bonds off Callable (company can pay back early Convertible bond (says holder can return bond to company and get shares of stock Debt vs. Equity (stock) Financing Debt Secured or not (debenture) Must be repaid on maturity date Interest must be paid whenever specified Equity Investment never has to be repaid More expensive b/c you must pay Not legally obligated to pay dividends Preferred or Common What is stock? Par-value (the face value of a stock Add paid in capital Dividends are only paid at will of company Ownership in a company You receive a certificate Common vs. Preferred stock Advantages of Stock No repayment No legal obligation Does not create debt Disadvantages of Stock Give up voting rights Dividends are not tax deductible The more stock you issue the harder it is to keep everyone happy, and management works to keep the stockholders happy Preferred Stock Hybrid security between common stock and bonds Like bonds, preferred stockholders receive a fixed dividend paid before dividends are paid to common stockholders Preferred stock dividends are paid at the discretion of the BOD Still not a contractual obligation (so if the dividends are not paid then it cannot be forced into bankruptcy Less risky Organized Securities Exchanges: American New York Stock Exchange (NYSE) (actual location American Stock Exchange (AMEX) Over-the-Counter (OTC) NASDAQ (online trading **IPO’s are not issued in these** World Stock Exchanges: Overseas Top European Companies by market value (we now share with other countries’ markets BP Vodafone Nestle (Switzerland) Total HSBC Glaxo Kline Smith Need to monitor more than NYSE nowadays: FTSE –England Shenzhen –China Tokyo Stock Exchange There has been a significant increase in the # of people who own stock Investment Criteria Risk (% change something bad is going to happen Yield (% interest a security or investment pays Duration (length or time horizon an investor must stay in to see pay out Liquidity (how quickly an investment can be turned into cash Tax consequences Investing in Bonds (See Chart) Corporate Bonds Municipal Bonds US Treasury Bonds From 1-20 years From 1-40 years From 2-30 years Taxable Exempt from federal taxes and some state and local taxes Exempt from state and local taxes May be riskier than government bonds, but may have higher yields Attractive to investors in high tax brackets Government backing provides maximum safety When a corporation issues bonds they must got through great scrutiny and get rated (a top rating gives a firm a more attractive interest rate Investing in Stocks Growth vs. income Growth stocks (trying to increase in price from year to year Income stocks (goal is to pay dividends to shareholders (utility stocks) Blue Chip vs. Penny Blue chip (a well estimated long-term stock Penny stocks (stocks less than $5 and are riskier, but can have big returns Market Order Limit Order (”only buy it for me if you can get it at this certain price” Stock splits (taking one share and replacing it with 2,3,4 others Mutual Funds Pool investors’ money (small pool $ that are in diversified stocks, pro-stock drops Good for small $ investors Index fund (type of mutual fund that invests in funds that go with the economy Diversifying your risk (broadening your risk Load vs. no-load diversify Load (charges up-front fee before you can invest 5% load No-load (no charge for admission Open-end vs. Closed-end Open-end (allows $ to come in and out at any time Closed-end (taken all $ we want right now, not taking any more investors Success of funds depends on a funds manager WHO is managing and how long have they been there? Types of Investments Traditional Real estate Stocks/Bonds Gov’t Securities/CDs Money Market or Mutual Funds High-Risk Stock on margin (loan) Junk bonds Commodities (investing in future products (raw materials…oil, corn, etc.) Components for Optimal Portfolio Performance (SEE CHART) If there is a significant market risk, then you could have a negative return and must be wiling to lose what you invest IPO’s (initial public offerings) at the top of the spectrum are VERY risky! **If you invest in gold, the stock market is probably not good **Inversely related, NY Fed has the biggest reserve of gold in the world Measures of Investment 1. Stock quotations % change in YTD Price (annual yield) (% how much interest the company is making High/Low Price (gives volatility indication if a stock $ a dividend (want to know what the dividend yields Company Name and Stock Symbol Last dividend per share Dividend yield (yields help to compare P/E Ratio # of shares traded Closing price Net change – Price Google (goog) 2. Bond Quotations 3. Mutual Fund Quotations Fund name (most mutual funds have a family of funds Net Asset Value (NAV) (how your fund is doing All stocks in fund/shareholders AKA what is stock $ Net Change in NAV TYD Return Long-Term Return Original 12 Dow Stocks (1896) (see slide 4 Principles of Finance 1. Money has a time value (a dollar today is worth more than a dollar tomorrow 2. Higher returns are expected for taking on more risk 3. Financial markets are efficient 4. Reputation matters Simple interest calculates the amount of interest for a given time period Compound interest is re-invested (in other words, interest is working for you LOOK AT ALL SLIDES!!!!! IMPORTANT The power of compounding (invest early and invest often Retirement Social Security Individual Retirement Accounts (IRA) (Traditional and Roth 401 (K) Plans Keogh Plans Financial Planners Estate planning 2008 Personal Survey of Literacy (survey from discussion that deal with this section) Q: Which of the following statements best describes your right to check your credit history for accuracy? A: Your credit record can be checked once a year for free *3 different agencies *Stagger credit reports Q: Many people put aside money to take care of unexpected expenses. If Juan and Elva have money put aside for emergencies, in which of the following forms would it be of LEAST benefit to them if they needed it right away? A: Invested in a down payment on the house Q: Sara and Joshua just had a baby. They received money as baby gifts and want to put it away for the baby’s education. Which of the following tends to have the highest growth over periods of time as long as 18 years? A: Stocks (best investment for a really long time *Always growing Q: Rob and Mary are the same age. At age 25 Mary began saving $2000 a year while Rob saved nothing. At age 50, Rob realized that he needed money for retirement and started saving $4000 per year while Mary kept saving her $2000. Now they are both 75 years old. Who was the most money in his/her retirement account? A: Mary (her money has grown for a longer time at compound interest *Investing early and compounding Q: If your credit card is stolen and the thief runs up a total debt of $1000, but you notify the issuer of the card as soon as you discover it is missing, what is the maximum amount that you can be forced to pay according to Federal law? A: $50 Q: Who is the Chairman of the Federal Reserve? A: Ben Bernake EXTRA NOTES ABOUT STOCKS Privately held company (public stock available to public Responsibilities and what does the report do? “Make sure investors know where we’re going and how we get there” Why Krispy Kreme is a good investment KK is in NYSE, they are the liaison btw the corporation and the public Financial Model: 75% of $ comes from actual doughnut sales Want to become a billion $ company Investor relations reports to CFO (chief financial officer) on treasurer side and acts as a liaison between corporation and public To get on NYSE KK had to hire expert investor bankers (does filings) and underwriters (vendor deals, underwrite issue – sells deals between buyers) Last traded at $3.47 and started at $33 Stock $ is a reflection of what the public thinks about the company -President of KK said Notice volume (amount of stock that is actively trading, means it is liquid (volume is a measure of liquidity) PE = Price Earnings (the price the investor is willing to pay for PE of NA usually means you have a loss (negative signal so you must pay attention Stock can be “D-listed” meaning it can be taken off of NYSE, but it can still be private and traded over the counter Wosely voluntarily D-listed to England’s SE Ticket Symbol (abbreviation for company Lecture 14 –HUMAN RESOURCE MANAGEMENT CEO is above Operations, Marketing and Logistics, and Human Resources (HR) is right under CEO Planning Determine needs Full vs. part time Permanent vs. temporary Job analysis Demand and Supply Strategic planning Recruitment Internet Employment agencies Unions Job fairs Networking RJP Selection (Screening: Interviews Background checks Physical ability Skills testing Intelligence testing Personality testing Assessment Centers Training When KSAs are worth teaching OJT Apprenticeships Online training Simulations Was training effective? Did they learn it? Are they applying it? Is it having impact? Performance evaluation (performance appraisal Compensation and benefits Compensation Salary Hourly Commission based Profit-sharing Benefits Cafeteria style “Soft” benefits Employee Separation (last thing a company is associated with (like the woman not following the company policy) RIF (reduction enforce anytime you have employees leaving the company Downsizing (need to cut pay roll, reducing number of people employed Right-sizing (realizing that you need to realign organization Moving someone from logistics to marketing Moving around to benefit company jobs lost sometimes Attrition (employees choose to leave company and company DOES NOT replace them Progressive Discipline 1. Verbal warning 2. Written warning 3. Then terminal HR Terminology Unions “obsolete” (economy’s state has forced unions to rely on themselves and not the gov’t Open-shop (situation when a company can hire whomever, and they decide if they join a union or not Closed-shop (must hire from the union (now illegal b/c you CAN”T force to hire only a union) Agency shop (company can hire whomever and they can decide if they want to join or if they don’t have to Union shop (hire whomever on 90 probation and then decide if they become full time union employee or the person can leave themselves Collective bargain (unions and management negotiate Free agencies being done away with in sports Grievances (not acting along with collective bargain “formalized complaint” Employment Laws Must have legitimate injury relating to the job (helps protect employee, not everything compensated if you are operating in a wrong manner (not wearing helmet, not using machine is safe manner, then YOU’RE NOT COVERED) Major Employment Laws 1. Workers Comp 2. ADA 3. FMLA 4. FLSA 5. Title VII 1. Workers Compensation STATE regulated insurance program that pays the medical bills and may replace lost wages for employees who have work-related injuries, diseases or illnesses It is state regulated because rates vary from state to state 2. ADA (Americans with Disabilities Act) Federal law, prohibits discrimination against QUALIFIED individuals with disabilities and requires employers to make reasonable accommodations 1/5 accommodations have cost them nothing Frequently the employee can bring what they need to the job What you don’t have to do: 1. Don’t have to provide outside of work accommodations 2. Don’t have to change performance standards (you may need to change some aspects, ex: diabetics will need more breaks) 3. Don’t have to accept poor behavior (anger, danger…) Disabilities covered Wheelchairs Migraine headaches (employer must go through employee to be treated Recovering drug addict or alcoholic 3. FMLA (Family Medical Leave Act) 12 weeks of unpaid leave for a medical reason (pregnancy) Who’s affected? (any employer who has more than 50 employees within 75 miles radius Employees Qualify? Have to have been with the company at least 12 miles and at least 1,250 hours While you’re on leave? Most have to hold job for you (some exceptions if a job is a required much needed position Issues with FMLA Don’t have to use all time at once (Target at Christmas) 50 employees within 75 miles (there are a lot of duties to be taken care of State laws may be more restrictive than federal laws (you can’t go below federal (12) but you can go above (ex: TN is 16) 4. FLSA (Fair Labor Standards Act) Minimum wage ($5.85) (federal minimum wage Conditions (safe environment required Child labor laws (minimum age you can hire Overtime (can only be asked to work certain, $ increases after required standard Union connect negotiate contract for you 5. Title VII/Civil Rights Act Covers private sector employment No discrimination against gender, race, color, religion, national origin or age Status affords protection Minority is based on statistics (white men = majority) Covers? All aspects of Human Resource Sexual orientation NOT covered right now on federal level Protected groups? Anyone falling in minority of the section states may have more but they cannot have less (ex: Utah Mormon state cannot disregard religion) Things you CAN’T ask in an interview Married, kids, church, graduation year of high school Ex: 6 Wal-Mart female employees said that 65% of women were hourly employees but only 33% were managers When is it okay to discriminate? When you have BFOQ (bona fide occupational quality) When requirement of a job that is not being performed and it isn’t BUT it has nothing to do with their supposed minority claim Intelligence tests can be discriminatory Lecture 15 -CORPORATE GROWTH Organic Growth (the growth that a company can achieve by increasing outputs and enhancing sales What you can do internally to grow your business (increasing outputs, enhancing sales) Increase market share (sell more to people in target market Increase sales pressure Promotions Cost cuts (increase marketing presence Increase usage of product (sell more to your customers Loyalty programs (frequent flier miles, rewards cards, sandwich shops) New uses for products (Jello (Jelloshots, Jello molds) Develop new products or services Viacom –new TV channel Expand your market Geographically Caterpillar (sales up overseas and down in US Coke New market segments Nestle (premium chocolates expected to grow in market, so looking into investing in premium market) Volkswagen (tried to get into high end luxury market and failed!) Horizontal Integration (buying or merging with a competitor Delta-Northwest (to cut costs) Coke (merged w/ Honest Tea Co.) XM-Sirius (Merger video: approving XM and Sirius, competing for consumers not necessarily against each other. Gov’t has to approve mergers as positive for consumers in marketplace to avoid monopoly) Vertical Integration (buying someone in your supply chain Supplier’s (Manufacturers (Wholesalers (Retailers (Consumers Forward Integration (”downstream” purchasing someone you supply to Manufacturer buying retail outlet Backward Integration (”upstream” buying a company that supplies to you Ex: Nokia wants to buy digital map company for possible integration into phone w/ GPS. Nokia phone manufacturer buying someone who supplies to them Diversification (starting or acquiring a business outside of the company’s current products or markets Ex: Blockbuster wants to buy Circuit City Berkshire Hathaway The OTHER side of growth Divestiture (selling off pieces of a business, either for cash infusion or re-focus business DaimlerChrysler (not as successful as expected) AOL Time Warner Financial services DISCUSSION Individual Differences and Teamwork Introversion vs. Extroversion Preferred interaction style with other people Introversion (more comfortable being alone, enjoy solitary activities Extroversion (more outgoing, enjoy social activities and interacting with others Sensing vs. Intuition Preferred way of dealing with information Sensing (use 5 senses, hands-on experiences. Focus on facts –what HAS happened Intuition (looking for patterns and dealing with the theoretical. Focus on the possibilities –what COULD happen Thinking vs. Feeling Preferred way of making decisions Thinking (based on principles and analysis. Using logic and deciding with your head Feeling (based on effect on people and values. More important to go with your heart or gut Judging vs. Perceiving Preferred way of dealing with structure Judging (organized, structured and decided. Plan for events Perceiving (remain flexible and adaptive. Take things as they come Other examples “Unconventionality” (tendency to see things a different way and willing to take an alternation position “Playfulness-Humor” (tendency to try to keep things loose “Creativity” (ability to pursue different solutions and consider new ways of solving problems Teams and Conflict Groups and teams can: 1. Enhance performance 2. Increase responsiveness to customers 3. Increase innovation 4. Increase motivation and satisfaction **All of this can lead to gaining a competitive advantage 1. Enhance performance SYNERGY (working all together Bounce ideas, correct errors, bring new ideas, share knowledge, accomplish more than one task 2. Customer responsiveness Lower level salespeople may be most knowledgeable about customer needs Higher level researches may have the technical expertise 3. Increase innovation Correct errors Build off ideas Diverse knowledge Constructive critiques 4. Increase motivation/satisfaction Threats to group effectiveness Asch effect (distortion of individual judgment by a unanimous but incorrect decision Groupthink (tendency for members of very cohesive groups to strive for unanimity to the point where alternative courses of action are not considered Social loafing (tendency for individual effort to decline as group size increases Sucker effect (withholding effort as a preemptive response to social loafing Types of group conflict Substantive (WHAT) (disagreements over ideas, tasks, issues… Affective (WHO) (interpersonal, often related to power clashes Procedural (HOW) (process-related, how will decisions be made? Conflict Management Avoiding Accommodating Competing Compromising Collaborating (this is the best one to be!