SENIOR SEMINAR REVIEW FROM SLIDES Flashcards

the process of working with people and resources to accomplish organizational goals effectively and efficiently

Effectiveness: Achieving organizational goals - Efficiency: Achieving goals with minimal waste of money, time, materials, and people

At the turn of the century, the most notable organizations were large and industrialized. Often they included ongoing, routine tasks that manufactured a variety of products. The United States highly prized scientific and technical matters, including careful measurement and specification of activities and results. Management tended to be the same. Frederick Taylor developed the :scientific management theory" which espoused this careful specification and measurement of all organizational tasks. Tasks were standardized as much as possible. Workers were rewarded and punished. This approach appeared to work well for organizations with assembly lines and other mechanistic, routinized activities.

Max Weber embellished the scientific management theory with his bureaucratic theory. Weber focused on dividing organizations into hierarchies, establishing strong lines of authority and control. He suggested organizations develop comprehensive and detailed standard operating procedures for all routinized tasks.

Universal truths that can be taught in schools: Division of work , Authority, Discipline, Unity of command, Unity of direction, Subordination of individual interest , Remuneration, Centralization , Scalar chain, Order, Equity, Stability of tenure, Initiative, Esprit de corps. He also identified and classified five functions for any managers into: Plan , Organize, Command, Coordinate, Control

Eventually, unions and government regulations reacted to the rather dehumanizing effects of these theories. More attention was given to individuals and their unique capabilities in the organization. A major belief included that the organization would prosper if its workers prospered as well. Human Resource departments were added to organizations. The behavioral sciences played a strong role in helping to understand the needs of workers and how the needs of the organization and its workers could be better aligned. Elton Mayo and the Hawthorne Studies discovered that the informal organization, social norms, acceptance, and sentiments of the group determined individual work behavior. Maslow, McGregor, Herzberg, and many others stressed the importance of social relations in organizations, understanding workers and managers as human beings with social and emotional needs.

Management Science/ Quantitative Approach: Application of quantitative methods to solve management problems: statistics, operations research, management information systems. - System Approach: Organizations are open systems that constantly interact with the external environment: inputs (resources and information) -------> transformation process -------> outputs (products, services, information) -------> feedback - Contingency Approach: Appropriate management approach depends on situational factors faced by an organization.

Planning: Decision Making Process, Environmental Scanning, Ethics and Corporate Responsibility, Strategic Planning - Organizing: Organization Theory, Design, and Structures, Human Resource Management, Operations Management (Quality Management) - Leading: Motivation Theories, Leadership Theories, Team - Control: Bureaucratic Control, Market Control, Clan Control

Key Concept - Speed: Fast and timely execution, response, and delivery of results - Cost competitiveness: Keeping costs low to achieve profits and offer prices attractive to customers - Innovation: The introduction of new goods and services - Quality: The excellence of your product - Service: Giving customers what they want or need, the way they want it

Technical skill: The ability to perform a specialized task involving a particular method or process - Conceptual and decisional skills: The ability to identify and resolve problems for the benefit of the organization and its members - Interpersonal and communication skills: People skills; the ability to lead, motivate, and communication effectively with others

The external environment refers to all relevant forces outside a firm's boundaries such as competitors, customers, the government, and the economy - Open systems: Organizations that are affected by, and that affect, their environment - Inputs: Goods and services - Outputs: The products and services organizations create

Organizational culture: The set of important assumptions about the organization and its goals and practices that members of the company share - In strong cultures, the majority of people within the organization agree on organizational goals - In weak cultures, the majority of people within the organization disagree on organizational goals

Power distance: The extent to which a society accepts the fact that power in organizations is distributed unequally -Individualism/collectivism: The extent to which people act on their own or as part of a group - Uncertainty avoidance: The extent to which people in a society feel threatened by uncertain and ambiguous situations - Masculinity/ femininity:: The extent to which a society value quantity of life (e.g., accomplishment, money) over quality of life (e.g., compassion, beauty)

Effective group decision making - leadership 1. avoid domination 2. encourage input 3. avoid groupthink and satisficing 4. remember goals - Creativity 1. Brainstorm 2. avoid criticizing 3. exhaust ideas 4. combine ideas - constructive conflict 1. air legitimate differences 2. stay task-related 3. be impersonal 4. play devil's advocate

Strategic goals and plans are the foundation for planning done by middle- level and frontline managers - Tactical planning: A set of procedures for translating broad strategic goals and plans into specific goals and plans that are relevant to a distinct portion of the organization - Operational planning: The process of identifying the specific procedures and processes required at lower levels of the organization - For middle-level and frontline managers to accomplish their jobs, it is critical that top managers communicate the strategy to all levels of the organization

Business strategy: describes the major actions by which a business competes in a particular market - Low-cost strategies: A strategy an organization uses to build competitive advantage by being efficient and offering a standard, no-frills product - Differentiation strategy: A strategy and organizations uses to build competitive advantage by being unique in its industry or market segment along one or more dimensions - Functional strategies: Strategies implemented by each functional area of the organization to support the organization's business strategy

The aim of ethics is to identify both the rules that should govern people's behavior and the "goods" that are worth seeking - Ethical issue: Situation, problem, or opportunity in which an individual must choose among several actions that must be evaluated as morally right or wrong - Business ethics: The moral principles and standards that guide behavior in the world of business Moral Philosophy: The principles, rules, and values people use in deciding what is right or wrong Despite the simplicity of the definition, application is more complex How do you decide what is right and wrong? Do you know what criteria you apply and how to apply them? Universalism: The ethical system stating that all people should uphold certain values that society needs to function For example, rules against: Murder, Deceit, Torture, Oppression Egoism: An ethical system defining acceptable behavior as that which maximizes consequences for the individual - Doing what promotes the greatest good for oneself - Similar to Adam Smith's invisible hand--if every organization acts in its own economic self-interest, the total wealth of society will be maximized Utilitarianism: An ethical system stating that the greatest good for the greatest number should be the overriding concern of decision makers Relativism: A philosophy that bases ethical behavior on the opinions and behaviors of relevant other people - Relativism acknowledges the existence of different ethical viewpoints - Norms--standards of expected and acceptable behavior--vary from culture to culture

Classification of people based on their level of moral judgment - Preconventional stage: Decisions based on concrete rewards and punishments and immediate self-interest Conventional stageConformance to the expectations of ethical behavior held by groups or institutions such as society - Principled stage: Broader perspective in which individuals see beyond authority, laws, and norms and follow their self-chosen ethical principles

Corporate social responsibility is the obligation toward society assumed by business. - Contrasting views- Profit maximization versus the social good - Reconciliation- Integration of social responsibility with corporate strategy

exporting - franchising - joint ventures - wholly owned subsidiaries

Organization chart: The reporting structure and division of labor in an organization - Division of labor: The assignment of different tasks to different people or groups - Specialization: A process in which different individuals and units perform different tasks - Coordination: The procedures that link the various parts of an organization for the purpose of achieving the organization's overall mission

vertical structure authority in organizations hierarchal levels span of control delegation decentralization - horizontal structure the functional organization the divisional organization the matrix organization the network organization

Employment at will: The legal concept that an employee may be terminated for any reason - 1938 Fair Labor Standards Act: Creates exempt and nonexempt employees with respect to overtime pay - 1964 Civil Rights Act: Prohibits discrimination based on race, sex, color, national origin, and religion - Title VII of the Civil Rights Act: Prohibits discrimination in recruiting, hiring, discharge, promotion, compensation, and access to training - 1990 Americans with Disabilities Act: Prohibits employment discrimination against people with disabilities - 1991 Civil Rights Act: Strengthened protections and permitted punitive damages to be imposed on violators - Adverse impact: When a seemingly neutral employment practice has a disproportionately negative effect on a protected group - 1967 Age Discrimination in Employment Act: Prohibits discrimination against people over 40 - 1989 Worker Adjustment and Retraining Notification Act: Requires 60 days advance warning of plant closings or massive layoffs

Charismatic Leadership: A person who is dominant, self-confident, convinced of the moral righteousness of his or her beliefs, and able to arouse a sense of excitement and adventure in followers - Transformational Leaders: Leaders who motivates people to transcend their personal interests for the good of the group - Transactional Leaders: Leaders who manage through transactions using their legitimate, reward, and coercive powers to give commands and exchange rewards for services rendered

Motivation: Forces that energize, direct, and sustain a person's efforts Managers must motivate people to Join the organization Remain in the organizationCome to work regularly Perform including high output and high quality Exhibit good citizenship Goal-setting theory: A motivation theory stating that people have conscious goals that energize them and direct their thoughts and behaviors toward a particular end. Goals that motivate have certain characteristics: Meaningful Acceptable to employees Challenging but attainable Reinforcement Theory of Motivation: Behavior that is followed by positive consequences probably will be repeated. Organizational behavior modification (OB Mod): The application of reinforcement theory in organizational settings

A theory proposing that people will behave based on their perceived likelihood that their effort will lead to a certain outcome and on how highly they value that outcome

Alderfer's ERG Theory: Existence needs:All material and physiological desires Relatedness needs: Involves relationships with other people and are satisfied through the process of mutually sharing thoughts and feelings Growth needs: Motivate people to productively or creatively change themselves or their environment Maslow's Need Hierarchy: A conception of human needs organizing needs into a hierarchy of five major types McClelland Need Theory:Need for achievement: Characterized by a strong orientation toward accomplishment and an obsession with success and goal attainment Need for affiliation: Reflects a strong desire to be liked by other people Need for power: A desire to influence or control other people Can be a negative force--personalized power--if expressed through manipulation and exploitation Can be a positive motive--socialized power--if channeled toward constructive improvement of organizations or societies

Describes two factors affecting people's work motivation and satisfaction Hygiene factors are characteristics of the workplace Motivators are factors that make a job more motivating such as additional job responsibilities, opportunities for personal growth and recognition, and feelings of achievement

Extrinsic rewards: Rewards given to a person by the boss, the company, or some other person - Intrinsic rewards: Rewards a worker derives directly from performing the job itself - Job rotation: Changing from one routine task to another to alleviate boredom - Job enlargement: Giving people additional tasks at the same time to alleviate boredom

Team Skill: Skills required include functional expertise/ technical skill, problem-solving and decision- making skills, and interpersonal skills Team formation stages: Forming :Group members attempt to lay the ground rules for what types of behavior are acceptable Storming: Hostilities and conflict arise and people jockey for positions of power and status Norming: Group members agree on their shared goals and norms and closer relationships develop Performing: The group channels its energies into performing its tasks Team Performance Factors: Size (numbers of members), Norms (shared expectations), Cohesiveness (bondage), Member composition (extent of similar background: age, education, experience, nationality. Etc. ; homogenous/ hetrogenous) Team ( or Individual) Conflict can arise among groups and teams. Strategies to Resolve: Avoidance: A reaction to conflict that involves ignoring the problem by doing nothing at all or deemphasizing the disagreement Accommodation: A style of dealing with conflict involving cooperation on behalf of the other party but not being assertive about one's own interest Compromise: A style of dealing with conflict involving moderate attention to both parties concerns Competing: A style of dealing with conflict involving strong focus on one's own goals and little or no concern for the other person's goals Collaboration: A style of dealing with conflict emphasizing both cooperation and assertiveness in order to maximize both parties' satisfaction

bureaucratic control - market control - clan control

Feedback control Concurrent control Feedforward control

Auditing (Management, Internal, External) Budgeting (Sales, Production, Cash, Cost, Capital, Master) Method: Activity based costing, Accounting Audit Financial Control: Balance sheet, Profit and Loss statement, Financial Ratios Balance Scorecard: Financial, Customer, Internal Business Process, Learning and Growth

Transfer Pricing, Industry wage / salary, market share and growth, etc.

Culture and Empowerment,

What is financial accounting? Difference between financial, managerial and tax accounting Who uses financial accounting? Who makes the rules for financial accounting (GAAP) Organizations involved in formulating rules

• Entity • Going concern • Monetary • Realization • Matching • Materiality • Conservatism

What's a debit? What's a credit? Assets, expenses increase with ....... Liabilities, owners' equity, revenues increase with......

• Journal • Ledger • Trial balance • Adjusting entries • Adjusted trial balance • Closing entries • Financial statements

• Balance Sheet- Assets, Liabilities, Owners' Equity • Income Statement-Revenues, gains, expenses, losses • Statement of owners' equity • Statement of cash flows - Cash from operating, investing, financing activities

• Accounts Receivable - money owed to the company from sales • Accounting for bad debts - Direct Write off - Allowance method: percentage of sales or percentage of receivables • Inventory - FIFO, LIFO, Average - Lower of Cost or Market

• Acquisition costs • Depreciation - Straight Line and Accelerated Depreciation methods - MACRS for tax • Repairs and Maintenance • Intangible Assets - Amortization : definite or indefinite lives

• Types of bonds • Issue of bonds - Discount or premium • Interest expense - Effect of premium or discount amortization

Preferred Stock Common Stock - Par value and legal capital Retained earnings (contributed capital vs. retained earnings) Treasury stock Dividends - cash and stock dividends Stock split

• Liquidity • Profitability • Solvency • Market related ratios

Market efficiency - championed in the efficient market hypothesis (EMH), a theory that security prices correctly measure the firm's future earnings and dividends that investor should not consistently outperform the market on a risk-adjusted basis. There are three different forms of efficient market hypotheses.

1. Strong efficiency - Content that stock prices fully reflect all information from public and private sources. Strong-form EMH extends the assumption of efficient markets, in which prices adjust rapidly to the release of new public information to assume perfect markets in which all information is cost-free and available to everyone at the same time. 2. Semi-strong efficiency - Assert that security price adjust rapidly to the release of all public information. Public information also includes all nonmarket information, such as earnings and dividend announcements, price-to-earning (P/E) rations, dividend-yield (D/P) rations, price-book value (P/BV) rations, stock splits, news about the economy and political news. 3. Weak efficiency - Assume that current stock prices fully reflect all security market information including the historical sequence of prices, rates of return, trading volume data, and other market-generated information such as add-lot transactions, block trades and transactions by exchange specialists.

o Intrinsic value is the valuation of the security. o Market price is the price establish by supply and demand in the market place.

These ratios measure how fast you can convert current assets and current liabilities. What does liquidity ratio measure? How soon you can PAY OFF LIABILITIES. Basically, they measure the company's ability to pay SHORT TERM DEBT. This does NOT measure the ability to pay total debt, however; only SHORT TERM debt.

Asset Management Ratios attempt to measure the firm's success in managing its assets to generate sales. For example, these ratios can provide insight into the success of the firm's credit policy and inventory management. The notion behind this is that we shouldn't over invest in anything; we should be balanced

Debt Management Ratios attempt to measure the firm's use of Financial Leverage and ability to avoid financial distress in the long run. These ratios are also known as Long-Term Solvency Ratios. Debt is called Financial Leverage because the use of debt can improve returns to stockholders in good years and increase their losses in bad years. Debt generally represents a fixed cost of financing to a firm. Thus, if the firm can earn more on assets which are financed with debt than the cost of servicing the debt then these additional earnings will flow through to the stockholders. Moreover, our tax law favors debt as a source of financing since interest expense is tax deductible. With the use of debt also comes the possibility of financial distress and bankruptcy. The amount of debt that a firm can utilize is dictated to a great extent by the characteristics of the firm's industry. Firms which are in industries with volatile sales and cash flows cannot utilize debt to the same extent as firms in industries with stable sales and cash flows. Thus, the optimal mix of debt for a firm involves a tradeoff between the benefits of leverage and possibility of financial distress.

Profitability Ratios attempt to measure the firm's success in generating income. These ratios reflect the combined effects of the firm's asset and debt management.

Market Value Ratios relate an observable market value, the stock price, to book values obtained from the firm's financial statements.

The P/E Ratio indicates how much investors are willing to pay per dollar of current earnings. As such, high P/E Ratios are associated with growth stocks. (Investors who are willing to pay a high price for a dollar of current earnings obviously expect high earnings in the future.) In this manner, the P/E Ratio also indicates how expensive a particular stock is. This ratio is not meaningful, however, if the firm has very little or negative earnings.

Measure of the risk (volatility) of a portfolio, it is a combination of the return variance and co-variance of each securityand its proportion in that portfolio not just the weighted average of all security variances.

Called income valuation or the discounted cash flow (DCF) method, involves discounting of the profits (dividends, earnings, or cash flows) the stock will bring to the stockholder in the foreseeable future, and a final value on disposition.

Ø Capital Budgeting: Capital Budgeting is the process by which the firm decides which long-term investments to make. Capital Budgeting projects, i.e., potential long-term investments, are expected to generate cash flows over several years. The decision to accept or reject a Capital Budgeting project depends on an analysis of the cash flows generated by the project and its cost. Ø There are 7 steps for capital budgeting process: § Establish Goals § Develop strategy § Search for investment opportunities § Evaluate investment opportunities § Select investment § Implement and monitor § Post-audit

Ø A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt

Ø A stock split or stock divide increases the number of shares in a public company. The price is adjusted such that the before and after market capitalization of the company remains the same and dilution does not occur. Options and warrants are included. Theoretically speaking, stock splits should not have any impact on stock prices. The size of the pie remains constant, except the pieces increase.

Ø In finance, capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. According to capital structure theories, the relation between a company's debt ratio and the company's value is the up-side down U shaped curve. In the beginning, the firm's value goes up as the debt ratio increases, but only up to a certain point. As the debt ratio goes over the OPTIMAL ratio, the firm's value starts decreasing. After that point, the marginal costs of using debt exceed the marginal benefits of using debt. Ø The optimal debt ratio will maximize the firm's valus and minimize the weighted average cost of capital.

Ø is the process of determining the fair price of a bond. As with any security or capital investment, the fair value of a bond is the present value of the stream of cash flows it is expected to generate. Hence, the price or value of a bond is determined by discounting the bond's expected cash flows to the present using the appropriate discount rate.

Ø when interest rates rise, the prices of outstanding bonds fall; when rates fall, prices rise. Though this relation might not seem obvious at first, the reasons are fairly simple.

Ø Bonds can be priced at a premium, discount, or at par. If the bond's price is higher than its par value, it will sell at a premium because its interest rate is higher than current prevailing rates. If the bond's price is lower than its par value, the bond will sell at a discount because its interest rate is lower than current prevailing interest rates.

Ø A zero-coupon bond (also called a discount bond or deep discount bond) is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity. It does not make periodic interest payments, or so-called "coupons," hence the term zero-coupon bond

Ø Internal rate of return (IRR) is a discount rate frequently used in capital budgeting. Typically, the higher internal rate of return of a project, the higher it would be considered, and the more willing the company would be to undertake it. If a project's internal rate of return is higher than its cost of capital, that indicates that the organization deems it as having overall positive value. Ø Internal rate of return (IRR) is the rate of return produced by each dollar for the amount of time that dollar is in the investment.

Ø The Fisher equation in financial mathematics and economics estimates the relationship between nominal and real interest rates under inflation. Ø It is named after Irving Fisher who was famous for his works on the theory of interest. In finance, the Fisher equation is primarily used in YTM calculations of bonds or IRR calculations of investments.

Ø Working capital, also known as net working capital, is a financial metric which represents operating liquidity available to a business. Ø It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit

Ø Capital Asset Pricing Model (CAPM) is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk.

Ø Market liquidity is a business, economics or investment term that refers to an asset's ability to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value. Money, or cash on hand, is the most liquid asset. An act of exchange of a less liquid asset with a more liquid asset is called liquidation. Liquidity also refers both to that quality of a business which enables it to meet its payment obligations, in terms of possessing sufficient liquid assets, and to such assets themselves

Ø Current asset management involves managing cash, accounts receivable, and inventories in an organization. Accounts receivable is the net monetary value realized by an organization through sales. Ø An efficient inventory management framework seeks to optimize the available resources towards enhancing the productivity levels. The paper examines the dynamics of current asset management.

To provide information useful in making economic decisions.

investors, managers, economists, bankers, labor leaders, the government, owners, employees, creditors

The area of accounting which leads ot reports and summaries for internal use by managementot help management make day ot day operating decisions as wel as long-term planning decisions.

the area of accounting which produces external reports for external users of financial information. it leads to the 3 primary financial statements: the income statement, the balance statement, and the statement of cash flows

so financial statements will be relevant, reliable, and comparable

By receiving substantial authoritative support, such sa from hte FASB, SEC and other authoritative bodies. Also, through usage and custom.

a professional organization of CPAs that works ot promote and improve hte accounting profession.

a subgroup of the AICPA which was formed to examine problems areas in accounting and issue opinions which would improve financial reporting, narrow areas of differences and reduce inconsistencies. the APB issued 31 opinions. was replaced by the FASB in 1973

a federal government agency that regulates financial reporting of companies whose securities are registered for trading on national and regional securities exchanges. Companies subject to SEC jurisdiction must follow regulation S-X and Accounting Series Releases (ASRs).

an independent body which replaced the APB. FASB issues accounting standards (which are GAAP by definition).

an organization of accounting educators that periodically issues accounting research studies.

the assets and liabilities of an accounting entity are accounted for separately from the assets and liabilities of its owners. The business or economic entity is viewed as a separate accounting entity.

assumes the accounting entity will continue in operation long enough to fulfill its existing commitments. this assumptions prevails unless there is compelling evidence to the contrary, such as impending liquidation and/or bankruptcy.

The basic measuring unit for financial reporting is the dollar. This principle assumes the dollar is a stable unit of value, an assumption that is recognized as invalid due to inflation.

SENIOR SEMINAR REVIEW FROM SLIDES

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