4 - 27 ENTREPRENEURS INNOVATE ORGANIZE RESOURCES FOR PRODUCTION TAKE RISKS KEEP PROFITS
4 - 28 OBJECTIVE HOW ARE BUSINESS FIRMS ORGANIZED?
4 - 29 Types of Business Firms Sole Proprietorship: Owned by a single individual Partnership: Two or more people own and manage a business Corporation: A fictitious legal person separate and distinct from its owners
4 - 31 Types of Business Firms Sole Proprietorship: Owned by a single individual Advantages –Easy and inexpensive to establish –Owners have complete control of business Disadvantages –Limited resources –Unlimited liability
4 - 33 Types of Business Firms Partnership: Two or more people own and manage a business Advantages –Easy and inexpensive to establish –Access to greater resources –More specialization Disadvantages –Limited life –Unlimited liability –Shared control –Split profits
4 - 35 Types of Business Firms Corporation: A fictitious legal person separate and distinct from its owners Advantages –Limited liability –Unlimited life –Unlimited access to resources Disadvantages –Shared profits (dividends) –Double taxation –Lack of control
4 - 36 OBJECTIVE HOW ARE BUSINESS FIRMS FINANCED?
4 - 37 Business Finance Retained Earnings –Revenue not kept as profits but instead reinvested in the company Commercial Paper –Loans from Banks. Bonds –Loans from Individuals Stock –Selling Ownership by Going Public
4 - 38 Business Finance Retained Earnings –Revenue not kept as profits but instead reinvested in the company Commercial Paper –Loans from Banks. Bonds –Loans from Individuals Stock –Selling Ownership by Going Public
4 - 39 The Economic Functions of the Stock Market
4 - 41 Each share of the stock represents partial ownership in the firm. People buy the stock of a corporation : get future dividends paid from corporate earnings capital gains derived from increases in share prices. Stockholders may resell their shares on the market, but resales do not put any money in the hands of the corporation.
4 - 42 Stock Prices 52- Wk High 52-Wk Low Name (Symbol)DivVolYldP/ELastNet Chg 21.508.00 SkyHighCorp (SHC) 31437621.25+.25 47.0031.75 LowDownInc (LDI) 2.3527355.71841.00–.50 25.0021.00 ValueNowInc (VNI) 1.0018944.51222.00+.10 83.0033.00 DoinBadlyCorp (DBC) 760133.50–.75 The table below shows a sample stock table. Each item gives you some clues about the current state of affairs for a particular company.
4 - 43 Investors u Long term u Income and growth u Fundamental analysis u Quantitative: u dividends, assets, earnings u Qualitative: u Management, product, market
4 - 52 Copyright McGraw-Hill/Irwin, 2002 BACK END TRADITIONAL BARTER TRANSACTION COSTS COINCIDENCE OF WANTS CAPITALISM PRIVATE PROPERTY LAISSEZ FAIRE ENTREPRENEUR INVENTION INNOVATION MASS PRODUCTION DIVISION OF LABOR SPECIALIZATION CIRCULAR FLOW FINANCIAL CAPITAL CONSUMER SOVEREIGNTY HOUSEHOLD RESOURCE MARKET PRODUCT MARKET REVENUE INCOME WAGES, RENT, INTEREST BUSINESS FIRM LIABILITY SOLE PROPRIETORSHIP PARTNERSHIP CORPORATION BOARD OF DIRECTORS CEO, CIO, COO, and CFO REINVESTMENT COMMERCIAL PAPER BOND PUBLIC OFFERING UNDERWRITER STOCK CAPITAL GAIN DIVIDEND FUNDAMENTAL ANALYSIS TECHNICAL ANALYSIS INVESTOR SPECULATOR SHORT SELL