Objetivos, elementos y funciones la empresa y el empresario



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Economic order quantity.- Its the level of inventory that minimizes the total inventory holding costs and ordering costs.

  • Variables.-

    1. Q = order quantity

    2. Q* = optimal order quantity

    3. D = annual demand quantity of the product

    4. P = purchase cost per unit

    5. S = fixed cost per order (not per unit, in addition to unit cost)

    6. H = annual holding cost per unit (also known as carrying cost or storage cost) (warehouse space, refrigeration, insurance, etc. usually not related to the unit cost)

  • Formula.-

    1. Q* = sqrt (2DS : H)

  • EXTERNALITIES.-

    1. Definition of externality.- An externality (or transaction spillover) is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit. A benefit in this case is called a positive externality or external benefit, while a cost is called a negative externality or external cost.

    2. Prices do not reflect the full costs or benefits.- In these cases in a competitive market, prices do not reflect the full costs or benefits of producing or consuming a product or service, producers and consumers may either not bear all of the costs or not reap all of the benefits of the economic activity, and too much or too little of the good will be produced or consumed in terms of overall costs and benefits to society. For example, manufacturing that causes air pollution imposes costs on the whole society, while fire-proofing a home improves the fire safety of neighbors.

    3. Overproduced.- If there exist external costs such as pollution, the good will be overproduced by a competitive market, as the producer does not take into account the external costs when producing the good. If there are external benefits, such as in areas of education or public safety, too little of the good would be produced by private markets as producers and buyers do not take into account the external benefits to others. Here, overall cost and benefit to society is defined as the sum of the economic benefits and costs for all parties involved.

    4. Types of externalities.-

      1. Negative externality.- A negative externality is an action of a product on consumers that imposes a negative side effect on a third party. Many negative externalities (also called "external costs" or "external diseconomies") are related to the environmental consequences of production and use.

      2. Positive externalities.- One example can be a beekeeper keeps the bees for their honey. A side effect or externality associated with his activity is the pollination of surrounding crops by the bees. The value generated by the pollination may be more important than the value of the harvested honey.

      3. Positive externalities.-

        1. Positional externalities.- Positional externalities refer to a special type of externality that depends on the relative rankings of actors in a situation. Because every actor is attempting to "one up" other actors, the consequences are unintended and economically inefficient.

        2. Example.- One example is the phenomenon of "over-education" (referring to post-secondary education) in the North American labour market. In the 1960s, many young middle-class North Americans prepared for their careers by completing a bachelor's degree. However, by the 1990s, many people from the same social milieu were completing master's degrees, hoping to "one up" the other competitors in the job market by signalling their higher quality as potential employees. By the 2000s, some jobs which had previously only demanded bachelor's degrees, such as policy analysis posts, were requiring master's degrees. Some economists argue that this increase in educational requirements was above that which was efficient, and that it was a misuse of the societal and personal resources that go into the completion of these master's degrees.

        3. Solution.- One solution to such externalities is regulations imposed by an outside authority. The government might pass a law against firms requiring master's degrees unless the job actually required these advanced skills.

      4. Possible solutions.-

        1. Criminalization.- As with prostitution, addictive drugs, commercial fraud, and many types of environmental and public health laws.

        2. Civil Tort law.- For example, class action by smokers, various product liability suits.

        3. Government provision.- As with lighthouses, education, and national defense.

        4. Taxes and subsidies.- To impose taxes or to give subsidies that are equal in value to the negative externality.

        5. Agreement.- However, the most common type of solution is tacit agreement through the political process (agreement is mutually beneficial).

    TOPIC 8.- COMMERCIAL (MARKETING)

    1. CONCEPT AND TYPES OF MARKETS.-

      1. Concept of market.- The concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. Market participants consist of all the buyers and sellers of a good who influence its price. The market facilitates trade and enables the distribution and allocation of resources in a society. Markets allow any tradable item to be evaluated and priced.

      2. Types of markets.-

        1. According to the type of goods.-

          1. Goods and services market.-

          2. Factor market.- A "Factor market" refers to markets where the factors of production are bought and sold.

            1. Labour market

            2. Capital market

        2. According to the intervention of the government.-

          1. Free market.- A free market is a market without economic intervention and regulation by government except to enforce ownership ("property rights") and contracts

          2. Controlled market.- In a controlled market the government regulates how the means of production, goods, and services are used, priced, or distributed

        3. According to the knowledge of the buying and selling conditions.-

          1. Transparent market.- A market is transparent if much is known by many about: what products, services or capital assets are available, what price, where, etc.

          2. Non transparent market.-

        4. According to the product.-

          1. Perfect market.- The products are homogeneous

          2. Imperfect market.- The products are different

        5. According to the participants.-

          1. Open market.- An open market refers to a market which is accessible to all economic actors. In an open market so defined, all economic actors have an equal opportunity of entry in that market.

          2. Protected market.- In a protected market the entry is conditional on certain financial and legal requirements or which is subject to tarriff barriers, taxes, levies or state subsidies which effectively prevent some economic actors from participating in them

        6. According to the degree of elaboration of the product.-

          1. Market of no elaborate products

          2. Market of elaborate products

        7. According to the buyer’s links with the channels of distribution.-

          1. Wholesaler markets

          2. Retailer markets

        8. According to the number of buyers and sellers.-

          BUYERS

          SELLERS

          MANY

          FEW

          ONE

          MANY

          Perfect competition (homogeneous, tomatoes)

          Monopolistic competition (different, restaurants)

          Low prices


          Oligopoly (oil)

          High prices



          Monopoly (Sevilla-Aracena buses)

          High prices



          FEW

          Oligopsony (the firms that sell to the hypermarkets)

          High prices



          Bilateral oligopoly (fencing equipment)

          Limited monopoly (a firm that produce a very expensive machine that just a few hospitals can acquire it)

          ONE

          Monopsony (firms that produce hubcap to Ford)

          Low prices



          Limited monopsony (firms that sell to the NASA components to its space shuttles)

          Bilateral monopoly (a firm that produce a new good that just the NASA needs)

        9. According to the number of buyers and sellers and the product.-

          1. Perfect competition.- Many buyers and sellers and homogeneous products

          2. Imperfect competition.-

            1. Monopolistic competition.- Many sellers and different products

            2. Oligopoly.- Few sellers and few differences in the products

            3. Monopoly.- One seller and there isn’t any substitute to the product

        10. According to the type and applications of the product

          1. B2C Markets (Consumer markets)

          2. B2B Markets (Industrial markets)

      3. The main features of the B2B selling process are:

        1. One-to-one.- Marketing is one-to-one in nature. It is relatively easy for the seller to identify a prospective customer and to build a face-to-face relationship.

        2. Value.- High value considered purchase.

        3. Buying team.- Purchase decision is typically made by a group of people ("buying team") not one person.

        4. Complex.- Often the buying/selling process is complex and includes many stages (for example; request for expression of interest, request for tender, selection process, awarding of tender, contract negotiations, and signing of final contract).

        5. Long processes.- Selling activities involve long processes of prospecting, qualifying, wooing, making representations, preparing tenders, developing strategies and contract negotiations.

      4. The main features of the B2C selling process are:

        1. One-to-many.- Marketing is one-to-many in nature. It is not practical for sellers to individually identify the prospective customers nor meet them face-to-face.

        2. Value.- Lower value of purchase.

        3. Impulsive decision.- Decision making is quite often impulsive (spur of the moment) in nature.

        4. Reliance.- Greater reliance on distribution (getting into retail outlets).

        5. Branding.- More reliance on branding.

        6. Media.- Higher use of main media (television, radio, print media) advertising to build the brand and to achieve top of mind awareness

      5. The wholesale markets’ behaviour.-

        1. What is the decision of purchase of the wholesale markets?.- Normally it’s the outcome of a long process

        2. What is the demand of the wholesale markets?.- The demand of the organizaciones depends on the demand of the other shorter buyers (derived demand)

        3. How do the prices’ fluctuation influence on the wholesale markets?.- They influence very little in the demand of this firms (they have an inelastic demand)

        4. Is it easy the entry of other wholesale markets in the market?.- In closed markets, the demand is very concentrated, therefore it’s difficult the entry of other organizaciones

        5. What is the volume of purchase of the wholesale markets?.- It’s is very high and it involve a formula to select the customers

        6. How is the final decision to purchase the wholesale markets made?.- The final decision of purchase normally is a team decision, it means, it isn’t the responsability of only one person

      6. Perfect competition.-

        1. Definition.- In neoclassical economics and microeconomics, perfect competition describes the perfect being a market in which there are many small firms, all producing homogeneous goods

        2. Characteristics.-

          1. Many buyers/Many Sellers – Many consumers with the willingness and ability to buy the product at a certain price. Many producers with the willingness and ability to supply the product at a certain price.

          2. Low-Entry/Exit Barriers – It is relatively easy to enter or exit as a business in a perfectly competitive market.

          3. Perfect Information - For both consumers and producers.

          4. Firms Aim to Maximize Profits - Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit.

          5. Homogeneous Products – The characteristics of any given market good or service do not vary across suppliers

    2. MARKET RESEARCH TECHNIQUES.-

      1. Market research aim.- Market research is any organized effort to gather information about markets or customers

      2. Steps that could do an enterprise to analyze the market.-

        1. Provide secondary and or primary data.- If necessary

        2. Analyze Macro & Micro Economic data.- Supply & Demand, GDP, Price change, Economic growth, Sales by sector/industries, interest rate, CPI, Social anlysis, etc.

        3. Implement the marketing mix concept.- Which is consist of: Place, Price, Product, Promotion, People, Process, Physical Evidence and also Political & social situation to analyze global market situation

        4. Analyze market trends, growth, market size, market share, market competition.- Drivers of customers loyalty and satisfaction, brand perception, satisfaction levels, current competitor-channel relationship analysis, etc.

        5. Determine market segment, market target, market forecast and market position.-

        6. Formulating market strategy & also investigating the possibility of partnership/ collaboration.-

        7. Combine those analysis with the business plan/ business model analysis.- Business description, Business process, Business strategy, Revenue model, Business expansion, Return of Investment, Financial analysis (Company History, Financial assumption, Cost/Benefit Analysis, Projected profit & Loss, Cashflow, Balance sheet & business Ratio,etc.)

      3. Type of data for the market research.-

        1. Primary data.- Primary data are collected by the investigator conducting the research

        2. Secondary data.- Secondary data is data collected by someone other than the user. Common sources of secondary data for social science include censuses, surveys, organizational records and data collected through qualitative methodologies or qualitative research.

      4. Ways to obtain primary data.- (click here to know more about the ways to obtain primary data)

        1. Surveys.-

          1. Telephone.-

          2. Mail.-

          3. Online surveys.-

          4. Personal in home survey.-

          5. Personal mall intercept survey.-

        2. Observation.- Observation is an activity consisting of receiving knowledge of the outside world through the senses, or the recording of data using scientific instruments. The term may also refer to any data collected during this activity.

        3. Experimentation.- The outcomes are observed in a laboratory environment.

      5. Consumer panels.- (click here to know more about consumer panels)

        1. Definition.- Consumer Panels are a research technique for measuring markets that use the same sample of respondents on a continuous basis.

    3. CONSUMER ANALYSIS AND MARKET SEGMENTATION.-

      1. Commercial (marketing).- Designs the product, assigns the prices and chooses the most appropriate channels of distribution and techniques of communication in order to launch a product that will satisfy truly the needs of the costumers. These tools are also known as Grundy's Four P's: product, price, distribution or place and advertising or promotion.

      2. Marketing plan.- A marketing plan is a written document that details the necessary actions to achieve one or more marketing objectives. It can be for a product or service, a brand, or a product line. Marketing plans cover between one and five years. A marketing plan may be part of an overall business plan. Solid marketign strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of little use.

      3. Types of utilities.-

        1. Utility of shape.- It’s to give to the product a more practical presentation. For example, a packed product could be more useful that another that isn’t

        2. Utility of time and space.- It’s to sell the product in the adecuate time and place. For example, it’s to sell snow chains in a petrol station located just before a mountain pass

        3. Utility of possession.- It’s to facilitate the possesion of the product to the costumer as early as possible. For example, by means of the postponed payment

          1. Utility of prestige.- It’s to have a product that we could dispense outside a determinate social group. For example, the possession of a luxurious car

      4. What must the business do in view of the external environment?.-

        1. In view of the technological innovations.- The firm must inform about the innovations and it must invest in them to be competitive.

        2. In view of the intervention of the government and the associations.- The firm must face the meddling policy of the government and the pressures of the consumers and users associations

        3. In view of the evolution of the population.- The firm must have information about this subject so it can adapt better to the changes about ages, ways of thinking, etc.

        4. In view of the economic situation of the population.- The firm must adapt to each type of consumer by offering them the product that they need. This can be reached by means of the market segmentation

        5. In view of the position of the competition.- The firm must have information about the competition to know what the others offer

      5. Main role of the market.- To allow to buyers and sellers to exchange any type of goods, services and information.

      6. Competitor analysis.- A common technique is to create detailed profiles on each of your major competitors. These profiles give an in-depth description of the competitor's background, finances, products, markets, facilities, personnel, and strategies.

      7. Market segmentation.-

        1. Definition.- Market segmentation is a concept in economics and marketing. A market segment is a sub-set of a market made up of people or organizations sharing with one or more characteristics that cause them to demand similar product and/or services based on qualities of those products such as price or function.

        2. Criteria.- A true market segment meets all of the following criteria: 1) it is distinct from other segments (different segments have different needs), 2) it is homogeneous within the segment (exhibits common needs); 3) it responds similarly to a market stimulus, and 4) it can be reached by a market intervention.

        3. Amounts.- The term is also used when consumers with identical product and/or service needs are divided up into groups so they can be charged different amounts. These can broadly be viewed as 'positive' and 'negative' applications of the same idea, splitting up the market into smaller groups.

        4. Examples.- Age, gender, price, interests, etc.

        5. Commercial advantage.- While there may be theoretically 'ideal' market segments, in reality every organization engaged in a market will develop different ways of imagining market segments, and create product differentiation strategies to exploit these segments. The market segmentation and corresponding product differentiation strategy can give a firm a temporary commercial advantage.

        6. Industrial vs consumer market segmentation.- Industrial market segmentation is quite different from consumer market segmentation but both have similar objectives

        7. Benefits.-

          1. Opportunities.- Marketers are in a better position to locate and compare marketing opportunities

          2. Programs.- Marketers can easily and effectively formulate and implement marketing programs

          3. Adjustments.- Marketers can make finer adjustments in their products and marketing communications

          4. Assess.- Competitive strengths and weaknesses can be assessed effectively

          5. Utilisation.- Segmentation leads to more effective utilisation of marketing resources

    4. MARKETING-MIX AND STRATEGIES.-

      1. Elements of the marketing mix.- Elements of the marketing mix are often referred to as 'the four Ps': product, price, place and promotion

      2. The product.-

        1. Components of the total product.-

          1. The basic product.- It’s the essential nature of the product

          2. Formal and tangible aspects.- It’s the added value that the product has thanks to the brand, the quality, the style, the design, the container, etc.

          3. Increased aspects.- Each additional service that the firm gives to the costumer: customer service, financing, warranty, etc

        2. The brand.-

          1. Definition.- A brand is the identity of a specific product or service. A brand can take many forms, including a name, sign, symbol, color combination or slogan. The word brand began simply as a way to tell one person's cattle from another by means of a hot iron stamp. A legally protected brand name is called a trademark. The word brand has continued to evolve to encompass identity - it affect the personality of a product, company or service

          2. Types of brand names.-

            1. Acronym: A name made of initials such as UPS or IBM

            2. Descriptive: Names that describe a product benefit or function like Airbus

            3. Alliteration and rhyme: Names that are fun to say and stick in the mind like Reese's Pieces or Dunkin' Donuts

            4. Evocative: Names that evoke a relevant vivid image like Amazon or Crest

            5. Neologisms: Completely made-up words like Wii or Kodak

            6. Foreign word: Adoption of a word from another language like Volvo or Samsung

            7. Founders' names: Using the names of real people like Hewlett-Packard or Disney

            8. Geography: Many brands are named for regions and landmarks like Cisco and Fuji Film

            9. Personification: Many brands take their names from myth like Nike or from the minds of ad execs like Betty Crocker

          3. Branding approaches.-

            1. Company name.- In this case a very strong brand name (or company name) is made the vehicle for a range of products (for example, Mercedes-Benz or Black & Decker) or even a range of subsidiary brands (such as Cadbury Dairy Milk, Cadbury Flake or Cadbury Fingers in the United States).

            2. Individual branding.- Each brand has a separate name (such as Seven-Up or Nivea Sun (Beiersdorf)), which may even compete against other brands from the same company (for example, Persil, Omo, Surf and Lynx are all owned by Unilever).

            3. Deriver brands.- In this case the supplier of a key component, used by a number of suppliers of the end-product, may wish to guarantee its own position by promoting that component as a brand in its own right. The most frequently quoted example is Intel, which secures its position in the PC market with the slogan "Intel Inside".

            4. Brand extension.- The existing strong brand name can be used as a vehicle for new or modified products; for example, many fashion and designer companies extended brands into fragrances, shoes and accessories, home textile, home decor, luggage, sunglasses, furniture, hotels, etc.

            5. Multi-brands.- Alternatively, in a market that is fragmented amongst a number of brands a supplier can choose deliberately to launch totally new brands in apparent competition with its own existing strong brand (and often with identical product characteristics); simply to soak up some of the share of the market which will in any case go to minor brands. The rationale is that having 3 out of 12 brands in such a market will give a greater overall share than having 1 out of 10 (even if much of the share of these new brands is taken from the existing one). In its most extreme manifestation, a supplier pioneering a new market which it believes will be particularly attractive may choose immediately to launch a second brand in competition with its first, in order to pre-empt others entering the market.

            6. Private labels.- With the emergence of strong retailers, private label brands, also called own brands, or store brands, also emerged as a major factor in the marketplace. Where the retailer has a particularly strong identity (such as Marks & Spencer in the UK clothing sector) this "own brand" may be able to compete against even the strongest brand leaders, and may outperform those products that are not otherwise strongly branded

        3. The label.-

          1. Definition.- A label is a piece of paper, polymer, cloth, metal, or other material affixed to a container or article, on which is printed a legend, information concerning the product, addresses, etc. A label may also be printed directly on the container or article.

          2. Uses.- Labels have many uses: product identification, name tags, advertising, warnings, and other communication.

          3. Types.- Special types of labels called digital labels (printed through a digital printing) can also have special constructions such as radio-frequency identification RFID tags and security printing.

        4. Phases of the life of a product.-

          1. Introduction.- People begin to know the product and it doesn’t give profits yet

          2. Growth.- The product is slowly having more share market

          3. Maturity.- The share market of the product stabilizes

          4. Decline.- The product is losing share market

      3. Physical distribution or place.-

        1. Definition.- It’is an organization or set of organizations (go-betweens) involved in the process of making a product or service available for use or consumption by a consumer or business user

        2. The distribution channel.-

          1. Definition.- Chain of intermediaries, each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user.... This process is known as the 'distribution chain' or the 'channel.' Each of the elements in these chains will have their own specific needs, which the producer must take into account, along with those of the all-important end-user

          2. Available channels.-

            1. Long channel (for consumer markets).- The manufacturer, the agent, the wholesaler, the retailer and the final consumer

            2. Short channel (for industrial markets).- The manufacturer, the industrial wholesaler or the agent and the industrial customer

            3. Direct sale.- The manufacturer, the salesman and the final consumer

          3. Hotels.- Distribution channels may not be restricted to physical products alone. They may be just as important for moving a service from producer to consumer in certain sectors, since both direct and indirect channels may be used. Hotels, for example, may sell their services (typically rooms) directly or through travel agents, tour operators, airlines, tourist boards, centralized reservation systems, etc.

          4. Innovations in the distribution of services.- For example, there has been an increase in franchising and in rental services - the latter offering anything from televisions through tools. There has also been some evidence of service integration, with services linking together, particularly in the travel and tourism sectors. For example, links now exist between airlines, hotels and car rental services. In addition, there has been a significant increase in retail outlets for the service sector. Outlets such as estate agencies and building society offices are crowding out traditional grocers from major shopping areas

        3. Managerial concerns.-

          1. Channel decision.- The channel decision is very important. In theory at least, there is a form of trade-off: the cost of using intermediaries to achieve wider distribution is supposedly lower. Indeed, most consumer goods manufacturers could never justify the cost of selling direct to their consumers, except by mail order. Many suppliers seem to assume that once their product has been sold into the channel, into the beginning of the distribution chain, their job is finished. Yet that distribution chain is merely assuming a part of the supplier's responsibility; and, if they have any aspirations to be market-oriented, their job should really be extended to managing all the processes involved in that chain, until the product or service arrives with the end-user. This may involve a number of decisions on the part of the supplier:

            1. Channel membership

            2. Channel motivation

            3. Monitoring and managing channels

          2. Type of marketing channel.-

            1. Intensive distribution.- Where the majority of resellers stock the 'product' (with convenience products, for example, and particularly the brand leaders in consumer goods markets) price competition may be evident.

            2. Selective distribution.- This is the normal pattern (in both consumer and industrial markets) where 'suitable' resellers stock the product.

            3. Exclusive distribution.- Only specially selected resellers or authorized dealers (typically only one per geographical area) are allowed to sell the 'product'.

          3. Channel motivation.- It is difficult enough to motivate direct employees to provide the necessary sales and service support. Motivating the owners and employees of the independent organizations in a distribution chain requires even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is `incentive': the supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors; or a compensation is offered to the distributors' sales personnel, so that they are tempted to push the product.

          4. Monitoring and managing channels.- In much the same way that the organization's own sales and distribution activities need to be monitored and managed, so will those of the distribution chain. In practice, many organizations use a mix of different channels; in particular, they may complement a direct salesforce, with agents, covering the smaller customers and prospects. These channels show marketing strategies of an organisation. Effective management of distribution channel requires making and implementing decision in these areas.

        4. Types of intermediaries.-

          1. Sales representatives.- They either link the manufacturers and the wholesalers or the wholesalers and the retailers and they are paid with a commision according to the sales

          2. Wholesalers.- They buy from the manufacturers and sell to the retailers

          3. Retailers.- They buy from the wholesalers and sell to the final consumer

        5. Function of intermediaries.- They reduce the number of links needed to sell the products (for example, without any intermediaries, three manufacturers would need thirty links to sell their products to ten final consumers, but with an intermediary they would need only thirteen)

        6. Choice between direct distribution and indirect distribution.-

          1. Direct distribution costs = Fixed costs + Variable costs; DDC = FC + VC

          2. Indirect distribution costs = Variable costs; IDC = VC

          3. Example.- If the fixed costs of direct distribution of a manufacturer are 150,000 €, the commisions of the salesmen are 12% and the intermediaries margin is 26%, with an amount of sales of 630,000 €. What type of distribution is the best?

            1. DDC = 150,000 + (0.12 x 630,000) = 225,600 €

            2. IDC = 0.26 x 630,000 = 163,800 € (this is the best)

      4. Promotion.-

        1. Definition.- Promotion is the communication link between sellers and buyers for the purpose of influencing informing, or persuading a potential buyer's purchasing decision.

        2. Types of promotion.-

          1. Above the line promotion.- Promotion in the media (e.g. TV, radio, newspapers, Internet, Mobile Phones, and, historically, illustrated songs) in which the advertiser pays an advertising agency to place the ad

          2. Bellow the line promotion.- All other promotion. Much of this is intended to be subtle enough for the consumer to be unaware that promotion is taking place. E.g. sponsorship, product placement, sales promotion, merchandising, direct mail, personal selling, public relations, trade shows

        3. Advertising.-

          1. Definition.- Advertising is a non-personal form of communication intended to persuade an audience (viewers, readers or listeners) to purchase or take some action upon products, ideals, or services. It includes the name of a product or service and how that product or service could benefit the consumer, to persuade a target market to purchase or to consume that particular brand. These brands are usually paid for or identified through sponsors and viewed via various media.

          2. Code.- Advertisers, advertising agencies and the media agree on a code of advertising standards that they attempt to uphold. The general aim of such codes is to ensure that any advertising is 'legal, decent, honest and truthful'

          3. Aims.-

            1. To inform about the new product

            2. To persuade the consumer to buy the product

            3. To remember that the product exist

          4. Banned advertising.-

            1. The deceitful advertising

            2. The advertising that hurts the person’s dignity

            3. The subliminal advertising

            4. The disloyal advertising

        4. Sponsorship.- To sponsor something is to support an event, activity, person, or organization financially or through the provision of products or services.

        5. Product placement.- Or embedded marketing, is a form of advertisement, where branded goods or services are placed in a context usually devoid of ads, such as movies, the story line of television shows, or news programs. The product placement is often not disclosed at the time that the good or service is featured. Product placement became common in the 1980s.

        6. Sales promotion.- Media and non-media marketing communication are employed for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability. Examples include: a temporary reduction in the price, loyal reward program, coupons, etc.

        7. Merchandising.-

          1. Definition.- Merchandising is the methods, practices, and operations used to promote and sustain certain categories of commercial activity. In the broadest sense, merchandising is any practice which contributes to the sale of products to a retail consumer.

          2. Examples.- The distribution of the products in the shop, the place to put the products on the shelves, the light, the colours, the music, the temperature, etc.

        8. Direct mail.- Also known as advertising mail, junk mail, or admail, is the delivery of advertising material to recipients of postal mail

        9. Public relations (PR).- Public Relations (or PR) is a field concerned with maintaining public image for commercial businesses and organizations. Common activities include speaking at conferences, working with the media, crisis communications, social media engagement, and employee communication.

        10. Trade shows.- A trade fair (trade show or expo) is an exhibition organized so that companies in a specific industry can showcase and demonstrate their latest products, service, study activities of rivals and examine recent market trends and opportunities.

        11. Personal selling.-

          1. It’s a sale by means of a direct treatment with the buyer

          2. A type of the personal selling is the telemarketing (to sell by using the phone, fax or Internet)

      5. The price.-

        1. Pricing strategies.-

          1. Competition-based prices.- Setting the price based upon prices of the similar competitor products.

          2. Cost-plus pricing.- Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price.

          3. Creaming or skimming.- Selling a product at a high price, sacrificing high sales to gain a high profit, therefore ‘skimming’ the market. Usually employed to reimburse the cost of investment of the original research into the product – commonly used in electronic markets when a new range, such as DVD players, are firstly dispatched into the market at a high price

          4. Limit pricing.- A limit price is the price set by a monopolist to discourage economic entry into a market, and is illegal in many countries

          5. Loss leader.- This pricing strategy is illegal under EU and US Competition rules. No market leader would wish to sell below cost unless this is part of its overall strategy

          6. Market oriented pricing.- Setting a price based upon analysis and research compiled from the targeted market

          7. Penetration pricing.- The price is deliberately set at low level to gain customer's interest and establishing a foot-hold in the market

          8. Price discrimination.- Setting a different price for the same product in different segments to the market. For example, this can be for different ages or for different opening times, such as cinema tickets

          9. Premium pricing.- Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. The practice is intended to exploit the (not necessarily justifiable) tendency for buyers to assume that expensive items enjoy an exceptional reputation or represent exceptional quality and distinction

          10. Predatory pricing.- Aggressive pricing intended to drive out competitors from a market. It is illegal in some places

          11. Contribution margin-based pricing.- Contribution margin-based pricing maximizes the profit derived from an individual product, based on the difference between the product's price and variable costs (the product's contribution margin per unit), and on one’s assumptions regarding the relationship between the product’s price and the number of units that can be sold at that price. The product's contribution to total firm profit (i.e., to operating income) is maximized when a price is chosen that maximizes the following: (contribution margin per unit) X (number of units sold).

          12. Psychological pricing.- Pricing designed to have a positive psychological impact. For example, selling a product at $3.95 or $3.99, rather than $4.

          13. Dynamic pricing.- A flexible pricing mechanism made possible by advances in information technology, and employed mostly by Internet based companies. By responding to market fluctuations or large amounts of data gathered from customers - ranging from where they live to what they buy to how much they have spent on past purchases - dynamic pricing allows online companies to adjust the prices of identical goods to correspond to a customer’s willingness to pay. The airline industry is often cited as a dynamic pricing success story. In fact, it employs the technique so artfully that most of the passengers on any given airplane have paid different ticket prices for the same flight

          14. Price leadership.- An observation made of oligopic business behavior in which one company, usually the dominant competitor among several, leads the way in determining prices, the others soon following

          15. Target pricing.- Pricing method whereby the selling price of a product is calculated to produce a particular rate of return on investment for a specific volume of production. The target pricing method is used most often by public utilities, like electric and gas companies, and companies whose capital investment is high, like automobile manufacturers

          16. Absorption pricing.- Method of pricing in which all costs are recovered. The price of the product includes the variable cost of each item plus a proportionate amount of the fixed costs. A form of cost plus pricing

          17. Marginal cost pricing.- In business, the practice of setting the price of a product to equal the extra cost of producing an extra unit of output. By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labor. Businesses often set prices close to marginal cost during periods of poor sales. If, for example, an item has a marginal cost of $1.00 and a normal selling price is $2.00, the firm selling the item might wish to lower the price to $1.10 if demand has waned. The business would choose this approach because the incremental profit of 10 cents from the transaction is better than no sale at all.

      6. Marketing strategy.- Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A marketing strategy should be centered around the key concept that customer satisfaction is the main goal.

    5. MARKETING ESTRATEGIES AND BUSINESS ETHICS.-

      1. Possible frameworks of analysis for marketing ethical.- (None of these frameworks allows, by itself, a convenient and complete categorization of the great variety of issues in marketing ethics)

        1. Value-oriented framework.- Analyzing ethical problems on the basis of the values which they infringe (e.g. honesty, autonomy, privacy, transparency)

        2. Stakeholder-oriented framework.- Analysing ethical problems on the basis of whom they affect (e.g. consumers, competitors, society as a whole).

        3. Process-oriented framework.- Analysing ethical problems in terms of the categories used by marketing specialists (e.g. research, price, promotion, placement).

      2. Specific issues in marketing ethics.-

        1. Market research.- Ethical danger points in market research include: invasion of privacy and stereotyping.

        2. Market audience.- Ethical danger points include: targeting the vulnerable (e.g. children, the elderly) and excluding potential customers from the market (gay, ethnic minority and obese)

    6. MARKETING AND INFORMATION AND COMMUNICATION TECHNOLOGIES.-

      1. E-commerce.-

        1. Definition.- Electronic commerce, commonly known as e-commerce or eCommerce,or e-business consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. The amount of trade conducted electronically has grown extraordinarily with widespread Internet usage. The use of commerce is conducted in this way, spurring on innovations in electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World Wide Web at least at some point in the transaction's lifecycle, although it can encompass a wider range of technologies such as e-mail as well.

        2. B2C.- Electronic commerce that is conducted between businesses and consumers is referred to as business-to-consumer or B2C.

        3. B2B.- Electronic commerce that is conducted between businesses is referred to as business-to-business or B2B.

      2. Internet marketing.-

        1. Definition.- Also referred to as i-marketing, web-marketing, online-marketing, Search Engine Marketing (SEM) or e-Marketing, is the marketing of products or services over the Internet.

        2. Broader scope.- Internet marketing is sometimes considered to have a broader scope because it not only refers to the Internet, e-mail, and wireless media, but it includes management of digital customer data and electronic customer relationship management (ECRM) systems.

        3. Also refers.- Internet marketing also refers to the placement of media along many different stages of the customer engagement cycle through search engine marketing (SEM), search engine optimization (SEO), banner ads on specific websites, e-mail marketing, and Web 2.0 strategies

        4. E-mail marketing.- It’is a form of direct marketing which uses electronic mail as a means of communicating commercial or fundraising messages to an audience. In its broadest sense, every e-mail sent to a potential or current customer could be considered e-mail marketing

    TOPIC 9.- BUSINESS FINANCE

    1. ECONOMIC AND FINANCIAL STRUCTURE OF THE FIRM.-

      1. Structures.- The Corporate Assets are made up of an economic structure, goods and rights (the Assets); and a financial structure, liabilities (the Net worth and Liabilities)

      2. Equality.- The Assets must be the same to the Net worth plus the Liabilities because what the firm has bought (Assets) has been paid by someone (Net worth and Liabilities)

      3. Profitability.- The profitability of the Assets must be higher than the financial cost of the Net worth and the Liabilites

    2. THE INVESTMENT: DEFINITION AND TYPES.-

      1. Definition.- Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in form of interest, income, or appreciation of the value of the instrument.

      2. Types.-

        1. According to the object of the investment.-

          1. Industrial equipment

          2. Raw material

          3. Lorries, cars, boats, planes, etc.

          4. A firm or shares

        2. According to its function in the firm.-

          1. Of renovation

          2. Of expansion

          3. Of improvement and modernization

          4. Strategics

        3. According who makes the investment.-

          1. Private

          2. Public

    3. INVESTMENT ANALYSIS.-

      1. Main characteristics of an investment.- Liquidity, profitability and security

      2. Capital budgeting methods.

        Projects

        Initial outlay

        R1

        R2

        R3

        R4

        P1

        100

        60

        45







        P2

        200

        100

        50







        P3

        300

        170

        140

        20

        10

        1. Payback period.- Payback period in capital budgeting refers to the period of time required for the return on an investment to "repay" the sum of the original investment. For example, a $1000 investment which returned $500 per year would have a two year payback period. The time value of money is not taken into account. Payback period intuitively measures how long something takes to "pay for itself." All else being equal, shorter payback periods are preferable to longer payback periods. Payback period is widely used due to its ease of use despite recognized limitations. It is generally agreed that this tool for investment decisions should not be used in isolation. (years = y; months = m; days = d)

          1. X = (40 x 12) : 45 = 10.67 m

          2. x = (0.67 x 30) : 1 = 20.1 = 20 d

          3. PB1 = 1 y. 10 m. and 20 d. 1st

          4. PB2 = This project isn’t recovered 3rd

          5. x = (130 x 12) : 140 = 11.14 m

          6. x = (0.14 x 30) : 1 = 4.2 = 4 d

          7. PB3 = 1 y. 11 m. and 4 d. 2nd

        2. Net present value (NPV).- (e.g. the discount rate is 2%)

          1. Definition.- The net present value (NPV) or net present worth (NPW) of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows.

          2. Discounted.- Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore NPV is the sum of all terms

          3. Present value.- The present value is calculated by means of this formula: Rt : (1 + i)t

          4. Selection.- If there is a choice between two alternatives, the highest is the best

          5. NPV = - R0 + [R1 : (1 + i)] + [R2 : (1 + i)2] + [Rt : (1 + k)t]

          6. NPV = - R0 + ∑ [Rj : (1 + i)j]

          7. NPV1 = - 100 + (60 : 1.02) + (45 : 1.022) = - 100 + 58.82 + 43.25 = 2.07 2nd

          8. NPV2 = - 200 + (100 : 1.02) + (50 : 1.022) = - 200 + 98.04 +48.06 = - 53.9 3rd

          9. NPV3 = - 300 + (170 : 1.02) + (140 : 1.022) + (20 : 1,023) + (10 : 1,024) = 29.32 1st

        3. The internal rate of return (IRR).-

          1. Definition.- The IRR of an investment is the interest rate at which the costs of the investment lead to the benefits of the investment. This means that all gains from the investment are inherent to the time value of money and that the investment has a zero net present value at this interest rate.

          2. Acceptable.- An investment is considered acceptable if its internal rate of return is greater than the cost of capital

          3. 0 = - R0 + [R1 : (1 + r)] + [R2 : (1 + r)2] + [Rn : (1 + r)n]

          4. 0 = - R0 + ∑ [Rj : (1 + r)j]

          5. 0 = - 100 + 60 : (1 + r) + 45 : (1 + r )2

          6. if x = 1 + r

          7. 0 = - 100 + 60 : x + 45 : x2

          8. 0 = - 100 x2 + 60 x + 45

          9. x = [- b ± sqrt (b2 – 4ac)] : 2a

          10. x = [- 60 ± sqrt [602 – [4 x (-100) x 45]]] : [2 x (-100)]

          11. x = [- 60 ± sqrt (3,600 + 18,000)] : - 200

          12. x = (-60 ± 146.97) : - 200

          13. x = 1.0348; so r = 0.0348 = 3.48%; I1 = 3.48 % 2nd

          14. x = [-100 ± sqrt [1002 – [4 x (- 200) x 50]]] : [2 x (- 200)]

          15. x = [- 100 ± sqrt (10.000 + 40.000)] : - 400

          16. x = (- 100 ± 223.61) : (- 400)

          17. x = 0.8090; so r = - 0.191 = -19.1%; I2 = -19.1% 3rd

          18. I3 (more or less 8% by means of a trial and error process) = - 300 + 157.41 + 120.03 + 15.88 + 7.35 = 0.67 1st

    4. FINANCING.-

    5. Definition.- Corporate finance is an area of finance dealing with financial decisions business enterprises make and the tools and analysis used to make these decisions.

    6. TYPES AND RESOURCES OF FINANCING.-

      1. Types of financing.-

        1. According to its origin.-

          1. Internal financing.-

            1. Definition.- Internal financing is the name for a firm using its profits as a source of capital for new investment, rather than a) distributing them to firm's owners or other investors and b) obtaining capital elsewhere.

            2. They are.- They are the amortization and the reserves

          2. External financing.-

            1. Definition.- External financing consists of new money from outside of the firm brought in for investment.

            2. They are.- They are capital and liabilities

        2. According to who is the owner of the resources.-

          1. Equity.-

            1. Definition.- Equity is assets minus liabilities

            2. They are.- They are capital, amortization and reserves

          2. Liabilities.-

      2. Internal financing.-

        1. Cheap.- Internal financing is generally thought to be less expensive for the firm than external financing because the firm does not have to incur transaction costs to obtain it, nor does it have to pay the taxes associated with paying dividends.

        2. Determinant.- Many economists debate whether the availability of internal financing is an important determinant of firm investment or not. A related controversy is whether the fact that internal financing is empirically correlated with investment implies firms are credit constrained and therefore depend on internal financing for investment

        3. Financing options.- There exist several options for a company to finance itself without external help:

          1. Amortization.- Deduction of asset value narrows profit before tax

          2. Building reserves.- E.g. pension reserves

          3. Retained earnings.- Earnings are not paid to company owners

          4. Asset swaps.- Selling property or other tangible assets owned by the company

        4. Advantages of internal financing.-

          1. Capital is immediately available

          2. No interest payments

          3. No control procedures regarding creditworthiness

          4. Spares credit line

          5. No influence of third parties

        5. Disadvantages of internal financing.-

          1. Expensive because internal financing is not tax-deductible

          2. No increase of capital

          3. Not as flexible as external financing

          4. Losses (shrinking of capital) are not tax-deductible

          5. Limited in volume (volume of external financing as well is limited but there is more capital available outside - in the markets - than inside of a company)

        6. Types of internal financing.-

          1. Maintenance internal finance.- They cover the depreciation of the assets (amortization and provisions)

          2. Enrichment internal finance.- They increase the corporate assets (reserves)

      3. Depreciation.- Depreciation is the reduction in the value of an asset used for business purposes during certain amount of time due to usage, passage of time, wear and tear, technological outdating or obsolescence, depletion, inadequacy, rot, rust, decay or other such factors

      4. Annual depreciation expense.- For example, a vehicle that depreciates over 5 years, is purchased at a cost of US$17,000, and will have a salvage value of US$2000, will depreciate at US$3,000 per year: ($17,000 − $2,000)/ 5 years = $3,000 annual depreciation expense

      5. External financing composition.-

        1. Capital.-

        2. Liabilities.-

          1. Running credits.- They are short term credits and they finance the current assets

          2. Financing credits.- They are long term credits and they finance the non-current assets

      6. Share capital. The shares.-

        1. Nominal value.-

          1. Definition.- It’s the value of a share in the share certificate

          2. Formula.- NV = Share capital : Number of shares

        2. Market value.- Price of shares:

          1. Under par.- MV < NV

          2. At par.- MV = NV

          3. Over par.- MV > NV

        3. Theoretical value or book value.- It’s the price of a share according to objectives criteria

          1. Theoretical value = Net worth : Number of shares = (Capital + Reserves) : Number of shares

          2. Theoretical value = Average dividend : interest rate

      7. Types of shares.-

        1. According to the way of representation.-

          1. By means of a share certificate

          2. By means of account notations

        2. According to the type of contribution.-

          1. Monetary contribution

          2. Non monetary contribution

        3. According to its ownership.-

          1. Bearing a person’s name

          2. Bearer shares

          3. The shares must bear a person’s name:

            1. While they are not totally paid

            2. If the shareholders have agreed in the articles of association that several shareholders must give something to the firm

            3. If the shareholders have agreed in the articles of association that the shares can’t be sold freely

            4. When a Law determines it

        4. According to the political rights of the shares.-

          1. With right to vote

          2. Without right to vote (they have a granted minimum dividend of 5% or another higher according to the articles of association, in adition they will have the ordinary dividend of such shares)

        5. According to the privileges that the shares have.-

          1. Ordinaries

          2. Privileged (the Law doesn’t admit as a privelege to have an interest rate, to change the number of votes per share and the pre-emption right)

      8. Shareholder rights.-

        1. To receive dividends

        2. To participe in the corporation assets after the liquidation

        3. To have a pre-emption right

        4. To vote

        5. To receive information

        6. To contest the corporate agreements

      9. Types of shares according to the relation between their issuing value and their nominal value.-

        1. Shares issued with premium or over par.-

          1. The issuing value is higher than the nominal value

          2. Premium = issuing value – nominal value

        2. Shares issued at par.- The issuing value is the same as the nominal value

        3. Shares issued under par (shares partially or totally free).-

          1. The issuing value is lower than the nominal value or they are given for free to the existing shareholders

          2. The corporation pays the difference by using its reserves

      10. Increase in capital and pre-emption right.-

        1. Definition.- Pre-emption right is the right of existing shareholders to acquire newly issued shares issued by a company in a right issue, a usually but not always public offering.

        2. Success of the increase in capital.- So that an increase in capital is sucessfull, the issuing value of the new shares must be lower that the market value of the existing shares, because, otherwise, buying an existing share would be more profitable than buying a new one

        3. Compensation to the existing shareholders.- The pre-emption right compensates the existing shareholders for the relative loss of influence inside the corporation and for the distribution of their savings among the propietors of the new shares

        4. The buying of new shares and the pre-emption right.- To subscribe to new shares we must buy the number of pre-emption rights according to the corporate agreements (e.g. if a firm increases its capital in the proportion 1 x 3, to buy 100 shares we must buy 300 pre-emption rights, in adition)

        5. The sale of the pre-emption rights.- The propietor of existing shares who doesn't want to buy the new ones can sell his pre-emption rights in the market

        6. Pre-emption right value.- The pre-emption right value depends on the market but we can calculate a theoretical value with the following formula:

          1. R = [(Ev – Nv) x nn]: (en +nn) = [(2,500 – 2,200) x 2] : (5 + 2) = 85.7 €

          2. Example: Calculate the pre-emption theoretical value of a 2 x 5 increase in capital, if the existing shares market value is 2,500 € and the issuing value of the new ones is 2,200 €

      11. Bonds.-

        1. Definition.- A bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals.

        2. Like a loan.- Thus a bond is like a loan: the issuer is the borrower (debtor), the holder is the lender (creditor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure.

        3. Differences between bonds and stocks.- Bonds and stocks are both securities, but the major difference between the two is that stockholders have an equity stake in the company (they are owners), whereas bondholders have a creditor stake in the company (they are lenders). Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely.

        4. Types of bonds.- The following descriptions are not mutually exclusive, and more than one of them may apply to a particular bond.

          1. Fixed rate bonds.- They have a coupon that remains constant throughout the life of the bond.

          2. Floating rate notes(FRNs).- They have a variable coupon that is linked to a reference rate of interest, such as Euribor. For example the coupon may be defined as three month Euribor + 0.20%. The coupon rate is recalculated periodically, typically every one or three months.

          3. Zero-coupon bonds.- They pay no regular interest. They are issued at a substantial discount to par value, so that the interest is effectively rolled up to maturity (and usually taxed as such). The bondholder receives the full principal amount on the redemption date.

          4. Inflation linked bonds.- In which the principal amount and the interest payments are indexed to inflation. The interest rate is normally lower than for fixed rate bonds with a comparable maturity.

          5. Asset-backed securities.- They are bonds whose interest and principal payments are backed by underlying cash flows from other assets.

          6. Subordinated bonds.- They are those that have a lower priority than other bonds of the issuer in case of liquidation. In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is paid, then government taxes, etc. The first bond holders in line to be paid are those holding what is called senior bonds. After they have been paid, the subordinated bond holders are paid. As a result, the risk is higher. Therefore, subordinated bonds usually have a lower credit rating than senior bonds.

      12. The Stock exchange.-

        1. Definition.- A stock exchange is an entity which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends.

        2. Primary and secondary markets.- The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market.

        3. Comisión Nacional del Mercado de Valores.- It's an entity that oversees, inspects and controls the Spanish Stock exchange

        4. The role of Stock exchanges.-

          1. Raising capital for businesses.- The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public.

          2. Mobilizing savings for investment.- When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels of firms.

          3. Facilitating company growth.- Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.

          4. Profit sharing.- Both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses.

          5. Corporate governance.- By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies tend to have better management records than privately held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors).

          6. Creating investment opportunities for small investors.- As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares he or she can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.

          7. Barometer of the economy.- At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

      13. The financial system.-

        1. Definition of Financial system.- The financial system is the system that allows the transfer of money between savers and borrowers. It's made up of banks, savings banks, insurance companies, the stock exchange, etc.

        2. Commercial banks (typical operations).-

          1. Passive operations(to borrow money).-

            1. Current accounts

            2. Saving accounts

            3. Deposits

          2. Active operations (to lend money).-

            1. Loans.- The user receives the entire agreed amount from the beginning, obliging him to return this and all interests on certain dates established beforehand

            2. Current account credits.- The bank allows the client credit for a certain period of time and up to a determined amount, obliging the client to pay a commision and to repay the amounts desired within the stipulated time limit.

            3. Bill of exchange discount.- The bank advances a person the amount of a bill of exchange.

        3. Guarantees.-

          1. Personal guarantees.- In the financing till five years (we must be responsible with all our personal assets)

          2. In rem guarantees (mortgage or security).- In the financing over five years

        4. Factoring.- Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business. It's expensive

        5. Leasing.- Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments. At the end the user has three options: to buy the asset, to continue with the leasing or to return the asset

      14. Working capital.-

        1. Definition.- Working capital, also known as "WC", is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital.

        2. Formula.- It is calculated as current assets minus current liabilities. Working capital = Current Assets – Current Liabilities

        3. Deficit.- If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit (Current Assets can't pay Current Liabilities).

        4. Value.- It's value depends on the size and the sector of the firm





      1. The Cash Conversion Cycle.-

        1. Definition.- The Cash Conversion Cycle (CCC) measures how long a firm will be deprived of cash if it increases its investment in resources in order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth. However, shortening the CCC creates its own risks: while a firm could even achieve a negative CCC by collecting from customers before paying suppliers, a policy of strict collections and lax payments is not always sustainable.

        2. Calculation.- Cash Conversion Cycle = Raw Material Conversion Period (Warehouse Conversion Period) + Goods in Process Conversion Period (Production Conversion Period) + Finished goods Conversion Period (Sales Conversion Period) + Receivables Conversion Period = RMp + GPp + FGp + Rp

        3. Raw material Conversion Period (Warehouse Conversion Period).-

          1. Raw material rotation = n1 = Annual raw material purchases : Average raw material stock

          2. This ratio indicates the number of times that we renew the raw material existence

          3. Raw Material Conversion Period = RMp = 365 : n1

        4. Goods in Process Conversion Period (Production Conversion Period).-

          1. Goods in Process rotation = n2 = Annual cost of production : Average goods in process stock

          2. Goods in Process Conversion Period = GPp = 365 : n2

        5. Finished goods Conversion Period (Sales Conversion Period).-

          1. Finished goods rotation = n3 = Annual sales at factor cost : Average finished goods stock

          2. Finished goods Conversion Period = FGp = 365 : n3

        6. Receivables Conversion Period.-

          1. Payment from customers rotation = n4 = Annual sales at market prices : Average receivables stock

          2. Receivables Conversion Period = Rp = 365 : n4

      2. Cash-flow.-

        1. Definition.- Cash flow is the movement of cash into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time

        2. Calculation.-

          1. Cash-flow = Net Profit Before Tax + Amortizations - Tax; the highest the best

            1. 1st example.- If: Gross profit (GP) = 10; Amortization = 3; Interest = 2 and Tax = 35%

            2. Net Profit Before Tax = Gross profit - Interest; Cash-flow = 10 - 2 + 3 – 0.35 x (10 - 2) = 8.2

            3. 2nd example.- If: Revenue = 15; Expenses = 7; Amortization = 3 and Tax = 35%

            4. Cash-flow = 15 - 7 + 3 – 0.35 (15 - 7) = 8.2

    1. THE FINANCIAL COST.-

      1. Debt-to-equity ratio.-

        1. Definition.- The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders’ equity and debt used to finance a company's assets. Closely related to leveraging, the ratio is also known as Risk, Gearing or Leverage. The two components are often taken from the firm's balance sheet, but the ratio may also be calculated using market values for both, if the company's debt and equity are publicly traded, or using a combination of book value for debt and market value for equity financially.

        2. Formula.- D/E = Debt (liabilities) : equity

      2. Capital structure.-

        1. Definition of capital structure.- Capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities

        2. Optimum capital structure.- According to the traditional thesis, the optimum capital structure is the relationship between the liabilities and the equity that minimize the cost of the funds and maximize the firm value

        3. Modigliani and Miller.- Accordign to Modigliani and Miller, an optimum capital structure doesn’t exist

        4. Josep Faus.- According to Josep Faus it’s difficult to determine an optimum capital structure to any firm. He recomends seeing the average capital structure of the sector firms

        5. Leverage effect.- If the obtained profits are higher than the interest that we must pay for them we obtain financial profitability

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