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ECONOMICS CHAPTER 3

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Title: ECONOMICS CHAPTER 3


1
ECONOMICS CHAPTER 3
  • BUSINESS ORGANIZATIONS

2
FORMS OF BUSINESS ORGANIZATION
  • SOLE PROPRIETORSHIP
  • DEFINITION
  • HOW TO FORM ONE
  • LICENSES
  • GENERAL BUSINESS LICENSE
  • (SKILL) LICENSE
  • FEES
  • ADVANTAGES
  • EASY TO START
  • EASE OF MANAGEMENT (QUICK DECISION MAKING)
  • OWNER RECEIVES ALL THE PROFITS
  • DOES NOT PAY BUSINESS TAXES
  • BEING YOUR OWN BOSS
  • EASY TO CLOSE DOWN
  • DISADVANTAGES
  • UNLIMITED LIABILITY
  • DIFFICULT TO RAISE OPERATING CAPITAL
  • LIMITED SIZE AND EFFICIENCY
  • LIMITED ENTREPRENEURIAL SKILLSINVENTORY AND
    TRUSTED WORKERS

3
BUSINESS ORGANIZATIONS CONTINUED
  • PARTNERSHIP
  • Definition
  • Types of partnerships
  • General partnership-
  • Limited partnership
  • Forming a partnership
  • Articles of Partnership
  • Attorney fees
  • Licenses and fees
  • Advantages
  • Easy to start
  • Ease of management
  • Lack of special taxes
  • Easier to attract start up capital than a sole
    proprietor
  • Slightly larger in size
  • Easier to attract talented employees
  • Disadvantages
  • Each partner is fully responsible for the actions
    of each other.
  • (Limited partners limited liability)

4
BUSINESS ORGANIZATIONS CONTINUED
Worldwide Web
  • CORPORATIONS
  • Definition
  • Forming a Corporation
  • File incorporation papers
  • Charter
  • shares (stock)
  • Stockholders
  • dividends
  • Corporate structure
  • Common stock-voting privileges for the Board of
    Directors.
  • Preferred stock-nonvoting owners, first
    recipients of
  • dividends.
  • Voting by proxy
  • Advantages
  • Ease of raising capital
  • Sell more stock
  • Issue bonds
  • Hire professional managers to run the company
  • Owners have limited liability

5
GOVERNMENT REGULATION OF BUSINESS
  • 1880s -- government regulation of business.
    Populistsregulated railroads.
  • ICC.
  • Since the end of the Civil War there has been a
    conflict between large corporations and
    government regulation.anti-monopoly, or anti-
    trusts laws.
  • Sherman Anti-Trust Act
  • Great Depression caused the biggest wave of
    government involvement.
  • Banking laws, working hours, minimum wages,
    workers compensation, pollution standards, clean
    and safe workplaces, union protections,
    utilities.
  • BUSINESS DEVELOPMENT
  • State governments today work very hard at getting
    new industry to locate in their state.
  • Incentives building infrastructure, bond
    offers, deferred taxes, low taxes, state
    financing. Why?
  • JOBS!!

BOEING
6
BUSINESS GROWTH AND EXPANSION
  • BUSINESS GROWTH
  • There are two BASIC ways businesses grow
  • 1. Growth through investment
  • Income statement p. 69
  • Net Income depreciation cash flow
  • Those may be reinvested back into the company.
  • 2. Growth through mergers
  • Reasons for merging
  • Quicker growth
  • Efficiency (cut costs)
  • Need to acquire new product lines
  • Keep up with rival companies
  • To lose its corporate identity (if the old name
    had a bad name)--Valujet
  • Types of mergers
  • Horizontal merger
  • Vertical merger
  • Conglomerates
  • Diversification
  • Multinationals

7
Other Business Organizations
  • LLCLimited Liability Company, sole
    proprietorship with limited liability.
  • Non-Profit Organizations
  • Definition
  • Examples YMCA, United Way,
  • Cooperatives
  • Consumer Co-ops
  • Co-op grocery stores in big cities/apartments
  • Service Co-ops
  • Credit Union
  • Producer Co-ops
  • Farm co-ops
  • Labor, Professional and Business Organizations
  • Labor Unions
  • Collective Bargaining
  • UAW
  • Professional Associations
  • NEA, AMA, American Bar Association
  • Business Associations
  • Chamber of Commerce, Better Business Bureau

8
INVESTING ON THE STOCK MARKET
  • 1. Financial investments on the stock market are
    called equities.
  • 2. Prices of equities are determined by
  • Number of shares on the market for sale.
  • Profitability of the company.
  • Expectations for the future
  • 3. ACCURACY OF THE MARKET
  • The Efficient Market Hypothesis
  • Due to the of market analysts, prices of stock
    are rightthere are no bargains.
  • Stock market therefore is not luck.
  • Portfolio diversification, buy lots of different
    types of stock.
  • Buy from internet account
  • Use a stockbroker
  • 4. Places where equities are sold
  • New York Stock Exchange (NYSE)Wall Streetlists
    2,800 companies-each of these companies must meet
    profitability and size requirements
  • American Stock Exchange (AMEX)Wall Street750
    companies
  • Global Stock Exchanges (Tokyo, London)
  • Over-the-Counter Markets (electronic stock
    marketplace)National Association of Securities
    Dealers Automated Quotation NASDAQ

9
MEASURES OF STOCK PERFORMANCE AND HOW TO MAKE
MONEY OFF THE STOCK MARKET
  • MEASURES OF STOCK PERFORMANCE
  • Dow Jones Industrial Averagepublishes the
    average closing price of 30 stocks.
  • Standard Poors 500uses price changes of 500
    representative stocks as an indicator of the
    overall market performance.
  • Bull Marketis a strong market where stock prices
    have been going up over a certain period of time.
    1995-2000 Dow-Jones average went from
    4,000-12,000.
  • Bear Marketis a period where the market is weak
    for a certain period of time. 1930s and
    2001-2003 (market dropped by 33), 2008-2009
  • HOW TO MAKE MONEY OFF THE STOCK MARKET
  • 1. Stock speculationbuy low and sell high.
  • 2. Dividend valuebased on the profit yield of
    the company.
  • 3. Short selling borrow stock when price is high
    and sell it, then buy it back when the price
    drops. The difference is your profit.
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