Business Technology Finance

DEPARTMENT OF CORPORATE FINANCE

ACADEMY OF FINANCE
 Business, Technology and Finance 1
➢ Chapter 1: Introduction to business

➢ Chapter 2: Managing a business

➢ Chapter 3: Organisational and business structures

➢ Chapter 4: Introduction to business strategy

➢ Chapter 5: Introduction to risk management

➢ Chapter 6: Introduction to financial information

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 Business, Technology and Finance 2
➢ Chapter 7: The business’s finance function

➢ Chapter 8: Business finance

➢ Chapter 9: The professional account

➢ Chapter 10: Structure and regulation of the accountancy profession

➢ Chapter 11: Governance and ethics

➢ Chapter 12: Corporate governance

➢ Chapter 13: The economic environment of business and finance

➢ Chapter 14: External regulation of business

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 Business, Technology and Finance 1
➢ 30 credits – 7 weeks

➢ Exam: 20 MCQs – Duration: 30 minutes

➢ Rules:

o Middle exam: 20 MCQs – 30 minutes

o Awards: fully attendants, making contributions to the lessons, 3 winners of mini games

o Punishment: Absent more than 3 lessons = losing right to take a final exam.

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Chapter 1: Introduction to business
 LEARNING OUTCOMES
- State the general objectives of business
- State the general objectives of strategic management and specify the
strategic management process and interrelationship between a business’s
vision, mission and strategic objectives
- Specify the nature of ethics, business ethics, sustainability and corporate
responsibility

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 TOPIC LIST
1.1. Definition of business

1.2. Stakeholders in a business

1.3. Business’s objectives

1.4. Mission, goals, plans and standards

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 1.1. Definition of business
1.1.1. What is an organization?

1.1.1.1. Definition of organisation

Example of organisations
Profit-oriented organisations Not-for-profit organisations
- A multinational car manufacture (eg, Ford) - A charity (eg, UNICEF)
- A accountancy firm (eg, KPMG) - A trade union
- A local authority
- An army
- A club

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 1.1. Definition of business
1.1.1. What is an organization?
1.1.1.1. Definition of organisation
A social arrangement for the controlled performance of collective goals, which has a
boundary separating it from its environment.

Question: Based on definition of organization above, please analyze 2 examples of

pharmaceutical company and trade union?

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 1.1. Definition of business
Characteristic Pharmaceutical company (eg, Pfizer) Trade Union

Social arrangement

Collective goals

Controlled
performance
Boundary

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 1.1. Definition of business
1.1.1.2. Why do organizations exist?
Because they:
- Overcome people’s individual limitation, whether physical or intellectual
- Specialization: Let people specialize in what they do best
- Time- saving: because people can work together or do two aspects of a different task
at the same time
- Knowledge- sharing: Accumulate and share knowledge
- Expert- pooling: Let people pool their expertise
- Synergy effect: Enable synergy - the combined output of two or more individuals
working together exceeds their individual output
In brief, organisations enable people to be more productive

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 1.1. Definition of business
1.1.1.3. How do organizations differ?
Organisations differ in many ways.
- Ownership:
- Control:
- Activity
- Size
- Legal status: company, unincorporated body, partnership, sole trader
- Sources of finance: financing policy: share issues or borrowing, government
funds
- Technology: High or low use of technology

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 1.1. Definition of business
1.1.2. What is a business?
Profit vs non-profit orientation
Profit-oriented organisation Not-for-profit organisation

Owners Public beneficiaries

Primary
objective Maximise profit/dividend/wealth Provision of goods/services

Profit Output (Goods, services)

Output of goods/services Revenue from goods/services Minimise cost of primary goal
Secondary
objective Inputs (Materials, labour, finance) Costs Inputs (Materials, labour, finance)

Revenue (taxation)

Figure 1.1: Profit-oriented and not-for-profit organisations

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 1.1. Definition of business
1.1.2. What is a business?

- Businesses aim to make profits while for non-businesses there is a different primary
focus or objectives.

- Profit-oriented organisations are generally referred to as businesses.

- Not-for-profit organisations are frequently structured and run like a business. They do
not aim to maximise profit or the wealth of their owners, but instead are focused on
providing goods and services to their beneficiaries at minimised costs. Example:
Charities, trade unions, governmental agencies, hospitals, schools, universities.

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 1.1. Definition of business
Definition of a business

Business: An organisation that is oriented towards making a profit for its owners so as to
maximise their wealth and that can be regarded as an entity separate from its owners.

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 1.2. Stakeholders in the business
1.2.1. Definition of stakeholders

Stakeholder: Literally a person or group of persons who has a stake in the organisation.
This means that they have an interest to protect in respect of what the organisation does
and how it performs.

- A company’s primary stakeholders are its shareholders.

- Secondary stakeholders: managers, customers, suppliers, creditors, business

partners, government agencies, employees,….

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 1.2. Stakeholders in the business
1.2.2. Natural capital, sustainability and corporate responsibility

Definitions:

- Natural capital is therefore everything that the planet provides humans and business
organisations to use in order to live. Some resources, such as food, air and water are
renewable. However, others such as oil and gas, which are processed into materials such
as plastic and energy to power our homes and transport systems, are non-renewable.
(Ethical Corporation, n.d.)

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 1.2. Stakeholders in the business
- Sustainability concerns the use of both of the following: Tangible resources (natural
capital and energy) and Intangible resources (human/intellectual capital and relationship
with stakeholders)

- Corporate responsibility concerns the organisation’s ideas and values on how to use
resources, such as natural capital, promoting the positive impacts of their use and reducing
the impact of nay negative impacts

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 1.2. Stakeholders in the business
1.2.3. UN global goal for sustainable development

- The UN established 17 Global Goals for Sustainable Development that aim to

improve the world for everyone. In 2015, world leaders signed up to them. (Global
Goals.org, 2015)

- The key sustainability Goals for business include:

▪ Decent work and economic growth

▪ Industry, innovation and infrastructure

▪ Responsible consumption and production

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 1.3. Business’s objectives
1.3.1. The hierarchy of objectives

- For a profit-oriented business, its objective is to make as much profit as possible so as to

increase shareholder wealth.

- In fact, there is a hierarchy of objectives, with one primary objective and a series of
secondary objectives, which should combine to ensure the achievement of the primary
objective.

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 1.3. Business’s objectives
1.3.2. Primary objective

For a business the primary objective is financial: making as much profit as possible (profit
maximisation) so as to increase the shareholder wealth.

- Profit measures how the business create value by making sure the cost of inputs is less
than the output.( Profit = Revenue – Costs)

- Shareholder wealth can only be maximised if profit is earned at an acceptable level of

risk.

- Profit cannot be pursued at any cost. Any business is subject to the laws and regulations
of the country in which it operates, and it also has social responsibilities.

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 1.3. Business’s objectives
1.3.3. Secondary objective

- Secondary objectives support the primary objectives.

- Examples of secondary objectives:

- Market position.

- Product development

- Technology

- Employees and management

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 1.3. Business’s objectives
1.3.3. Secondary objective
- Market position: achieve a particular market share of each market that the business
operates in, avoid reliance on a single customer for too big a proportion of total
sales, enter or leave markets when the time is right.
- Product development: Bring in new products, develop a product range.
- Technology: Improve how much is produced form the resources available, reduce
cost per unit of output, develop or exploit appropriate technology
- Employees and management: Train employees in necessary skills, create an
innovative, flexible culture, employ high quality leaders.

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 1.3. Business’s objectives
1.3.4. Is wealth maximisation always the primary objectives?

1.3.4.1. Profit satisficing

- Decisions might be taken by managers with their own managerial objectives in mind
rather than the aim of wealth maximisation.

The owners’ the managers’

objectives VS objectives

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 1.3. Business’s objectives
1.3.4. Is wealth maximisation always the primary objectives?

1.3.4.2. Revenue maximisation

- A business may act to maximise revenue in order to maintain or increase

its market share, ensure survival, and discourage competition.

- Managers benefit personally from following this objective because of the

prestige of running a large company, and also because salaries and other
benefits may be higher in bigger companies than in smaller ones.

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 1.3. Business’s objectives
1.3.4.3. Multiple objectives
- “To manage a business is to balance a variety of need and goals…The very nature of
business enterprise requires multiple objectives”. (Peter Drucker).
- Objectives are needed in eight key areas:
▪ Market standing
▪ Innovation
▪ Productivity
▪ Physical and financial resources
▪ Profitability
▪ Manager performance and development
▪ Worker performance and attitude
▪ Corporate responsibility

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 1.3. Business’s objectives
1.3.4.4. Constraints theory

- According to Herbert Simon, decisions for some business areas are

taken without reference to the wealth objective at all. Because profit is not
the most important constraint in their business.

- Other constraints: good staff relations, compliance with regulations (eg,

environmental protection laws)

Ex: satisfy customers with quality products and service, which may lower
profitability.

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 1.4. Mission, goals, plans and standards
1.4.1. Planning and control system

Comparison of On target. No
Plans and Actual
Objectives performance with corrective
standards performance
plans/standards action required

Control action? Control action?

Deviations
identified

Figure 1.2: Planning and control system

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 1.4. Mission, goals, plans and standards
Businesses need to direct their activities by:

- Deciding what they want to do to achieve their primary objective.

- Deciding how and when to do it and who is to do it (setting plans and

standards)

- Checking that they achieve what they want, by measuring and monitoring
what has been done and comparing it with the plan

- Taking control action to correct any deviation

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1.4.2. Mission
- Definition of mission: ‘The business’s basic function in society’ expressed in terms of how it
satisfies its various stakeholder.
- Elements of mission:
Purpose Strategy Policies and standards of behaviour Value

What is the What does the

Why does the
operational logic of What do our people organisation believe
organisation exist
the organisation: actually do and how do to be important –
and for whose
- What do we do? they behave? what are its core
benefit?
- How do we do it? principle?

- Ex: Mission of Apple: To bringing the best user experiences to customers through innovative hardware,
software and services.
- Vision: some businesses also have a vision of the future state of the industry or business which
determines what its mission should be.
- Ex: Apple’s Vision: To make the best products on earth and to leave the world better than we found it

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 1.4. Mission, goals, plans and standards
1.4.3. Goals: aims and objectives

- Goal: ‘A desired end result’

- There are two types of goal:

▪ Non-operational aims (qualitative goals)

▪ Operational objectives (quantitative goals), operational objectives should be

SMART: Specific Measurable Achievable Relevant Time-bound

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 1.4. Mission, goals, plans and standards
- The purpose of setting operational objectives in a business:

‘Objectives are needed in every area where performance and results directly and vitally
affect the survival and prosperity of the business’ (Peter Drucker). Objectives in these key
areas should enable management to:

- Implement the mission

- Publicise the direction of the organisation to managers and staff

- Appraise whether decisions are valid

- Assess and control actual performance

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 1.4. Mission, goals, plans and standards
1.4.4. Plans and standards

- Plans: State what should be done to achieve the operational objectives. Standards and
targets specify a desired level of performance.

- The desired level of performance for what is done can be expressed as a standard to be
met, in terms of:

- Physical standards eg, units of raw material per unit produced

- Cost standards - physical standards are converted into money measurement eg,
labour costs of making a type of product

- Quality standards eg, percentage of customers who give response within 2 hours

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 1.4. Mission, goals, plans and standards
1.4.5. How are plans set?

The strategic planning process sets the overall mission, goals, plans and
standards that the business will try to achieve.

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