Business in Action, Tenth Edition
Courtland L. Bovée and John V. Thill
Contents
New to This Edition 15
Prologue: Using This Course to Launch
Your Business Career 26
PART 1
Setting the Stage: The Business of
Business 49
CHAPTER 1
Developing a Business Mindset 50
BEHIND THE SCENES Can Software That Reads Faces
Create a New Business? 50
INTRODUCTION 51
Understanding What Businesses Do 51
Adding Value: The Business of Business 51
Competing to Attract and Satisfy Customers 51 • Accepting
Risks in the Pursuit of Rewards 52
Identifying Major Types of Businesses 52
Making the Leap from Buyer to Seller 54
Seeing Business from the Inside Out 54
Appreciating the Role of Business in Society 55
Using this Course to Jump-Start Your Career 57
Recognizing the Multiple Environments of
Business 58
The Social Environment 58
The Technological Environment 59
The Economic Environment 59
The Legal and Regulatory Environment 59
The Market Environment 60
Identifying the Major Functional Areas in a Business
Enterprise 61
Research and Development 62
Manufacturing, Production, and Operations 62
Marketing, Sales, Distribution, and Customer Support 62
Finance and Accounting 62
Human Resources 63
Business Services 63
Exploring Careers in Business 63
Operations Manager 64
Human Resources Specialist 64
Information Technology Manager 64
Marketing Specialist 64
Sales Professional 65
Accountant 65
Financial Manager 65
Achieving Professionalism 66
Striving to Excel 66
Being Dependable and Accountable 66
Being a Team Player 67
Demonstrating Etiquette 68
Communicating Effectively 68
Making Ethical Decisions 69
Thriving in the Digital Enterprise: Disruptive Technologies
and Digital Transformation 69
Disruptive Innovations 70
Predicting the Path of Disruptive Innovations 70 • Fine-Tuning
Your Personal Hype Detector 71
Digital Transformation 72
Developing Skills for Your Career 74
BEHIND THE SCENES An Unexpected Turn Launches an
Innovative New Company 75
KEY TERMS 76
TEST YOUR KNOWLEDGE 76
EXPAND YOUR KNOWLEDGE 76
PRACTICE YOUR SKILLS 77
CHAPTER 2
Economics, Money, and Banking 79
BEHIND THE SCENES Gig Wage: Reinventing Financial
Systems for a New World of Work 79
INTRODUCTION 80
What Is This Thing Called the Economy? 80
Factors of Production 80
The Economic Impact of Scarcity 81
Economic Measures and Monitors 82
Price Indexes 82 • National Economic Output 83
Economic Systems 84
The Spectrum of Economic Systems 84
Nationalization and Privatization 85
Government’s Role in a Free-Market System 85
Protecting Stakeholders 86 • Fostering Competition 86
Encouraging Innovation and Economic Development 87
Stabilizing and Stimulating the Economy 87
The Forces of Demand and Supply 88
Understanding Demand 89
Understanding Supply 90
Understanding How Demand and Supply Interact 90
The Macro View: Understanding How an Economy
Operates 92
Competition in a Free-Market System 92
Business Cycles 92
Unemployment 94
Inflation 94
Money’s Role in Business 96
The Meaning of Money 96
Fiat Money, Cryptocurrency, and NFTs 97
The Money Supply 98
Banking Institutions and Services 99
The Federal Reserve 99
The Fed’s Major Responsibilities 100 • The Fed’s Tools for
Implementing Monetary Policy 100 • Other Government
Banking Agencies and Institutions 102
Investment Banks 102
Commercial Banks 102
Other Financial Services 103
Banking’s Role in the Economy 103
Shadow Banking 104 • The “Too-Big-to-Fail” Dilemma 104
The Boundaries of Investment Banking and Commercial
Banking 104
Thriving in the Digital Enterprise: Fintech 105
Making Financial Services More Inclusive 106
Improving the Efficiency of Financial Activities 106
Strengthening the Security of Financial Systems 106
Improving the Customer Experience in Financial Services 106
Enhancing Financial Decision-Making 107
BEHIND THE SCENES Gig Wage Rethinks Financial
Software to Meet the Needs of Today’s Business
World 108
KEY TERMS 109
TEST YOUR KNOWLEDGE 109
EXPAND YOUR KNOWLEDGE 110
PRACTICE YOUR SKILLS 110
CHAPTER 3
The Global Marketplace 113
BEHIND THE SCENES Airbnb: From Making a Few Bucks
to Disrupting the Global Travel Industry 113
INTRODUCTION 114
Fundamentals of International Trade 114
Why Nations Trade 114
How International Trade Is Measured 115
Foreign Exchange Rates and Currency Valuations 116
Conflicts in International Trade 117
Free Trade 117
Government Intervention in International Trade 118
International Trade Organizations 119
Organizations Facilitating International Trade 119
The World Trade Organization 120 • The International
Monetary Fund 120 • The World Bank 120
Trading Blocs 120
Canada, Mexico, and the United States 120 • The European
Union 122 • Asia-Pacific Economic Cooperation 122
The Global Business Environment 123
Cultural Differences in the Global Business Environment 123
Legal Differences in the Global Business Environment 125
Tax Havens 125 • Bribery 125
Forms of International Business Activity 126
Importing and Exporting 126
International Licensing 127
International Franchising 127
International Strategic Alliances and Joint Ventures 127
Foreign Direct Investment 127
Strategic Approaches to International Markets 128
Organizational Strategies for International Expansion 128
Functional Strategies for International Expansion 129
Thriving in the Digital Enterprise: AI-Assisted Translation 131
Text Translation 131
Real-Time Voice Translation 131
BEHIND THE SCENES Airbnb Succeeds with Global
Vision but Local Touch 133
KEY TERMS 134
TEST YOUR KNOWLEDGE 135
EXPAND YOUR KNOWLEDGE 135
PRACTICE YOUR SKILLS 136
CHAPTER 4
Business Ethics and Corporate Social
Responsibility 138
BEHIND THE SCENES Bethany Yellowtail: Creating an
Authentic Business and Lifting Her Community 138
INTRODUCTION 139
Ethics in Contemporary Business 139
Defining Ethical Behavior 139
Forces That Promote Unethical Behavior 140
Management Pressure and Corporate Culture 141 • A Willful
Blindness to Harm 141
Strategies for Supporting Ethical Behavior 142
Guidelines for Making Ethical Decisions 143
Corporate Social Responsibility 145
The Relationship Between Business and Society 145
Taking Sides on Public Issues: Stakeholder Expectations and
Company Viewpoints 145
Philanthropy Versus Strategic CSR 146
Perspectives on Corporate Social Responsibility 147
Minimalist CSR 147
Defensive CSR 148
Cynical CSR 148
The Proactive Stance: Moving Beyond CSR 148
Resolving the CSR Dilemma 148
CSR: The Natural Environment 149
Business Efforts to Conserve Resources and Reduce Pollution 150
Sustainability and the Circular Economy 152
CSR: Consumers 153
The Right to Buy Safe Products 154
The Right to Be Informed 154
The Right to Choose Which Products to Buy 154
The Right to Be Heard 154
The Right to Digital Security 154
The Right to Equitable Service 155
CSR: Employees 156
Equality in Employment Opportunity 157
Fair Compensation 157
Working Conditions 158
Thriving in the Digital Enterprise: The Ethics of Artificial
Intelligence 159
Human Biases Embedded in AI Systems 159
Lack of Transparency and Explainability 160
The Efforts to Make AI a Force for Good 160
BEHIND THE SCENES Bethany Yellowtail Builds a
Business That Is More Than a Business 161
KEY TERMS 162
TEST YOUR KNOWLEDGE 162
EXPAND YOUR KNOWLEDGE 163
PRACTICE YOUR SKILLS 163
The Big World of Small Business 192
Economic Roles of Small Businesses 192
Characteristics of Small Businesses 193
The Entrepreneurial Spirit 194
Why People Start Their Own Companies 194
Qualities of Successful Entrepreneurs 194
Innovating Without Leaving: Intrapreneurship 195
The Start-Up Phase: Planning and Launching a New
Business 196
Small-Business Ownership Options 196
Blueprint for an Effective Business Plan 196
Lean Business Planning 198
The Growth Phase: Nurturing and Sustaining a Young
Business 199
The New-Business Failure Rate 199
Pivoting: When a Better Idea Comes Along 200
Advice and Support for Business Owners 201
Government Agencies and Not-for-Profit Organizations 201
Business Partners 201 • Mentors and Advisory
Boards 201 • Networks and Support Groups 201
Business Incubators and Accelerators 202
Financing Options for Small Businesses 203
Private Financing 203
Banks and Microlenders 204 • Venture Capitalists 204
Angel Investors 204 • Corporate Sponsors 204
Credit Cards and Personal Lines of Credit 205
Small Business Administration Assistance 205
Public Financing 205
Crowdfunding 205
The Franchise Alternative 206
Types of Franchises 206
The Money Side of Franchising 206
Initial Franchising Costs 206 • Ongoing Franchising
Costs 207
Advantages of Franchising 207
Disadvantages of Franchising 207
How to Evaluate a Franchising Opportunity 207
Thriving in the Digital Enterprise: Machine Learning and
Deep Learning 208
Giving Computers the Ability to Learn 209
Applying Machine Learning in Business 209
BEHIND THE SCENES Alyza James Finds a New Purpose
in Her Purpose-Driven Business 211
KEY TERMS 211
TEST YOUR KNOWLEDGE 212
EXPAND YOUR KNOWLEDGE 212
PRACTICE YOUR SKILLS 213
PART 2
Building the Framework:
Business Ownership and
Entrepreneurship 167
CHAPTER 5
Forms of Ownership 168
BEHIND THE SCENES DoorDash Looks for Ways to Grow
Beyond Pandemic Demand 168
INTRODUCTION 169
Sole Proprietorships 169
Advantages of Sole Proprietorships 170
Disadvantages of Sole Proprietorships 170
Partnerships 171
Advantages of Partnerships 172
Disadvantages of Partnerships 172
Keeping It Together: The Partnership Agreement 173
Corporations 174
Advantages of Corporations 174
Disadvantages of Corporations 175
Special Types of Corporations 175
Corporate Governance 177
Shareholders 177
Board of Directors 178
Corporate Officers 178
Mergers, Acquisitions, and Divestitures 179
Advantages of Mergers and Acquisitions 180
Disadvantages of Mergers and Acquisitions 180
Merger and Acquisition Defenses 181
Corporate Divestitures 182
Strategic Alliances and Joint Ventures 183
Strategic Alliances 183
Joint Ventures 183
Thriving in the Digital Enterprise: Big Data and
Analytics 184
Big Data 184
Analytics 185
BEHIND THE SCENES DoorDash Bulks Up for
Post-Pandemic Life 186
KEY TERMS 187
TEST YOUR KNOWLEDGE 187
EXPAND YOUR KNOWLEDGE 188
PRACTICE YOUR SKILLS 188
CHAPTER 6
Entrepreneurship and Small-Business
Ownership 191
BEHIND THE SCENES Alyza James: Carrying On One
Tradition and Starting Another 191
INTRODUCTION 192
PART 3
Guiding the Enterprise: Leadership,
Organization, and Operations 215
CHAPTER 7
Management Roles, Functions, and Skills 216
BEHIND THE SCENES AMD: An Innovative Company Gets
Help from Innovative Business Management 216
INTRODUCTION 217
The Roles of Management 217
Interpersonal Roles 217
Informational Roles 217
Decisional Roles 218
The Planning Function 219
Defining the Company’s Purpose and Values 219
Assessing Strengths, Weaknesses, Opportunities,
and Threats 220
Developing Forecasts 220
Analyzing the Competition 221
Establishing Goals and Objectives 222
Developing Action Plans 222
The Organizing Function 223
Top Managers 223
Middle Managers 224
First-Line Managers 224
The Leading Function 225
Developing an Effective Leadership Style 226
Coaching and Mentoring 227
Managing Change 227
Building a Positive Organizational Culture 228
The Controlling Function 230
The Control Cycle 230
Establishing Performance Standards 230 • Measuring
Performance and Responding as Needed 231
Crisis Management: Maintaining Control in Extraordinary
Circumstances 231
Essential Management Skills 233
Interpersonal Skills 233
Technical Skills 233
Conceptual Skills 233
Decision-Making Skills 234
Thriving in the Digital Enterprise: Cognitive
Automation 236
The Cold Truth About Decision-Making 236
AI to the (Possible) Rescue 236
BEHIND THE SCENES Lisa Su Pulls Off the Impossible
at AMD 237
KEY TERMS 238
TEST YOUR KNOWLEDGE 239
EXPAND YOUR KNOWLEDGE 239
PRACTICE YOUR SKILLS 240
CHAPTER 8
Organization and Teamwork 242
BEHIND THE SCENES Gojek: The Challenges of
Growth 242
INTRODUCTION 243
Designing an Effective Organization Structure 243
Identifying Core Competencies 243
Identifying Job Responsibilities 243
Defining the Chain of Command 244
Span of Management 246 • Centralization Versus
Decentralization 246
Rethinking Organization in the Age of Agility 246
Organizing the Workforce 247
Functional Structures 247
Divisional Structures 247
Matrix Structures 248
Network Structures 249
Distributed and Hybrid Workplaces 249
Organizing in Teams 250
What Is a Team? 250
Types of Teams 251
Problem-Solving Teams 251 • Self-Managed Teams 251
Functional Teams 251 • Cross-Functional
Teams 251 • Virtual and Hybrid Teams 252
Social Networks and Virtual Communities 253
Ensuring Team Productivity 254
Advantages and Disadvantages of Working in Teams 254
Characteristics of Effective Teams 255
Fostering Teamwork 257
Team Development 257
Team Conflict 258
Sources of Team Conflict 258 • Solutions to Team Conflict 259
Managing an Unstructured Organization 260
Potential Benefits of Unstructured Organizations 261
Potential Challenges of Unstructured Organizations 263
Thriving in the Digital Enterprise: Taskbots and Robotic
Process Automation 264
Taskbots 265
Robotic Process Automation 265
BEHIND THE SCENES Gojek: The Structure of App-Based
Business 266
KEY TERMS 267
TEST YOUR KNOWLEDGE 267
EXPAND YOUR KNOWLEDGE 268
PRACTICE YOUR SKILLS 268
CHAPTER 9
Production Systems 271
BEHIND THE SCENES Reinventing Manufacturing for
a Rapidly Changing World 271
INTRODUCTION 272
The Systems View of Business 272
Thinking in Systems 272
Managing Systems for Peak Performance 272
Value Chains and Value Webs 275
Extending Organizations with Value Webs 275
Offshoring and Reshoring 276
Supply Chain Management 277
The Strategic Role of Supply Chain Management 278
Supply Chain Systems and Methods 279
Production and Operations Management 280
Lean Systems and Make to Order Manufacturing 280
Mass Production, Customized Production, and Mass
Customization 281
Facilities Location and Design 282
Forecasting and Capacity Planning 282
Scheduling 283
The Unique Challenges of Service Delivery 284
Perishability 284
Location Constraints and Virtual Service Delivery 285
Scalability Challenges and Opportunities 285
Performance Variability and Perceptions of Quality 285
Customer Involvement and Service Provider Interaction 286
Product and Process Quality 286
Quality and Complexity 287
Strategies for Ensuring Product Quality 287
Continuous Improvement 287 • Statistical Process
Control 287 • Six Sigma 288 • ISO 9000 288
Thriving in the Digital Enterprise: Industry 4.0 and the Smart
Factory 289
BEHIND THE SCENES Fictiv Builds a Digital
Manufacturing Ecosystem to Meet the Needs of
Today’s Customers 291
KEY TERMS 291
TEST YOUR KNOWLEDGE 292
EXPAND YOUR KNOWLEDGE 292
PRACTICE YOUR SKILLS 293
Supporting the Workforce:
Motivation and Human
Resources 295
CHAPTER 10
Employee Motivation 296
BEHIND THE SCENES Eric Yuan Designs a New
Dream 296
INTRODUCTION 297
What Motivates Employees to Peak Performance? 297
What Is Motivation? 297
Classical Theories of Motivation 297
Taylor’s Scientific Management 298 • The Hawthorne
Studies and the “Hawthorne Effect” 298 • Maslow’s
Hierarchy of Needs 299 • Theory X and Theory Y 300
Herzberg’s Two Factors 300 • McClelland’s Three
Needs 301
Explaining Employee Choices 301
Expectancy Theory 302
Equity Theory 302
The Four-Drive Theory 303
Motivating with Challenging Goals 304
Management by Objectives 304
Risks and Limitations of Goal-Setting Theory 305
Redesigning Jobs to Stimulate Performance 306
The Job Characteristics Model 306
Approaches to Modifying Core Job Dimensions 307
Reinforcing High-Performance Behavior 308
Types of Reinforcement 309
Unintended Consequences of Reinforcement 309
Motivational Strategies in the New World of
Work 310
Beyond Money: Motivating with Meaningful Purpose 310
Providing Timely and Frequent Feedback 311
Making It Personal 311
Gamifying for Healthy Competition 312
Addressing Workplace Negativity 312
Being an Inspiring Leader 313
Motivating Yourself and Avoiding Burnout 313
Thriving in the Digital Enterprise: Performance Management
Systems 314
BEHIND THE SCENES Zoom’s Eric Yuan Built Himself
a Happier Job—and One of the World’s Most Influential
Companies 315
KEY TERMS 316
TEST YOUR KNOWLEDGE 316
EXPAND YOUR KNOWLEDGE 317
PRACTICE YOUR SKILLS 317
CHAPTER 11
Human Resources Management 320
BEHIND THE SCENES L’Oréal China’s Recruitment
Problem 320
INTRODUCTION 321
Guiding the Human Side of Business 321
Contemporary HR Challenges 321
Aligning the Workforce with Business Requirements 322
Creating Safe and Healthy Workplaces 322
Ensuring Fair Treatment and Equal Opportunity 323
Creating a Sustainable Employee Experience 325
The Evolving Role of HR 326
Managing a Diverse Workforce 327
Diversity Considerations in the Contemporary Workplace 327
Age 328 • Gender and Sexual Orientation 329
Race and Ethnicity 329 • Religion 329 • Physical,
Emotional, and Cognitive Traits 330 • Education,
Economics, and Life Experience 330
Diversity, Equity, and Inclusion Initiatives 331
Managing the Employment Life Cycle 332
Planning for a Company’s Staffing Needs 332
Evaluating Job Requirements 332 • Forecasting Supply and
Demand 332 • Alternative Work Arrangements 334
Hiring Employees 334
Managing Employee Retirement 335
Terminating Employment 337
Developing and Evaluating Employees 338
Managing Employee Performance 338
Training and Developing Employees 338
Promoting and Reassigning Employees 339
Compensating and Supporting Employees 340
Salaries and Wages 340
Incentive Programs 341
Employee Benefits 341
Insurance 341 • Retirement Benefits 342 • Stock
Options 342 • Other Employee Benefits 342
Understanding the Role of Labor Unions in Today’s
Business World 343
Unionization in the United States 344
Union Organizing and Collective Bargaining 345
Organizing Options for the Gig and Creator Economies 346
Thriving in the Digital Enterprise: Workforce
Analytics 347
BEHIND THE SCENES L’Oréal China Uses AI to Drive
Diversity 349
KEY TERMS 350
TEST YOUR KNOWLEDGE 350
EXPAND YOUR KNOWLEDGE 351
PRACTICE YOUR SKILLS 351
Satisfying the Customer: Marketing,
Sales, and Customer Support 355
CHAPTER 12
The Art and Science of Marketing 356
BEHIND THE SCENES Lego: Creating the World’s Top Toy
Brand One Brick at a Time 356
INTRODUCTION 357
Marketing in a Changing World 357
The Role of Marketing in Society 357
Needs and Wants 357 • Exchanges and
Transactions 357 • The Four Utilities 358
The Marketing Concept 358
Challenges in Contemporary Marketing 360
Involving the Customer in the Marketing Process 360
Making Data-Driven Decisions and Measuring Marketing ROI 360
Attribution and ROI 361 • Marketing Research 361
Marketing with Greater Concern for Ethics and Etiquette 361
Marketing as Part of a Sustainable Business Strategy 363
Creating Satisfying Customer Experiences 363
Understanding Today’s Customers 364
The Consumer Decision Process 365
The Organizational Customer Decision Process 366
Identifying Market Opportunities 368
Examining the Current Marketing Situation 368
Reviewing Performance 368 • Evaluating Competition 369
Examining Internal Strengths and Weaknesses 369
Analyzing the External Environment 369
Assessing Opportunities and Setting Objectives 369
Crafting a Marketing Strategy 370
Dividing Markets into Segments 370
Choosing Your Target Markets 371
Staking out a Position in Your Target Markets 372
The Marketing Mix 373
Products 373
Pricing 374
Distribution 374
Customer Communication 375
Thriving in the Digital Enterprise: Marketing Analytics 376
Major Goals of Marketing Analytics 376
Data Sources for Marketing Analytics 378
BEHIND THE SCENES Lego Stacks Billions of Bricks to
Become the World’s Most Valuable Toy Brand 378
KEY TERMS 380
TEST YOUR KNOWLEDGE 380
EXPAND YOUR KNOWLEDGE 381
PRACTICE YOUR SKILLS 381
CHAPTER 13
Product Management and Pricing
Strategies 383
BEHIND THE SCENES OXO: Launching a Design
Revolution with the Humble Vegetable Peeler 383
INTRODUCTION 384
Characteristics of Products 384
Types of Products 384
Consumer Products 385 • Industrial and Commercial
Products 385
The Product Life Cycle 386
Introduction 387 • Growth 387 • Maturity 387
Decline 387
The New-Product Development Process 388
Idea Generation 388
Idea Screening 388
Business Analysis 389
Prototype Development 389
Test Marketing 390
Commercialization 390
Product Identities 391
Brand Name Selection 391
Brand Ownership 391
Packaging 392
Labeling 393
Product-Line and Product-Mix Strategies 393
Product Lines 393
Product Mix 394
Product Expansion Strategies 394
Product Strategies for International Markets 394
Pricing Strategies 397
Strategic Considerations in Pricing 397
Cost Structure and Break-Even Analysis 398
Pricing Methods 400
Foundational Pricing Methods 400
Cost-Based Pricing 400 • Value-Based Pricing 400
Competition-Based Pricing 400
Situational Pricing Methods 401
Algorithmic Pricing 401 • Life-Cycle Pricing 402
Loss-Leader Pricing 402 • Auctions and Participative
Pricing 402 • Free and Freemium Pricing 402
Subscription Pricing 403
Price Adjustment Tactics 403
Thriving in the Digital Enterprise: AR, VR, and the
Metaverse 404
Augmented Reality 404
Virtual Reality 405
The Metaverse 405
BEHIND THE SCENES OXO Gets a Handle on Universal
Design 407
KEY TERMS 408
TEST YOUR KNOWLEDGE 409
EXPAND YOUR KNOWLEDGE 409
PRACTICE YOUR SKILLS 410
CHAPTER 14
Customer Communication and Product
Distribution 412
BEHIND THE SCENES Tata Harper: Pursuing a More
Natural Way to Care for Skin 412
INTRODUCTION 413
Customer Communication: Challenges, Strategies,
and Issues 413
Establishing Communication Goals 413
Defining Customer Messages 414
Assembling the Communication Mix 415
Inbound Versus Outbound Marketing 415 • Integrated
Marketing Communications 416 • The Power of
Personalization 416
Communication Laws and Ethics 417
Advertising and Direct Response Marketing 418
Advertising 419
Advertising Appeals 419 • Advertising Media 421
Direct Response Marketing 423
Personal Selling 424
Contemporary Personal Selling 424
The Personal Selling Process 424
Sales Promotion 426
Consumer Promotions 426
Trade Promotions 427
Social Media and Public Relations 428
Social Media in the Marketing Process 428
Marketing Communication Strategies for Social Media 429
Brand Communities 431 • Social Customer
Care 431
Public Relations 431
Product Distribution and Marketing Intermediaries 433
The Role of Marketing Intermediaries 433
Wholesaling and Industrial Distribution 434
Retailing 435
Retailing’s Role in the Buying Process 435 • The Challenging
Economics of Retailing 435 • The Outlook for Retailing:
More Disruption, More Innovation 435
Manufacturers’ Distribution Decisions 437
Thriving in the Digital Enterprise: AI-Enabled
Marketing 439
Communication and Customer Service 439
Content Development 440
Marketing Planning and Campaign Management 441
BEHIND THE SCENES Staking Out a New Position in the
Skin Care Market 442
KEY TERMS 443
TEST YOUR KNOWLEDGE 444
EXPAND YOUR KNOWLEDGE 444
PRACTICE YOUR SKILLS 445
Managing the Money: Accounting
and Financial Resources 447
CHAPTER 15
Financial Information and Accounting
Concepts 448
BEHIND THE SCENES IBM: Accounting for the World’s
Food Supply 448
INTRODUCTION 449
Understanding Accounting 449
What Accountants Do 449
Private Accountants 450
Public Accountants 450
Major Accounting Rules 451
Generally Accepted Accounting Principles (GAAP) 451
Non-GAAP Metrics 452 • Global Reporting Standards 452
Sarbanes-Oxley 453
Fundamental Accounting Concepts 454
The Accounting Equation 454
Double-Entry Bookkeeping and the Matching Principle 454
Using Financial Statements: The Balance Sheet 455
Understanding Financial Statements 455
Balance Sheet 457
Assets 458 • Liabilities 458 • Owners’ Equity 459
Using Financial Statements: Income and Cash Flow
Statements 459
Income Statement 459
Statement of Cash Flows 461
Analyzing Financial Statements 463
Trend Analysis 463
Ratio Analysis 463
Types of Financial Ratios 463
Profitability Ratios 463 • Liquidity Ratios 463 • Activity
Ratios 465 • Leverage, or Debt, Ratios 465
Thriving in the Digital Enterprise: Distributed Ledgers and
Blockchain 466
The Not-So-Simple Process of Recording Transactions 466
Rethinking the Ledger 467
Business Benefits and Applications of Blockchain 467
Blockchain in Financial Services 469 • Blockchain in
Supply Chain Management 469 • Blockchain in Human
Resources 469
BEHIND THE SCENES IBM’s Food Trust: Improving
Clarity and Confidence in the World’s Food
Supply 470
KEY TERMS 471
TEST YOUR KNOWLEDGE 472
EXPAND YOUR KNOWLEDGE 472
PRACTICE YOUR SKILLS 473
CHAPTER 16
Financial Management and Financial
Markets 475
BEHIND THE SCENES Building the Roadmap for Black
Women Tech Founders 475
INTRODUCTION 476
The Role of Financial Management 476
Developing a Financial Plan 477
Monitoring Cash Flow 477
Managing Accounts Receivable and Accounts Payable 478
Managing Inventory 478 • Managing Cash
Reserves 479
The Budgeting Process 479
Budgeting Challenges 480 • Types of Budgets 481
Financing Alternatives: Factors to Consider 482
Debt Financing Versus Equity Financing 482
Length of Term 483
Cost of Capital 483
Risk 483 • Interest Rates 483 • Opportunity
Cost 483
Financing Alternatives: Debt Financing 485
Short-Term Debt Financing 485
Credit Cards 486 • Trade Credit 486 • Secured
Loans 486 • Unsecured Loans 486 • Commercial
Paper 486 • Factoring 486
Long-Term Debt Financing 487
Long-Term Loans 487 • Leases 488 • Corporate
Bonds 488
Financing Alternatives: Equity 489
Venture Capital and Other Private Equity 490
Public Stock Offerings 490
Financial Markets 491
The Stock Market 491
The Bond Market 492
The Money Market 492
The Derivatives Market 492
Investment Strategies and Techniques 493
Establishing Investment Objectives 493
Learning to Analyze Financial News 494
Creating an Investment Portfolio 494
Buying and Selling Securities 494
Thriving in the Digital Enterprise: Smart Contracts 495
BEHIND THE SCENES Black Women Talk Tech—and
Venture Capital 496
KEY TERMS 497
TEST YOUR KNOWLEDGE 498
EXPAND YOUR KNOWLEDGE 499
PRACTICE YOUR SKILLS 499
Appendixes
APPENDIX A
Business Law A-1
APPENDIX B
Risk Management B-1
APPENDIX C
Information Technology C-1
APPENDIX D
Personal Finance: Getting Set for Life D-1
Glossary G-1
Brand, Organization, and Name Index I-1
Subject Index I-3