Commerce 102: Final Review

Chapter 1 Politics: Governments Roles

Business: an organization that strives for profit by providing
goods and services
Revenue - Costs = Profit
Federal Govt: money, banking, trade, diplomacy, defense, law,
employment insurance, copyrights, patents, transportation
Provincial Govt: labour laws, education, health and welfare,
protection of property, civil rights, natural resources,
environment
Municipal Govt: essential services, economic development,
bylaws
Govts are: tax agents, regulators, providers of services and
incentives, customers and competitors
Patent: a form of protection established by the govt for
inventors, exclusive right to make, use, sell an invention for 20
years
Copyright: govt protection for works of art, music, literature or
other intellectual property, gives exclusive right to use, produce,
sell for entire life plus 50 years after death
Trademark: legally exclusive design, name, logo
Bankruptcy: legal procedure by which businesses or people that
cant keep up with financial obligations are relieved of some or
all debt
Tort law: law against tort, an act that harms others or their
property
Consumer rights: choice, safety, to be heard, info
Taxes: income, property, payroll, excise, sales
Chapter 2 Economics: Evolving Systems
Economics: the study of how individuals, businesses, and
governments use scarce resources to produce and distribute
goods and services
Microeconomics: focuses on individual parts of the economy
such as households or businesses
Macroeconomics: focuses on the economy as a whole by
looking at aggregate data for large groups of people, groups,
companies
Economic system: combo of laws, policies, choices by a nation
to establish a system to decide what goods and services are
produced and how they are allocated
Market structure: capitalism, free-enterprise

Perfect competition: large number of small businesses sell

similar products, buyers have good info, easy exit and entry
Monopolistic competition: many businesses offer products that
are close substitutes, relatively easy entry
Oligopoly: a few companies produce most or all output, large
capital requirements and other factors limit entry
Monopoly: one firm
Supply: the quantity of a good or service that businesses will
make available at various prices, higher price means
manufacturers are more willing to produce it
Demand: the quantity of a good or service that people are
willing to buy at various prices
Equilibrium: the point at which quantity demanded equals
quantity supplied
GDP: total market value of all goods and services produced w/
in a nations border
GNP: GDP but not limited to border
Full Employment: the condition when all people that can work
and want to have jobs
Unemployment:
Frictional; short term, people waiting for their job, just graduated
university
Structural; caused by a mismatch between jobs and skills of workers
Cyclical; when a downturn in the business cycles causes layoffs
Seasonal; due to seasonal aspect of certain industry
Inflation: the situation in which the average prices of all goods
and services rises
CPI: consumer price index, the relative cost of a basket of goods
PPI: producer price index, relative price of raw materials etc.
Demand-Pull: demand > supply
Cost-Push: production cost increases which pushes up final
product price
Monetary Policy: contractionary, expansionary
Chapter 3 Social
Stakeholders: individuals or groups to whom business has a
responsibility
Corporate Responsibility: concern of business for the welfare of
society, beyond those obligations required by law
Corporate Governance: the way in which an organization is
governed
Ethics: a set of guidelines that the company adheres to
Utilitarianism: what is best for the majority

Justice: what is considered fair by society

Neo-Liberalism: the economy should be market driven, not govt
driven

Chapter 5 International
Balance of trade: imports vs. exports
Balance of payments: total payments to other countries vs.
payments from
Comparative Advantage: each country specializes in what it can
produce most readily and cheaply
Global Market: exporting, licensing, contract manufacturing, joint
ventures, direct investment
World Bank: loans to developing nations to build infrastructure
Barriers: natural (distance and language), tariffs, customs
BRIC: Brazil, Russia, India, China
Chapter 6 Entrepreneurship and Small Business
Entrepreneurs: for profit, independence, personal satisfaction
and lifestyle
Multi-preneurs: start many businesses in many industries and
markets
Small Business: streamlined, efficient, local, personal service but
limited managerial skill, difficult to raise capital, personal
requirements, govt regulations
Types of business ownership: sole-proprietorship, partnership
(limited), corporation (The owners of a corporation have limited
liability and the business has a separate legal personality from its
owners.), cooperative
Chapter 7 Analyzing the Business
Mission statement: a statement of how the company intends to
achieve its vision, how it is different and the keys to its success
Vision Statement: a statement of the companys future direction
in terms of its values and purposes
SWOT: strengths, weaknesses, opportunities, threats
PESTEL: political, economic, social, technological, environmental,
legal
Porters 5 Forces: substitutes (price, quality, performance, cost of
switching), buyers (number of buyers, brand identity),
competition (number of competitors, significance of competition,
product differentiation, exit barriers), threat of new competition
(capital requirements, economies of scale), supplier power
Chapter 8 Forms of Business Ownership

Board of Directors: elected by the shareholders to handle the

overall mgmt. of the corporation
Conglomerate Merger: unrelated industries
Horizontal Merger: same industry, same level
Vertical Merger: different stage in supply chain, same industry
Cooperative: to reduce cost and increase economic power,
limited liability, elected BOD, profit distributed evenly to
members according to contribution
Corporation: a legal entity with its own rights and
responsibilities separate from its shareholders who therefore
are not liable for the entitys actions and liabilities
General partners: partners who have unlimited liability
General Partnership: all partners share in mgmt and profits
Sole proprietorship: a business, owned, operated and financed
by one person
Joint Venture: two companies that form an alliance to pursue a
particular project for a given set of time
LBO: leveraged buyout, a corporate takeover financed by
borrowed money
LLP: each partner is a limited partner
Limited Partnership: one or more general partners, one or
more limited partners whose liability is limited to their amount
of investment
Shareholders or Stockholders: the owners of a corporation
who hold stock

Chapter 9 MGMT and Leadership

Referent power: power by reputation
Reward power: derived from control of rewards
Coercive power: derived from ability to threaten negative
outcomes
Expert power: because of extensive knowledge in an area
Legit power: because of an individuals position in the
organization
Consensual leaders: need total consensus
Contingency plans: meets unforeseen challenges and crises
Leaders: autocratic, consensual, consultative, democratic,
participative
Management: the process of guiding the development,
maintenance and allocation of resources to attain organizational
goals, planning, organizing, leading, controlling
Efficiency: using the least amount of resources to accomplish the
goal (doing things right)

Delegation: assigning authority and responsibilities

Effectiveness: the ability to produce the desired result or goods
(doing the right thing)
Chapter 10 Designing Organizational Structures
Departmentalization: functional (based on the primary function
performed in the unit), product (based on the good or service
produced or sold by the unit), process, customer (based on
primary type of customer served by unit), geographic
Centralization: top management makes all decisions with little
input from below
De-centralization: decision making authority is pushed down the
organizational hierarchy, empowerment
Flat vs. Tall Organizational structure: hierarchical vs. free-rein
empowered
Line Organization: direct line from top managers downward
Managerial Hierarchy: top, middle, supervisory
Chapter 11 Motivating Employees
Equity theory: worker satisfaction is influenced by employees
perception of how they are treated compared to other coworkers
ERG theory: (existence, relatedness, growth), Alderfer, Maslows
needs are not progressional or separate
Expectancy theory: the probability of an individuals acting in a
particular way depends on how strongly they believe the act will
have a particular outcome and on whether they value that
outcome
Goal-setting theory:
Hawthorne effect: employees perform better when they are
singled out for special attention
Theory X: people dont like work, they must be threatened and
controlled
Theory Y: people want to be self-directed and will try to
accomplish goals that they believe in, they can be motivated
with positive incentives
Theory Z: Jap Ouzi, long term employment, slow career
development, group decision making
Maslows Hierarchy: self-actualization on top
Extrinsic Rewards: company policy, relations with supervisors,
working conditions, salary, benefits
Intrinsic Rewards: achievement, recognition, responsibility,
growth

Hygiene factors: extrinsic elements of the workplace that do not

serve as a source of employee satisfaction or motivation

Chapter 12 HR and Labour Relations

Agency shop: not required to join union, but still must pay union
fees
Union shop: if hired, must join union immediately
Arbitration: third party mediation
Articling: working in an accredited environment to apply
theoretical knowledge
Closed shop: a company where only union members can be
hired, open-shop is opposite
Collective bargaining: negotiating labour agreements that
provide for compensation and working arrangements mutually
acceptable to the union and to mgmt
Contingent workers: prefer temporary employment, part or fulltime
Fringe benefits: indirect payment, pension, health care
insurance, vacations
Grievance: a formal complaint charging that mgmt has violated
the contract
Job rotation: re-assignment of workers to several different jobs
over time so that they can learn the basics of each
Mediation: a specialist in solving union dispute
COLA: cost of living adjustment, wages auto adjust to cost of
living
Chapter 13 Marketing
Benefit segmentation: differentiation of markets based on what a
product does rather than on customer characteristics
Cognitive Dissonance: held beliefs that disagree with ones
behaviour
Competitive advantage: differential, cost, niche
Core value proposition: a statement of the tangible results a
customer receives from using your product
Customer value: the ratio of benefits to the sacrifices made to
attain these benefits
Segmentation: demographic, geographic, market, psychographic,
volume
4 Ps: product, price, promotion, place, together make up the
marketing mix
Ideal self-image: the way an individual would like to be
Real self-image: how an individual actually perceives himself

Production orientation: company looks to reduce production cost,

little concern for customer satisfaction
Routine response behaviour: purchase of low-cost, frequently
bought items, little decision making or research
Selective exposure: the process of deciding which stimuli to
accept or ignore
Social marketing: the application of marketing techniques to
social issues, used to convince customers of ideas attitudes and
behaviours

Chapter 14 Creating Marketing Strategies

Activity based costing: assigns cost to all activities related to
product
Brand: creates a perception in the minds of the customers
Brokers: go-betweens that bring buyers and sellers together
Break even formula: total fixed cost divided by fixed cost
contribution
Bundling: grouping products but pricing them as one single
product
Capital products: large, expensive items purchased by
businesses with a long lifespan, used in making other products or
services
Convenience products: bread and milk
Expense items: purchased by businesses, smaller and less
expensive, lifespan less than one year
Distribution channel: the series of marketing entities through
which goods and services pass from producer to end user
Dual distribution:
Exclusive distribution: manufacturer selects only one or two
dealers to market its products in an area
Selective distribution: limited number of dealers but more than
one or two
Fixed Cost contribution: selling price (revenue) minus variable
costs
Intensive distribution: manufacturer sells products where there
are any potential customers
Mark-up pricing: a mark-up is added to the price
Leader pricing: underpricing to attract customers
Value pricing: target market is offered a high quality product w/
fair price and service
Master brand: Kleenex, Coca-Cola, Q-tips
Odd even pricing: odd number is a bargain, even is quality

Penetration pricing: introducing new products at low prices to

achieve large sales volume
Prestige pricing: increased price so consumers see it as high
quality
Price skimming: high initial price, lowers as product moves
through life cycle
Product life cycle: intro, growth, maturity, decline
Promo mix: combo of advertising, sales promo
Pull strategy: manufacturer focuses on stimulating consumer
demand rather than trying to persuade wholesalers
Push strategy: aggressive personal selling and advertising used
to convince a wholesaler to carry and sell its products
Total Cost: sum of fixed and variable costs
Total Profit: total revenue minus total cost
Total Revenue: selling price per unit times the number of units
sold
Unsought products: unknown or known but not sought after by
buyer, life insurance
Strategic channel alliance: one manufacturer using anothers
distribution channel

Chapter 15 Operations MGMT

Production: turning inputs into outputs
Operations mgmt: mgmt of the production process
Mass customization: mass production to a point, then customized
Job shop: man company that produces goods in response to
customer orders
Process man: production process broken down into one or more
outputs
Continuous process: no equipment shutdowns, high volume and
low variety
Intermittent process: short production runs to make batches of
different products, low volume and high variety
Process layout: products pass from one workstation to another,
people doing similar jobs are grouped together, work flows
according to the production process
Product layout: assembly line
Fixed-position layout: product stays in one place, workers and
machinery move to it as needed
Cellular man: production technique, uses small self-contained
production units
Bill of material: al the items needed to make a given product
Supply chain: securing inputs, producing goods, delivering goods

Logistics: the mgmt of the materials and services as they flow

through an organization
Routing: setting up the flow of production
Gantt Charts: bar graphs on timeline showing actual vs.
scheduled production
Six Sigma: quality control process
ISO 9000-14000 (environment): technical quality standards
Lean man: streamlining production by eliminating steps
customers are unwilling to pay for
JIT: just in time man, materials arrive exactly when needed, no
inventory on site

Chapter 16: Accounting

Accounting: collecting, recording, classifying, summarizing,
reporting and analyzing financial activities CMA CGA CPA
Managerial accounting: provides financial info to managers which
is used to improve the system, aid in decision making
Financial accounting: used by outsiders such as investors to
assess the financial strength of the business
ASPE: accounting framework
Acid test (quick) ratio: total current assets excluding inventory to
total current liabilities
Activity ratios:
Current ratio: total current assets to total current liabilities,
measures liquidity
Debt ratio: measure effectiveness of borrowed money use
Debt-to-equity ratio: total liabilities to owners equity, measures
relationship between amount of debt financing and amount of
equity financing
Inventory turnover ratio:
Profitability ratios: measure how well a company is using its
resources and how efficiently it is being managed
Amortization: allocation of an assets original cost to the years it
is expected to produce revenue
Assets: things of value owned by the company, intangible
(patents, copyrights, goodwill)
Current assets: assets that can be cash in a year
Liabilities: what a company owes to its creditors, debts current
owed in a year
Long term liabilities: owed in over a year
Balance sheets: a financial statement that summarizes a
companys financial position
Capital assets: long term assets, land, equipment, buildings

Cost of goods sold (COGS): the total expense of buying or

producing a companys goods and services
Expenses: the cost of generating revenues
Goodwill: the value paid for a company that exceeds the value of
its assets
Gross profit: the amount a company earns after paying to
produce or buy its products but before deducting operating
expenses
Gross sales: total dollar amount of a companys sales
Income statement: shows total profit or loss over a period of time
International financial reporting standards (IFRS): globally
accepted rules
Liquidity ratios: measure a companys ability to pay short term
debts as they come due
Net loss: amount obtained from subtracting all expenses from
revenues, when expenses > revenues
Net profit: net income, amount obtained by subtracting all of a
companys expenses from its revenues, when revenues >
expenses
Net profit margin: ratio of net profit to net sales, return on sales
Net sales: amount left after deducting discounts, returns and
allowances from gross sales
Net working capital: total current assets minus total current
liabilities
Owners equity: Net Worth, total investment in company minus
total liabilities
Retained earnings: amount left over from profitable operations,
total profits minus all dividends paid to shareholders
Return on equity (ROE): ratio of net profit to total owners equity
measures the return owners receive on their investment
Statement of cash flows: summary of money flowing into and out
of a company
Trial balance: a list of each account and its net balance
T-account: used to analyze financial transactions

Chapter 17 Understanding Money and the Canadian Financial System

Bank rate: interest rate that BOC charges on one day loans to
other banks
Bear markets: markets where security prices are falling
Bull Markets: markets where securities prices are rising
Bonds: securities that represent a long term debt obligation
issued by corporations and govts

Bond ratings: letter grades assigned to bonds to indicate quality

or level of risk, such as S&P
Broker markets or organized stock exchanges:
Canadian Deposit Insurance corporation (CDIC): federal crown
corp. provides deposit insurance and keeps the Canadian
financial system stable
Chartered banks: profit oriented financial institutions that do
bank stuff
Convertible bonds: corporate bonds that are issued with an
option that allows the bondholder to convert them into common
shares
Credit Unions: not for profit, member owned financial institutions
Dealer Markets: securities markets where buy and sell orders are
executed through dealers or market makers linked by
telecommunication networks
Debentures: unsecured bonds that are backed only by the
reputation of the issuer and its promise to pay the principal and
interest when due
Demand Deposits: money kept in chequing accounts
Exchange traded fund (ETF): a basket of marketable securities in
a category such as an industry sector, an investment objective,
or a geographic area or that track an index. ETFs are similar to
mutual funds but trade like shares
Financial intermediation: financial institutions act as
intermediaries between suppliers and demanders of funds
4 pillars of the Canadian financial system: banks, trusts,
insurance companies, investment dealers
High yield (junk) bonds: high risk high return bonds
Institutional investors: investment pros paid to handle other
peoples money
Interest: a fixed amount of money paid by the issuer of the bond
to the bondholder on a regular schedule, coupon rate
Investment bankers: companies that act as intermediaries,
buying securities from corporations and govts and reselling
them to the public
Mortgage bonds: corporate bonds that are secured by property
Mutual fund: a financial service company that pools its investors
funds to buy a selection of securities that meet its stated
investment goals
NASDAQ: the first electronic based stock exchange
Open market operations: purchase or sale of Canadian govt
securities by the Bank of Canada to stimulate or slow down the
economy

Over the counter market (OTC): a sophisticated

telecommunications network that links dealers and enables them
to trade securities
Pension funds: large pools of money set aside by corporations,
unions, and govts for later use in paying retirement benefits to
employees
Options: contracts that entitle holders to buy or sell specified
quantities of common shares or other financial instruments at a
set price during a specified time
Primary market: the securities market where new securities are
sold to the public usually with the help of investment bankers
Secondary Market: the securities market where already issued
(old) securities are bought and sold or traded among investors
Principal: the amount borrowed by the issuer of a bond, par value
Secured Bonds: corporate bonds for which specific assets have
been pledged as collateral
Securities: investment certificates issued by corporations or
govts that represent either equity or debt
Stockbroker: a person licensed to buy and sell stocks for clients
Overnight rate:
Term deposits: deposits at a bank that pay interest but cannot be
withdrawn on demand
Time deposits: money invested for a specific time period
Trust company: financial institution that conducts the same
activities as a bank but can also administer estates, trusts,
pension plans, and agency contracts
Underwriting: the process of buying securities from corporations
and govts and reselling them to the public with the aim of
reselling at a higher price the main activity of investment
bankers

Chapter 18 Finance
Accounts payable: a purchase for which the buyer has not yet
paid the seller
Accounts receivable: sales for a which a company has not yet
been paid
Bonds: long term debt obligation issued by corporations and
govts
Budgets: formal written forecasts and expenses that set
spending limits based on operational forecasts
Business interruption insurance: covers costs such as rented
temporary equipment, temporary facilities, and profits that
would have been earned during that period

Canada Pension Plan: insurance that provides retirement

disability death and health benefits
Capital Budgeting: forecast a companys outlays for fixed assets,
selecting the projects that offer the best returns while
maximizing company value
Capital expenditures: investments in long lived assets such as
land buildings that are expected to provide benefits extending
beyond one year
Cash flows: the inflows and outflows of cash for a company
Cash budgeting: forecast a companys cash inflows and outflows
Cash MGMT: making sure a company has enough cash on hand
to pay bills and meet unexpected expenses
Commercial paper: unsecured short term debt an IOU issued by a
financially strong corporation
Common shares: a security that represents an ownership in a
corporation
Deductibles: the amounts that the insured must pay before
insurance benefits begin
Dividends: payments to shareholders from a corporations profit
Employment insurance: payment of benefits to laid-off workers
while they seek new jobs
Enterprise Risk MGMT: a company wide strategy for identifying
monitoring and managing all elements of a companys risk
Factoring: a form of short term financing in which a company
sells its accounts receivable outright, at a discount to a factor,
when working capital is needed
Financial management: the art and science of managing a
companies money so that it can meet its goals
Financial risk: the chance a company will not be able to make its
debt payments
Insurable interest: an insurance applicants chance of loss if a
particular peril occurs
Insurable risk: a risk that an insurance company will cover
Insurance: the promise of compensation for certain financial loss
Insurance policy: a written agreement that defines what the
insurance covers and the risks that the insurance company will
bear for the insured party
Key person Life Insurance: a term insurance policy that names
the company as beneficiary
Law of large numbers: insurance companys prediction of
likelihood that a peril will occur, used to calculate premiums
Line of credit: an agreement between a bank and a business or
person that specifies the maximum amount of short term

borrowing the bank will make available to that business or

person
Long term forecasts: projections of a companys activities and
the funding for those activities over a period that is longer than a
year
Short term forecasts:
Marketable securities: short term investments easily convertible
to cash
Market cap: value of all stocks
Mortgage loan: long term loan with real estate as collateral
Operating budget: combine sales forecasts and estimates of
production costs and operating expenses to forecast profits
Peril: a hazard
Preferred shares: equity securities for which the dividend amount
is set at the time the shares are issued
Professional liability insurance: designed to practice top
management from lawsuits
Retained earnings: profits reinvested in the company
Return: the opportunity for profit
Revolving credit agreement: a line of credit that allows the
borrower to have access to funds again once it has been repaid
Risk: the potential for loss or the chance that an investment will
not achieve the expected level of return
Risk MGMT: the process of identifying and evaluating risks and
selecting and managing techniques to adapt to risk exposures
Risk-return trade off: the higher the risk, the greater return
required
Secured loans: loans for which the borrower is required to pledge
specific security
Share or stock dividends: dividends in the form of more shares
Speculative risk: the chance of either loss or gain w/o insurance
against the possible loss
Term loan: a business loan with an initial maturity of more than
one year; can be secured or unsecured
Trade credit: the extension of credit by the seller to the buyer
between the time the buyer receives the goods and when it pays
for them
Underwriting: a review process of all insurance applications and
the selection of those meeting the standards
Unsecured loans: loans for which the borrower does not have to
pledge specific assets as security
Workers compensation: payment during unemployment due to
job related injury