For a firm like project repat, one of the advantages of incorporation is

William M. Pride Texas A&M University

Robert J. Hughes Dallas County Community Colleges

Jack R. Kapoor College of DuPage

Foundations of Business

Australia • Brazil • Mexico • Singapore • United Kingdom • United States

5e

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Foundations of Business, Fifth Edition William M. Pride, Robert J. Hughes, and Jack R. Kapoor

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To Nancy, Allen, Carmen, Mike, Ashley, Charlie, J.R., and Gracie Pride

To the memory of my wife Peggy and to my mother Barbara Hughes

To my wife Theresa; my children Karen, Kathryn, and Dave; and in memory of my parents Ram and Sheela Kapoor

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Part 1 the Environment of Business 2 Chapter 1 Exploring the World of Business and Economics 2 Chapter 2 Being Ethical and Socially Responsible 37 Chapter 3 Exploring Global Business 68

Part 2 Business Ownership and Entrepreneurship 104 Chapter 4 Choosing a Form of Business Ownership 104 Chapter 5 Small Business, Entrepreneurship, and Franchises 132

Part 3 Management and Organization 164 Chapter 6 Understanding the Management Process 164 Chapter 7 Creating a Flexible Organization 188 Chapter 8 Producing Quality Goods and Services 210

Part 4 Human resources 244 Chapter 9 Attracting and Retaining the Best Employees 244 Chapter 10 Motivating and Satisfying Employees and Teams 272

Part 5 Marketing 304 Chapter 11 Building Customer Relationships Through Effective Marketing 304 Chapter 12 Creating and Pricing Products That Satisfy Customers 329 Chapter 13 Distributing and Promoting Products 362

Part 6 Information, accounting, and Finance 400 Chapter 14 Exploring Social Media and e-Business 400 Chapter 15 Using Management and Accounting Information 433 Chapter 16 Mastering Financial Management 466

Glossary G-1 Name Index NI-1 Subject Index SI-1

The following appendixes appear on the companion site www.cengage.brain.com Appendix A: Understanding Personal Finances and Investments A-1 Appendix B: Careers in Business B-1 Appendix C: Enhancing Union–Management

Relations C-1 Appendix D: Risk Management and Insurance D-1 Appendix E: Business Law, Regulation,

and Taxation E-1

Brief Contents

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iv

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About the Author xii Acknowledgments xiii

PArT 1 The Environment of Business 2 Chapter 1: Exploring the World of Business and Economics 2

5 Inside Business: Visa’s Vast Global Payments Empire 3 Your Future in the Changing World of Business 4

Why Study Business? 5 • Special Note to Business Students 8 Personal App: Be the employee you’d like to hire! 7 Business: A Definition 10

The Organized Effort of Individuals 10 • Satisfying Needs 11 • Business Profit 12

Types of Economic Systems 12 Capitalism 14 • Capitalism in the United States 15 • Command Economies 17

Measuring Economic Performance 18 The Importance of Productivity in the Global Marketplace 18 • The Nation’s Gross Domestic Product 19 • Important Economic Indicators That Measure a Nation’s Economy 20

The Business Cycle 21 Career Success: Career Moves and the Business Cycle 22 Types of Competition 23

Perfect Competition 23 • Monopolistic Competition 25 • Oligopoly 26 • Monopoly 26

Entrepreneurial Success: Meet the Teenaged Founder of Fish Flops 26

American Business Today 27 Early Business Development 27 • Business Development in the 1900s 28 • A New Century: 2000 and Beyond 29 • The Current Business Environment 29 • The Challenges Ahead 31

Social Media: Government Agencies Go Social 30 Summary 32 Key Terms 34 Discussion Questions 34 Video Case: KlipTech Turns Recycled Paper into Products

and Profits 34 Building Skills for Career Success 35

Endnotes 36

Chapter 2: Being Ethical and Socially Responsible 37

5 Inside Business: Tesla Motors 38

Business Ethics Defined 39 Ethical Issues 39

Fairness and Honesty 39 • Organizational Relationships 40 • Conflict of Interest 40 • Communications 41

Factors Affecting Ethical Behavior 41 Individual Factors Affecting Ethics 42 • Social Factors Affecting Ethics 42 • Opportunity as a Factor Affecting Ethics 43

Encouraging Ethical Behavior 43 Government’s Role in Encouraging Ethics 43 • Trade Associations’ Role in Encouraging Ethics 44 • Individual Companies’ Role in Encouraging Ethics 44 • Social Responsibility 46

The Evolution of Social Responsibility in Business 47 Historical Evolution of Business Social Responsibility 47 • Two Views of Social Responsibility 49 • The Pros and Cons of Social Responsibility 49

Ethical Success or Failure Businesses Feel Pressure Over Conditions in Suppliers’ Factories 50

Public Responsibilities of Business 51 Consumerism 51 • Public Health 53

Personal App: Do you always know what you’re buying? 52 Social Media: The FTC Blogs and Tweets Too 53 Employment Practices 55

Affirmative Action Programs 56 • Training Programs for the Hard-Core Unemployed 57 • Programs to Reduce Sexual Harassment and Abusive Behavior 57

Environmental Concerns 58 Pollution 59 • Effects of Environmental Legislation 59 • Business Response to Environmental Concerns 60

Career Success: Aiming to Be a Chief Sustainability Officer? 59

Implementing a Program of Social Responsibility 62 Commitment of Top Executives 62 • Planning 62 • Appointment of a Director 62 • The Social Audit 62

Summary 63 Key Terms 64 Discussion Questions 64 Video Case: PortionPac Chemical Is People-Friendly,

Planet-Friendly 65 Building Skills for Career Success 65

Endnotes 66

Contents

Contents v

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vi Contents

Chapter 3: Exploring Global Business 68

5 Inside Business: Walmart’s Global Business Strategy 69 The Basis for International Business 70

Absolute and Comparative Advantage 70 • Exporting and Importing 71

Methods of Entering International Business 73 Licensing 73 • Exporting 74 • Joint Ventures 76 • Totally Owned Facilities 77 • Strategic Alliances 77 • Trading Companies 77 • Countertrade 77 • Multinational Firms 78

Entrepreneurial Success: Advice from Global Entrepreneurs 75 Personal App 76 Restrictions to International Business 78

Types of Trade Restrictions 79 • Reasons for Trade Restrictions 81 • Reasons Against Trade Restrictions 82

The Extent of International Business 83 The Economic Outlook for Trade 83

International Trade Agreements 86 The General Agreement on Tariffs and Trade and the World Trade Organization 86 • International Economic Organizations Working to Foster Trade 88

Career Success: Aiming for an Overseas Job? 87 Sources of Export Assistance 90 Financing International Business 91

The Export-Import Bank of the United States 91 • Multilateral Development Banks 91 • The International Monetary Fund 93 • The Challenges Ahead 93

Social Media: The IMF Goes Social Around the World 93 Summary 94 Key Terms 95 Discussion Questions 95 Video Case: Keeping Brazil’s Economy Hot 95

Building Skills for Career Success 96 Running a Business: Part 1: Let’s Go Get a Graeter’s! 98 Building a Business Plan: Part 1 100

Endnotes 102

PArT 2 Business Ownership and Entrepreneurship 104

Chapter 4: Choosing a Form of Business Ownership 104

5 Inside Business: GoPro’s Global Growth Began by Bootstrapping 105

Sole Proprietorships 106 Advantages of Sole Proprietorships 107 • Disadvantages of Sole Proprietorships 108 • Beyond the Sole Proprietorship 109

Social Media: Small Business Resources 109 Partnerships 109

Types of Partners 110 • The Partnership Agreement 111 Advantages and Disadvantages of Partnerships 112

Advantages of Partnerships 112 • Disadvantages of Partnerships 113 • Beyond the Partnership 114

Corporations 114 Corporate Ownership 115 • Forming a Corporation 115 • Corporate Structure 118

Entrepreneurial Success: Should Your Company Be a Benefit Corporation? 116

Personal App: Are you a stockholder? 117 Advantages and Disadvantages of Corporations 119

Advantages of Corporations 119 • Disadvantages of Corporations 120

Special Types of Business Ownership 121 S Corporations 121 • Limited-Liability Companies 122 • Not-for-Profit Corporations 123

Joint Ventures and Syndicates 123 Joint Ventures 124 • Syndicates 124

Ethical Success or Failure Tough Decisions for Entrepreneurs in Tough Situations 124

Corporate Growth 125 Growth from Within 125 • Growth Through Mergers and Acquisitions 125 • Merger and Acquisition Trends for the Future 127

Summary 128 Key Terms 129 Discussion Questions 129 Video Case: Project Repat Gives Old T-Shirts New Life 130

Building Skills for Career Success 130 Endnotes 131

Chapter 5: Small Business, Entrepreneurship, and Franchises 132

5 Inside Business: Bark & Co. Provides for Pampered Pooches 133

Small Business: A Profile 133 The Small-Business Sector 134 • Industries That Attract Small Businesses 135

Social Media: Small Business Saturday 135 Personal App: Have you worked for a small

business? 136 The People in Small Businesses: The Entrepreneurs 136

Characteristics of Entrepreneurs 137 • Other Personal Factors 137 • Motivation 138 • Women as Small-Business Owners 138 • Teenagers as Small-Business Owners 139 • Why Some Entrepreneurs and Small Businesses Fail 139

Career Success: Plan Now for an Entrepreneurial Venture Later 138

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Contents vii

The Importance of Small Businesses in Our Economy 140 Providing Technical Innovation 141 • Providing Employment 142 • Providing Competition 142 • Filling Needs of Society and Other Businesses 142

The Pros and Cons of Smallness 143 Advantages of Small Business 143 • Disadvantages of Small Business 144 • The Importance of a Business Plan 144 • Components of a Business Plan 145

The Small Business Administration 146 SBA Management Assistance 146 • Help for Minority-Owned Small Businesses 148 • SBA Financial Assistance 149

Franchising 150 What Is Franchising? 150 • Types of Franchising 150

Entrepreneurial Success: Is a Franchise in Your Future? 152

The Growth of Franchising 152 Are Franchises Successful? 153 • Advantages of Franchising 153 • Disadvantages of Franchising 154 • Global Perspectives in Small Business 155

Summary 156 Key Terms 157 Discussion Questions 157 Video Case: From Two Men and a Truck to 220

Franchises and 1,400 Trucks 158 Building Skills for Career Success 158 Running a Business: Part 2: Graeter’s: A Fourth-Generation Family Business 160 Building a Business Plan: Part 2 162

Endnotes 162

PArT 3 Management and Organization 164

Chapter 6: Understanding the Management Process 164

5 Inside Business: Managing Walt Disney for a Second Century of Creativity and Success 165

What is Management? 165 Personal App: Are you already a manager? 166 Basic Management Functions 167

Planning 167 • Organizing the Enterprise 171 • Leading and Motivating 171 • Controlling Ongoing Activities 172

Kinds of Managers 173 Levels of Management 173 • Areas of Management Specialization 174

Key Skills of Successful Managers 175 Conceptual Skills 176 • Analytic Skills 176 • Interpersonal Skills 177 • Technical Skills 177 • Communication Skills 177

Career Success: Collaborate Your Way to Success 176 Leadership 177

Formal and Informal Leadership 177 • Styles of Leadership 178 • Which Leadership Style Is the Best? 179

Entrepreneurial Success: Elon Musk’s Far-Out Ideas Are Crazy like a Fox 178

Managerial Decision Making 179 Identifying the Problem or Opportunity 180 • Generating Alternatives 180 • Selecting an Alternative 180 • Implementing and Evaluating the Solution 181

Ethical Success or Failure: CVS Backs Words with Actions 181

Managing Total Quality 181 Summary 183 Key Terms 184 Discussion Questions 184 Video Case: Meet Heidi Ganahl, Top Dog at Camp Bow

Wow 185 Building Skills for Career Success 185

Endnotes 186

Chapter 7: Creating a Flexible Organization 188

5 Inside Business: Can Structural Changes Re-Ignite McDonald’s Growth? 189

What is an Organization? 189 Developing Organization Charts 190 • Major Considerations for Organizing a Business 192

Job Design 192 Job Specialization 192 • The Rationale for Specialization 192 • Alternatives to Job Specialization 192

Career Success: Flexible Work Space: Are You Ready to Sit Next to the CEO? 193

Departmentalization 193 By Function 193 • By Product 194 • By Location 194 • By Customer 194 • Combinations of Bases 194

Delegation, Decentralization, and Centralization 195 Delegation of Authority 195 • Decentralization of Authority 196

The Span of Management 197 Wide and Narrow Spans of Management 197 • Organizational Height 198

Forms of Organizational Structure 198 The Line Structure 198 • The Line-and-Staff Structure 199 • The Matrix Structure 201 • The Network Structure 202

Personal App: Do you have a mentor? 199 Ethical Success or Failure: If We Get Ethics Right, Will

Compliance Follow? 200 Entrepreneurial Success: Entrepreneurs Set the Tone of

Corporate Culture 202 Corporate Culture 203 Committees and Task Forces 204 The Informal Organization and the Grapevine 205 Summary 206 Key Terms 207

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Discussion Questions 207 Video Case: Zappos Wants to Make Customers (and

Employees) Happy 207 Building Skills for Career Success 208

Endnotes 209

Chapter 8: Producing Quality Goods and Services 210

5 Inside Business: How Detroit Bikes Makes Bikes in Detroit 211

What is Production? 212 How American Manufacturers Compete in the Global Marketplace 212 • Careers in Operations Management 214

Social Media: Inside Boeing’s Factories 213 The Conversion Process 215

Manufacturing Using a Conversion Process 215

The Increasing Importance of Services 216 Planning Quality Services 216 • Evaluating the Quality of a Firm’s Services 217

Where do New Products and Services Come From? 218 Research and Development 218 • Product Extension and Refinement 218

Entrepreneurial Success: Have a New Product Idea? Think Quirky 219

How do Managers Plan Production? 220 Design Planning 220 • Site Selection and Facilities Planning 222 • Operational Planning 224

Career Success: How Would You Plan for Peak Holiday Deliveries? 225

Operations Control 226 Purchasing 226 • Inventory Control 227 • Scheduling 228 • Quality Control 228 • Production Planning: A Summary 231

Personal App: Nobody likes complaints! 229 Improving Productivity with Technology 232

Productivity Trends 232 • Improving Productivity Growth 233 • The Impact of Automation, Robotics, and Computers on Productivity 233 • Sustainability and Technological Displacement 235

Summary 236 Key Terms 237 Discussion Questions 237 Video Case: Chobani Gives the World a Taste for Greek

Yogurt 238 Building Skills for Career Success 239 Running a Business: Part 3: Graeter’s Grows Through Good Management, Organization, and Quality 240 Building a Business Plan: Part 3 242

Endnotes 242

PArT 4 Human resources 244

Chapter 9: Attracting and Retaining the Best Employees 244

5 Inside Business: Netflix Stands Ready to Change 245 Human Resources Management: An Overview 245

HRM Activities 246 • Responsibility for HRM 247 Personal App: How many skills do you have? 246 Human Resources Planning 247

Forecasting Human Resources Demand 247 • Forecasting Human Resources Supply 248 • Matching Supply with Demand 249

Entrepreneurial Success: Hiring Your First Employee: Key Questions to Consider 248

Cultural Diversity in Human Resources 250 Job Analysis 251 Recruiting, Selection, and Orientation 252

Recruiting 252 • Selection 254 • Orientation 256 Social Media: Recruiting Via Social Media 253 Compensation and Benefits 256

Compensation Decisions 256 • Comparable Worth 257 • Types of Compensation 258 • Employee Benefits 259

Career Success: What Are the Job Perks at Apple? 260 Training and Development 260

Analysis of Training Needs 261 • Training and Development Methods 261 • Evaluation of Training and Development 262

Performance Appraisal 262 Common Evaluation Techniques 262 • Performance Feedback 264

The Legal Environment of HRM 265 National Labor Relations Act and Labor–Management Relations Act 265 • Fair Labor Standards Act 265 • Equal Pay Act 266 • Civil Rights Acts 266 • Age Discrimination in Employment Act 266 • Occupational Safety and Health Act 266 • Employee Retirement Income Security Act 267 • Affirmative Action 267 • Americans with Disabilities Act 267

Summary 268 Key Terms 269 Discussion Questions 269 Video Case: The Container Store Hires Great Employees

to Sell Empty Boxes 269 Building Skills for Career Success 270

Endnotes 271

Chapter 10: Motivating and Satisfying Employees and Teams 272

5 Inside Business: What Makes a “Best Company to Work For”? 273

What is Motivation? 273 Historical Perspectives on Motivation 274

Scientific Management 274 • The Hawthorne Studies 275 • Maslow’s Hierarchy of Needs 276 • Herzberg’s Motivation– Hygiene Theory 277 • Theory X and Theory Y 279 • Theory Z 280 • Reinforcement Theory 281

viii Contents

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Contemporary Views on Motivation 281 Equity Theory 281 • Expectancy Theory 282 • Goal-Setting Theory 283

Key Motivation Techniques 284 Management by Objectives 284 • Job Enrichment 285 • Behavior Modification 286 • Flextime 286 • Part-Time Work and Job Sharing 287 • Telecommuting 288 • Employee Empowerment 289 • Employee Ownership 289

Career Success: Is Flextime for You? 287 Personal App: Can you work from home? 288 Entrepreneurial Success: A Time to Micromanage 290 Teams and Teamwork 290

What Is a Team? 291 • Types of Teams 291 • Developing and Using Effective Teams 292 • Roles Within a Team 293 •

Team Cohesiveness 293 • Team Conflict and How to Resolve It 294 • Benefits and Limitations of Teams 294

Ethical Success or Failure: When Teamwork Doesn’t Work 293 Summary 295 Key Terms 296 Discussion Questions 296 Video Case: Putting the Focus on People at the Fruit

Guys 297 Building Skills for Career Success 297 Running a Business: Part 4: At Graeter’s, Tenure Is “a Proud Number” 299 Building a Business Plan: Part 4 301

Endnotes 301

PArT 5 Marketing 304

Chapter 11: Building Customer Relationships Through Effective Marketing 304

5 Inside Business: Starbucks: What’s Not to Love 305 Managing Customer Relationships 305 Utility: The Value Added by Marketing 307 The Marketing Concept 308

Evolution of the Marketing Concept 308 • Implementing the Marketing Concept 309

Markets and their Classification 310 Developing Marketing Strategies 310

Target Market Selection and Evaluation 310 • Creating a Marketing Mix 313

Entrepreneurial Success: Small Businesses Create Big Buzz 315

Marketing Strategy and the Marketing Environment 316 Social Media: Warby Parker: Social Media Star 316 Developing a Marketing Plan 317 Personal App: Do you have a personal marketing plan? 318 Market Measurement and Sales Forecasting 318 Marketing Information 318

Marketing Information Systems 318 • Marketing Research 319 • Using Technology to Gather and Analyze Marketing Information 319

Types of Buying Behavior 321 Consumer Buying Behavior 321 • Business Buying Behavior 323

Ethical Success or Failure: Should E-Cigarettes Be Marketed to Young People? 322

Summary 324 Key Terms 325 Discussion Questions 325 Video Case: Raleigh Wheels Out Steel Bicycle Marketing 326

Building Skills for Career Success 327 Endnotes 327

Chapter 12: Creating and Pricing Products That Satisfy Customers 329

5 Inside Business: GoldieBlox Gets the Gold for Capitalizing on Free Marketing Opportunities 330

Classification of Products 331 Consumer Product Classifications 331 • Business Product Classifications 332

The Product Life-Cycle 332 Stages of the Product Life-Cycle 333 • Using the Product Life-Cycle 335

Personal App: Do you have one of these? 334 Product Line and Product Mix 335 Managing the Product Mix 336

Managing Existing Products 336 • Deleting Products 337 • Developing New Products 338 • Why Do Products Fail? 340

Entrepreneurial Success: BucketFeet: A Gift of Hand- Decorated Sneakers Creates a $1 Million Business 339

Branding, Packaging, and Labeling 340 What Is a Brand? 341 • Types of Brands 341 • Benefits of Branding 341 • Choosing and Protecting a Brand 343 • Branding Strategies 344 • Brand Extensions 344 • Packaging 344 • Labeling 346

Social Media: Going Boldly Where No Cookie Has Gone Before 342

Pricing Products 346 The Meaning and Use of Price 346 • Price and Non-Price Competition 347 • Buyers’ Perceptions of Price 347

Ethical Success or Failure: What is the Real Price…? 348 Pricing Objectives 348

Survival 348 • Profit Maximization 348 • Target Return on Investment 349 • Market-Share Goals 349 • Status-Quo Pricing 349

Pricing Methods 349 Cost-Based Pricing 349 • Demand-Based Pricing 351 • Competition-Based Pricing 351

Contents ix

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Pricing Strategies 351 New-Product Pricing 352 • Differential Pricing 352 • Psychological Pricing 353 • Product-Line Pricing 354 • Promotional Pricing 355

Pricing Business Products 355 Geographic Pricing 355 • Transfer Pricing 356 • Discounting 356

Summary 357 Key Terms 358 Discussion Questions 359 Video Case: Mi Ola Strives for a Marketing Splash 359

Building Skills for Career Success 360 Endnotes 361

Chapter 13: Distributing and Promoting Products 362

5 Inside Business: Under Armour Gaining in the Race against Nike 363

Distribution Channels and Market Coverage 364 Commonly Used Distribution Channels 364 • Level of Market Coverage 365

Partnering Through Supply-Chain Management 366 Marketing Intermediaries: Wholesalers 367

Wholesalers Provide Services to Retailers and Manufacturers 367 • Types of Wholesalers 367

Marketing Intermediaries: Retailers 368 Types of Retail Stores 369 • Types of Nonstore Selling 371 • Types of Shopping Centers 373

Entrepreneurial Success: Mobile Goes Retro: Food Trucks and More 370

Physical Distribution 374

Inventory Management 374 • Order Processing 375 • Warehousing 375 • Materials Handling 376 • Transportation 376

What is Integrated Marketing Communications? 377 The Promotion Mix: An Overview 378 Advertising 379

Types of Advertising by Purpose 379 • Major Steps in Developing an Advertising Campaign 380 • Advertising Agencies 382 • Social and Legal Considerations in Advertising 382

Personal Selling 383 Kinds of Salespersons 383 • The Personal-Selling Process 384 • Major Sales Management Tasks 385

Sales Promotion 385 Sales Promotion Objectives 385 • Sales Promotion Methods 386 • Selection of Sales Promotion Methods 386

Personal App: Do sales promotion tools affect your buying decision? 386

Ethical Success or Failure: On-Campus Branding: What’s Your Experience? 388

Public Relations 389 Types of Public-Relations Tools 389 • Uses of Public Relations 390

Social Media: UPS and FedEx Are Social Media Savvy 389 Summary 391 Key Terms 392 Discussion Questions 393 Video Case: Honest Tea Plus Coca-Cola Equals National

Distribution 393 Building Skills for Career Success 394 Running a Business: Part 5: Graeter’s is “Synonymous with Ice Cream” 396 Building a Business Plan: Part 5 398

Endnotes 398

PArT 6 Information, Accounting, and Finance 400

Chapter 14: Exploring Social Media and e-Business 400

5 Inside Business: Taco Bell’s Recipe for Social Media Success 401

Why is Social Media Important? 402 What Is Social Media and How Popular Is It? 402 • Why Businesses Use Social Media 402

Ethical Success or Failure: Should Social Media Disclose Experiments to Users? 404

Social Media Tools for Business Use 405 Business Use of Blogs 405 • Photos, Videos, and Podcasts 406 • Social Media Ratings 406 • Social Games 407

Achieving Business Objectives Through Social Media 407 Social Media Communities 408 • Crisis and Reputation Management 409 • Listening to Stakeholders 409 • Targeting Customers 410 • Social Media Marketing 410 • Generating New Product Ideas 412 • Recruiting Employees 413

Career Success: Do You Have a Future in Social Media? 409 Personal App: Make a Good Impression Using Social

Media 413 Developing a Social Media Plan 413

Steps to Build a Social Media Plan 413 • Measuring and Adapting a Social Media Plan 416 • The Cost of Maintaining a Social Media Plan 417

Defining e-Business 418 Organizing e-Business Resources 418 • Satisfying Needs Online 419 • Creating e-Business Profit 420

Entrepreneurial Success: Advice from Teenage App Entrepreneurs 419

Fundamental Models of e-Business 421 Business-to-Business (B2B) Model 421 • Business-to- Consumer (B2C) Model 422

The Future of the Internet, Social Media, and e-Business 423 Internet Growth Potential 423 • Ethical and Legal Concerns 424 • Future Challenges for Computer Technology, Social Media, and e-Business 425

x Contents

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Summary 427 Key Terms 428 Discussion Questions 429 Video Case: Luke’s Lobster: Entrepreneurs Use Social

Networking to Claw Their Way Up the Food Chain 429 Building Skills for Career Success 430

Endnotes 431

Chapter 15: Using Management and Accounting Information 433

5 Inside Business: Amazon Web Services Delivers in the Cloud 434

How Can Information Reduce Risk When Making a Decision? 435 Information and Risk 435 • Information Rules 436 • The Difference Between Data and Information 436 • Knowledge Management 437

Social Media: The Small Business Administration Is Big on Social Media 437

What is a Management Information System? 438 A Firm’s Information Requirements 438 • Costs and Limits of the System 440

How Do Employees Use a Management Information System? 440 Step 1: Collecting Data 441 • Step 2: Storing Data 442 • Step 3: Updating Data 442 • Step 4: Processing Data 442 • Step 5: Presenting Information 443

Personal App: Better Knowledge = Better Decisions 442 Why Accounting Information Is Important 445 Entrepreneurial Success: Avoid These Top Three

Accounting Mistakes 445 Why Audited Financial Statements Are Important? 446 • Accounting Fraud, Ethical Behavior, and Reform 446 • Different Types of Accounting 447 • Careers in Accounting 448

The Accounting Equation and the Balance Sheet 449 The Accounting Equation 449 • The Balance Sheet 450 • Assets 451 • Liabilities and Owners’ Equity 452

The Income Statement 453 Revenues 454 • Cost of Goods Sold 454 • Operating Expenses 455 • Net Income 456

Ethical Success or Failure: Timing Counts in Tesco’s Accounting Scandal 456

The Statement of Cash Flows 456 Evaluating Financial Statements 458

Comparing Financial Data 458 • Financial Ratios 460 Summary 461 Key Terms 463 Discussion Questions 463 Video Case: Making the Numbers or Faking the

Numbers? 463 Building Skills for Career Success 464

Endnotes 465

Chapter 16: Mastering Financial Management 466

5 Inside Business: Alibaba and the $25 Billion IPO 467 Why Financial Management? 468

The Need for Financial Management 468 • Financial Reform After the Economic Crisis 469 • Careers in Finance 469

The Need for Financing 470 Short-Term Financing 470 • Long-Term Financing 471 • The Risk–Return Ratio 472

Planning—The Basis of Sound Financial Management 472 Developing the Financial Plan 472 • Monitoring and Evaluating Financial Performance 475

Entrepreneurial Success: Celebrity Investors Bring Cash and Star Power 474

Personal App: Do You Have a Financial Plan? 475 Financial Services Provided by Banks and Other

Financial Institutions 476 Traditional Banking Services for Business Clients 476 • Credit and Debit Card Transactions 477 • Electronic Banking Services 478 • International Banking Services 478

Sources of Short-Term Debt Financing 479 Sources of Unsecured Short-Term Financing 479 • Sources of Secured Short-Term Financing 481 • Factoring Accounts Receivable 482 • Cost Comparisons 482

Sources of Equity Financing 483 Selling Stock 483 • Retained Earnings 485 Venture Capital, Angel Investors, and Private Placements 486

Social Media: Tweet to Chuck 485 Ethical Success or Failure: Should Fans Be Able to Buy

Securities Linked to Athletes? 487 Sources of Long-Term Debt Financing 487

Long-Term Loans 488 • Corporate Bonds 489 • Cost Comparisons 490

Summary 491 Key Terms 492 Discussion Questions 493 Video Case: Moonworks Partners with Bank Rhode

Island to Finance Growth 493 Building Skills for Career Success 494 Running a Business: Part 6: Graeter’s Recipe for Growth: New Systems, Social Media, and Financing 495 Building a Business Plan: Part 6 497

Endnotes 498

Glossary G-1 Name Index NI-1 Subject Index SI-1

The following appendixes appear on the companion site www.cengage.brain.com Appendix A: Understanding Personal Finances and

Investments A-1 Appendix B: Careers in Business B-1 Appendix C: Enhancing Union–Management Relations C-1 Appendix D: Risk Management and Insurance D-1 Appendix E: Business Law, Regulation, and Taxation E-1

Contents xi

Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

William M. Pride Texas A&M University William M. Pride is professor of marketing, Mays Business School at Texas A&M University. He received his PhD from Louisiana State University. He is the author of Cengage Learning’s Marketing, 15th edition, a market leader. Dr. Pride’s research interests are in advertising, promotion, and distribution channels. Dr. Pride’s research articles have appeared in major journals in the fields of advertising and marketing, such as Journal of Marketing, Journal of Marketing Research, Journal of the Academy of Marketing Science, and the Journal of Advertising. Dr. Pride is a member of the American Marketing Association, Academy of Marketing Science, Association of Collegiate Marketing Educators, Society for Marketing Advances, and the Marketing Management Association. Dr. Pride has taught principles of marketing and other marketing courses for more than 30 years at both the undergraduate and graduate levels.

Robert J. Hughes Richland College, Dallas County Community Colleges Robert J. Hughes (PhD, University of North Texas) specializes in business administration and college instruction. He has taught Introduction to Business for more than 35 years both on campus and online for Richland College— one of seven campuses that are part of the Dallas County Community College District. In addition to Business and Foundations of Business, published by Cengage Learning, he has authored college textbooks in personal finance and business mathematics; served as a content consultant for two popular national television series, It’s Strictly Business and Dollars & Sense: Personal Finance for the 21st Century; and is the lead author for a business math project utilizing computer-assisted instruction funded by the ALEKS Corporation. He is also active in many academic and professional organizations and has served as a consultant and investment advisor to individuals, businesses, and charitable organizations. Dr. Hughes is the recipient of three different Teaching in Excellence Awards at Richland College. According to Dr. Hughes, after 35 years of teaching Introduction to Business, the course is still exciting: “There’s nothing quite like the thrill of seeing students succeed, especially in a course like Introduction to Business, which provides the foundation for not only academic courses, but also life in the real world.”

Jack R. Kapoor College of DuPage Jack R. Kapoor (EdD, Northern Illinois University) has been a professor of business and economics in the Business and Technology Division at the College of DuPage, where he taught Introduction to Business, Marketing, Management, Economics, and Personal Finance for more than 44 years. Professor Kapoor is a recipient of the Business and Services Division’s Outstanding Professor Award. He previously taught at Illinois Institute of Technology’s Stuart School of Management, San Francisco State University’s School of World Business, and other colleges. He has also served as an Assistant National Bank Examiner for the U.S. Treasury Department and as an international trade consultant to Bolting Manufacturing Co., Ltd., Mumbai, India.

Dr. Kapoor is known internationally as a coauthor of several textbooks in Business and Personal Finance including Foundations of Business, 5th edition (Cengage Learning); has served as a content consultant for two popular national television series “The Business File: An Introduction to Business,” and “Dollars & Sense: Personal Finance for the 21st Century”; and developed two full-length audio courses in business and personal finance. He has been quoted in many national newspapers and magazines, including USA Today, U.S. News & World Report, the Chicago Sun-Times, Crain’s Small Business, the Chicago Tribune, and other publications.

Dr. Kapoor has traveled around the world and has studied business practices in capitalist, socialist, and communist countries.