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Business-Government-Society

Business-Government-Society. Course Overview and Introduction “The Stock Market, the SEC, and YOU”. Business-Government-Society. Why do we need to study this field? Examine the interplay of business, government and society and its effect on management decision making.

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Business-Government-Society

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  1. Business-Government-Society • Course Overview and Introduction • “The Stock Market, the SEC, and YOU”

  2. Business-Government-Society • Why do we need to study this field? • Examine the interplay of business, government and society and its effect on management decision making.

  3. Business-Government-Society • Businesses • From Sole Proprietorships to Multinational Organizations • Governments • From Local to Federal Governments to International Organizations • Society • Customers, Stockholders, Employees, Citizens, Voters… • YOU!!!

  4. What Type of Topics Will We Cover? • Business History • Social Responsibility and Social Criticism • Corporate Governance • How Boards of Directors Function • Executive Compensation • Government Regulation of Business

  5. What Type of Topics Will We Cover? (Continued) • ETHICS • Andrew Fastow, former CFO of Enron • Charged with: • Wire fraud • obstruction of justice • insider trading • money laundering

  6. What Type of Topics Will We Cover? (Continued) • ETHICS • Martha Stewart, former CEO of Martha Stewart Living Omnimedia • Charged with: • Conspiracy • Obstruction of justice • Securities fraud

  7. What Type of Topics Will We Cover? (Continued) • Business Influence of Politics • Multinational Organizations and Global Management Issues • Environmental Pollution and Regulation • Consumer Rights

  8. A Good Example • The Stock Market • The SEC • Investors (YOU)

  9. Why Care About Stock Market? • Kind, Aunt Pearle dies and leaves you, a 20-year old, $10,000 • What would you do with that money? • 45 years later, at the age of 65, what is that money worth?

  10. Return on $10K for 45 years

  11. Aren’t Stocks Risky Investments? Source: Edward Jones, 2006

  12. What is a market? • Brings buyers and sellers together. • Facilitates the exchange process. • Market clearing price.

  13. What is a stock? • Ownership of a fraction of the business • American Airlines has roughly 158,000,000 shares of stock outstanding • If you own 25 shares of AMR do you own much of the company?

  14. What is the Stock Market? • Allows companies to raise capital by offering ownership or debt obligations to the general public. • Facilitates the trade of stock and other financial instruments

  15. Is there more than one market? • Securities Exchanges • New York Stock Exchange (NYSE) • American Stock Exchange • Regional: Chicago, Boston, San Francisco, Philadelphia • International: Tokyo, London, Paris • Over-The-Counter Market (OTC) • Nasdaq – National Association of Securities Dealers

  16. Why does a company seek debt or equity financing? • Expand facilities • Buy new equipment • Hire more employees • Buy a supplier or competitor • GROW THE BUSINESS!!! • Adjust the financial structure of the firm • Assets = Liabilities + Owners Equity

  17. What is the typical growth/finance cycle for a start-up business? • Stage 1 – The Idea • Personal Savings & 3Fs • Stage 2 – Early Growth • Line of Credit with bank • Angel Investors

  18. What is the typical growth/finance cycle for a start-up business? • Stage 3 – Significant Growth • Commercial Loans with banks • Venture Capitalist • Stage 4 – Exit Strategy • Investment Banking Firm • IPO or M&A

  19. What is an IPO? • Initial Public Offering • Allows company to raise money • The first stock transaction takes place in the “primary market” • All subsequent transactions of that stock take place in the “secondary” or “after market”

  20. Should a company be concerned about the stock price in after-market? • Price reflects the present value of the firm • Price reflects the “health” of a company and impacts its ability to raise capital in the future • Stock constitutes a form of compensation for execs and employees

  21. Indexes and Why They Are Important • The Dow Jones Industrial Average • The S&P 500 • The Wilshire 5,000 • The Nasdaq Index

  22. The “Dow” • 1896 – list of 12 “smokestack” stocks • 1928 – Expanded to 30 stocks; the number of stocks still used today • Charles H. Dow said his index was like “placing sticks in the beach sand to determine, wave after successive wave, whether the tide was coming in or going out.”

  23. 3M Alcoa American Express AT&T Bank of Amer. Boeing Catepillar Chevron Citigroup Coca-Cola DuPont Exxon Mobil General Electric General Motors Hewlett-Packard Home Depot Intel IBM Johnson & Johnson JPMorgan Chase Kraft Foods Companies in the Dow (Jan ’09) • McDonald’s • Merck • Microsoft • Pfizer • Procter & Gamble • United Technologies • Verizon • Wal-Mart • Walt Disney

  24. How is the Dow calculated? • Historically the price of the 12 stocks were added together and divided by 12 • Today the calculation is more complicated • Stock prices are weighted • The larger, more influential companies are weighted more • Stock prices are adjusted for splits • Serves as a historical or “legacy” index

  25. The S&P 500 Index • Standard and Poor’s 500 index was introduced in 1957 • The first “modern” index • Captures the market value of America’s largest companies • Represents about 80% of all market capitalization

  26. The Wilshire 5000 index • Introduced in 1974 • Designed to capture the performance of the entire market • Includes the large, blue-chip stocks of the S&P 500 • Also includes small and mid-cap stocks

  27. What is a P/E Ratio? • Calculated by dividing the price of a share of stock by the company’s earnings per share • Tells whether a stock is trading at a relatively cheap or expensive price • A P/E ratio of 18 assumes that for every dollar invested in the company’s stock that the company will return $18 through future growth and increase in stock price

  28. The Regulatory Pyramid U.S. Congress SEC State Legislators and States Attorneys Generals NYSE and Other Self-Regulatory Organizations

  29. The SEC • The Securities and Exchange Commission was created in 1934 by Congress to enforce • The Securities Act of 1933 • The Securities Exchange Act of 1934

  30. The SEC (continued) • The primary mission of the SEC is “to protect investors and maintain the integrity of the securities markets.” • Charged with: • Enforcing securities laws • Promoting stability in the markets • Protecting the individual investor

  31. Structure of the SEC • Consists of 5 presidential appointed Commissioners, serving staggered 5 year terms • President appoints one as “Chair” • Headquartered in Washington D.C. • 4 Divisions, 18 offices, 3,100 staff • Small for a federal government agency

  32. Individual Investor (You) • Makes investments in securities through • A broker • Mutual Fund • 401-K, 403-B, or IRA • Where to find investment information • http://money.cnn.com • The Wall Street Journal • Stock Broker

  33. More Information on Topics • NYSE.com • About the NYSE • Education • Educational Materials • “A Guide to the NYSE Marketplace” • SEC.gov • About the SEC

  34. Review of Overview Material • What is a stock? • Name three different stock exchanges? • Why does a company seek debt or equity financing? • What is an IPO? • What does the Dow Jones Industrial Average attempt to show? • What are the primary functions of the SEC?

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