Presentation Transcript

1. Economics for Engineering Prof. Andrea Sianesiacademical year 2011/2012

   Introduction to Business Organisations: The company
2. A definition The company is… …an organization which carries out activities of production of goods and/or services through the exchange with the market and use of factors, which are paid through the results of the economic activity Company can be classified from several point of view: Industrial sector Private / public ownership EE – Introduction to "The Company"
3. Different kind of activities (sector) Primary Sector extraction of raw materials from the earth – mining, quarrying, fishing, agriculture, forestry Secondary Sector Processing of raw materials into finished or semi-finished products, manufacturing Tertiary Sector Service industries, transport, finance, distribution, retailing, wholesaling, communications, energy, water (utilities) Quarternary Sector Hi tech industries, training, health, education, research, leisure and recreation EE – Introduction to "The Company"
4. A company can be active in several sectors E.g.: British Petroleum (BP) Oil exploration and drilling (Primary) Refining oil – production of gas, petroleum, bitumen, lubricants, etc. (Manufacturing) Distribution of petrol from refineries to petrol stations and sales of petrol to consumer (Tertiary) Research and Development (Quarternary) EE – Introduction to "The Company"
5. Private or public ownership Private Sector: Business activity owned financed and controlled by private individuals Sole Traders Partnerships Private Limited Companies Co-operatives Franchises Charities Public Sector: Business Activity owned, financed and controlled by the state through government or local authorities Government – key departments set policy and monitor implementation Local Authorities – County Councils, District Councils, etc. Health Trusts Public Corporations, Public Limited Companies EE – Introduction to "The Company"
6. Private company: the objectives Profit Satisficing Survival Environment Image and Reputation Share Price Objectives Social Issues Quality and Innovation Market Power Efficiency Sales and Sales Revenue EE – Introduction to "The Company"
7. Public company: the objectives Access available to all regardless of location or income Quality high quality services that do not cut corners Affordability services offered at prices that are cheaper than private sector or free at the point of use Equity available to anyone whatever their background, status, income, class, race, religion, etc. EE – Introduction to "The Company"
8. Business objectives Business Organisations exist to provide goods or services Whether or not they have to make a profit, BOs have to satisfy customers’ wants or needs There can be many different motivations for people to set up in business Fed up with working for someone else Quality of life Buzz of success Feel in control Financial reward “I could do better than that!” Whatever the motivation, a business is set up solely to provide stakeholders satisfaction. EE – Introduction to "The Company"
9. What are Stakeholders? Stakeholders are groups of people who have an interest in a business organisation They can be seen as being either external to the organisation, or internal But some may be both! Example of stakeholder (Internal or External) Owners (I) Shareholders (I) Managers (I) Staff or employees (I) Customers (E) Suppliers (E) Community (E) Government (E) EE – Introduction to "The Company"
10. Internal and External Stakeholders Internal stakeholders are those who are ‘members’ of the business organisation Owners and shareholders Managers Staff and employees External stakeholders are not part of the firm Some groups can be both internal and external stakeholders Such as staff or shareholders who are also local residents EE – Introduction to "The Company"
11. Characteristics of Stakeholders Owners and Shareholders The number of owners and the roles they carry out differ according to the size of the firm In small businesses there may be only one owner (sole trader) or perhaps a small number of partners (partnership) In large firms there are often thousands of shareholders, who each owns a small part of the business Managers: organize make decisions plan control are accountable to the owner(s) EE – Introduction to "The Company"
12. Characteristics of Stakeholders Employees or Staff: A business needs staff or employees to carry out its activities Employees agree to work a certain number of hours in return for a wage or salary Pay levels vary with skills, qualifications, age, location, types of work and industry and other factors Customers: Customers buy the goods or services produced by firms They may be individuals or other businesses Firms must understand and meet the needs of their customers, otherwise they will fail to make a profit or, indeed, survive Suppliers: Firms get the resources they need to produce goods and services from suppliers Businesses should have effective relationships with their suppliers in order to get quality resources at reasonable prices This is a two-way process, as suppliers depend on the firms they supply EE – Introduction to "The Company"
13. Characteristics of Stakeholders Community: Firms and the communities they exist in are also in a two-way relationship The local community may often provide many of the firm’s staff and customers The business often supplies goods and services vital to the local area Government: Economic policies affect firms’ costs (through taxation and interest rates) Legislation regulates what business can do in areas such as the environment and occupational safety and health Successful firms are good for governments as they create wealth and employment EE – Introduction to "The Company"
14. What are Shareholders? Shareholders are individuals, group of individuals, Business Organisations, Public Organisations, Governments that directly own a share of the company The owners of “limited” companies can only be held responsible of the debts of a company up to the value of their investment in the business Other source of financing a company are: Loans Profits that are fed back into the business Grants and donations Owners often want to keep control of their businesses This leads many small firms to stay as sole traders, even though this limits their funds Taking on new partners or shareholders cuts the amount of control that owners have If you hold the majority of shares (over 50%) you can keep some control, but not all EE – Introduction to "The Company"
15. The objectives of the shareholders “Limited” companies use part of their profits to pay a dividend to shareholders They can choose not to pay a dividend but always have to pay interest on any borrowing the company has made Profits can be ‘retained’ and ploughed back into the company Any profits made (once tax has been paid) can be kept by the owners of the business This makes Sole Trader (and partnership) businesses very attractive But remember … whatever funds have been put into the business will be lost if it goes bust! EE – Introduction to "The Company"
16. Resources and rewards A company must ensure a profit to all its shareholders A company survives only if it succeeds in rewarding in the long term any resource given by any stakeholder De facto the company is not only a “property” of its shareholders EE – Introduction to "The Company"
17. What is the Profit? Profit is one of the rewards of setting up in business It pays back the business owner for taking an entrepreneurial risk Traditional Business Theory: Profit is the money that’s left after you’ve taken away your costs from your sales revenue: Profit = Sales – Costs Value Theory: Value is the maximisation of the enterprise value in the long term Value takes into account the sum of the profits over years and represents: The reward to the entrepreneur for taking a risk The ‘return’ on the money used to run a business A sign that people want to buy the product/service EE – Introduction to "The Company"
18. Costs and Revenues (rough introduction) Even before you sell anything, your business will have costs: Developing your product or service Researching your market Buying raw materials Finding premises Recruiting staff You need to “finance” the acquisition of all these items, this lead to establish an “obligation” toward the funder (stakeholder or shareholder) You calculate revenue by multiplying the number of items sold by their price Once you deduct all your costs from your revenue, taking also into account the remuneration of the funders, you have the profit you have made EE – Introduction to "The Company"