1.
Business administration
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Business administration is management of a business. It includes all aspects of overseeing and supervising business operations, in general, administration refers to the broader management function, including the associated finance, personnel and MIS services. Alternatively, administration can refer to the bureaucratic or operational performance of routine tasks, usually internally oriented. Administrators, broadly speaking, engage in a set of functions to meet the organizations goals. These functions of the administrator were described by Henri Fayol as the five elements of administration, sometimes creating output, which includes all of the processes that create the product that the business sells, is added as a sixth element. A business administrator oversees a business and its operations, the job is to ensure that the business meets its goals and is properly organized and managed. When organizational changes are necessary, a person in this usually leads the way as well. In some cases, the person who starts or owns the business serves as its administrator, when a person has the title of business administrator, they are essentially the manager of the company and its other managers. The person oversees those in positions to ensure that they follow company policies. Additionally, they interact with people outside the company, such as business partners and vendors. The Bachelor of Business Administration is a degree in commerce. The degree is designed to give a broad knowledge of the aspects of a company and their interconnection. The degree also develops the students practical, managerial and communication skills, many programs incorporate training and practical experience, in the form of case projects, presentations, internships, industrial visits, and interaction with experts from industry. The Master of Business Administration is a degree in business administration. The MBA degree originated in the United States in the early 20th century when the country industrialized, most programs also include elective courses. The MBA is a degree and a professional degree. Accreditation bodies specifically for MBA programs ensure consistency and quality of education, Business schools in many countries offer programs tailored to full-time, part-time, executive, and distance learning students, many with concentrations. PhD in management is the highest academic degree awarded in the study of management science, the degree was designed for those seeking academic research and teaching careers as faculty or professors in the study of management at business schools worldwide
2.
Management
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Management is the administration of an organization, whether it be a business, a not-for-profit organization, or government body. The term management may also refer to the people who manage an organization, management is also an academic discipline, a social science whose objective is to study social organization and organizational leadership. Individuals who aim at becoming management researchers or professors may complete the Doctor of Business Administration or the PhD in business administration or management, in larger organizations, there are generally three levels of managers, which are typically organized in a hierarchical, pyramid structure. Senior managers provide direction to the managers who report to them. Middle managers, examples of which would include branch managers, regional managers and section managers, middle managers communicate the strategic goals of senior management to the front-line managers. Lower managers, such as supervisors and front-line team leaders, oversee the work of regular employees, in smaller organizations, the roles of managers have much wider scopes. A manager can perform several roles or even all of the commonly observed in a large organization. There are many smaller organizations than larger ones. Views on the definition and scope of management include, According to Henri Fayol, to manage is to forecast and to plan, to organise, to command, to co-ordinate, fredmund Malik defines it as the transformation of resources into utility. Management included as one of the factors of production - along with machines, materials, peter Drucker saw the basic task of management as twofold, marketing and innovation. Nevertheless, innovation is also linked to marketing, peter Drucker identifies marketing as a key essence for business success, but management and marketing are generally understood as two different branches of business administration knowledge. Management involves identifying the mission, objective, procedures, rules and this implies effective communication, an enterprise environment implies human motivation and implies some sort of successful progress or system outcome. As such, management is not the manipulation of a mechanism, not the herding of animals, management does not need to be seen from enterprise point of view alone, because management is an essential function to improve ones life and relationships. Management is therefore everywhere and it has a range of application. Based on this, management must have humans, communication, plans, measurements, motivational psychological tools, goals, and economic measures may or may not be necessary components for there to be management. At first, one views management functionally, such as measuring quantity, adjusting plans and this applies even in situations where planning does not take place. Critics, however, find this definition useful but far too narrow, one habit of thought regards management as equivalent to business administration and thus excludes management in places outside commerce, as for example in charities and in the public sector. More broadly, every organization must manage its work, people, processes, technology, nonetheless, many people refer to university departments that teach management as business schools
3.
Business
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A business is an organizational entity involved in the provision of goods and services to consumers. Businesses may also be social non-profit enterprises or state-owned public enterprises operated by governments with specific social, a business owned by multiple private individuals may form as an incorporated company or jointly organise as a partnership. Countries have different laws that may ascribe different rights to the business entities. The word business can refer to an organization or to an entire market sector or to the sum of all economic activity. Compound forms such as agribusiness represent subsets of the broader meaning. Businesses aim to maximize sales to have their income exceed their expenditures, resulting in a profit, the owner operates the business alone and may hire employees. A sole proprietor has unlimited liability for all obligations incurred by the business, partnership, A partnership is a business owned by two or more people. In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business, the three most prevalent types of for-profit partnerships are, general partnerships, limited partnerships, and limited liability partnerships. Corporation, The owners of a corporation have limited liability and the business has a legal personality from its owners. Corporations can be either government-owned or privately owned and they can organize either for profit or as nonprofit organizations. A privately owned, for-profit corporation is owned by its shareholders, a privately owned, for-profit corporation can be either privately held by a small group of individuals, or publicly held, with publicly traded shares listed on a stock exchange. Cooperative, Often referred to as a co-op, a cooperative is a limited-liability business that can organize as for-profit or not-for-profit, a cooperative differs from a corporation in that it has members, not shareholders, and they share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives, cooperatives are fundamental to the ideology of economic democracy. In contrast, unincorporated businesses or persons working on their own are not as protected. Franchises, A franchise is a system in which entrepreneurs purchase the rights to open, franchising in the United States is widespread and is a major economic powerhouse. One out of retail businesses in the United States are franchised and 8 million people are employed in a franchised business. Real estate businesses sell, invest, construct and develop properties – including land, residential homes, retailers, wholesalers, and distributors act as middlemen and get goods produced by manufacturers to the intended consumers, they make their profits by marking up their prices. Most stores and catalog companies are distributors or retailers, transportation businesses such as railways, airlines, shipping companies that deliver goods and individuals to their destinations for a fee
4.
Accounting
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Accounting or accountancy is the measurement, processing and communication of financial information about economic entities such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494, practitioners of accounting are known as accountants. The terms accounting and financial reporting are often used as synonyms, Accounting can be divided into several fields including financial accounting, management accounting, external auditing, and tax accounting. Accounting information systems are designed to support accounting functions and related activities, Accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statements are audited by accounting firms, and are prepared in accordance with generally accepted accounting principles. GAAP is set by various standard-setting organizations such as the Financial Accounting Standards Board in the United States, as of 2012, all major economies have plans to converge towards or adopt the International Financial Reporting Standards. The history of accounting is thousands of old and can be traced to ancient civilizations. By the time of the Emperor Augustus, the Roman government had access to detailed financial information, double-entry bookkeeping developed in medieval Europe, and accounting split into financial accounting and management accounting with the development of joint-stock companies. The first work on a double-entry bookkeeping system was published in Italy, both the words accounting and accountancy were in use in Great Britain by the mid-1800s, and are derived from the words accompting and accountantship used in the 18th century. In Middle English the verb to account had the form accounten, which was derived from the Old French word aconter, which is in turn related to the Vulgar Latin word computare, meaning to reckon. The base of computare is putare, which meant to prune, to purify, to correct an account, hence, to count or calculate. The word accountant is derived from the French word compter, which is derived from the Italian. Accountancy refers to the occupation or profession of an accountant, particularly in British English, Accounting has several subfields or subject areas, including financial accounting, management accounting, auditing, taxation and accounting information systems. Financial accounting focuses on the reporting of a financial information to external users of the information, such as investors. It calculates and records business transactions and prepares financial statements for the users in accordance with generally accepted accounting principles. GAAP, in turn, arises from the agreement between accounting theory and practice, and change over time to meet the needs of decision-makers. This branch of accounting is also studied as part of the exams for qualifying as an actuary. It is interesting to note that two professionals, accountants and actuaries, have created a culture of being archrivals
5.
Management accounting
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One simple definition of management accounting is the provision of financial and non-financial decision-making information to managers. Performance management—developing the practice of business decision-making and managing the performance of the organization, risk management—contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization. The Institute of Certified Management Accountants, Management accountants therefore are seen as the value-creators amongst the accountants. They are more concerned with looking and taking decisions that will affect the future of the organization, than in the historical recording. In 2014 CIMA created the Global Management Accounting Principles, the result of research from across 20 countries in five continents, the principles aim to guide best practice in the discipline. Focus, Financial accounting focuses on the company as a whole, Management accounting provides detailed and disagregated information about products, individual activities, divisions, plants, operations and tasks. Traditional approaches limit themselves by defining cost behavior only in terms of production or sales volume, in 1993, the Accounting Education Change Commission Statement Number 4 calls for faculty members to expand their knowledge about the actual practice of accounting in the workplace. Variance analysis is an approach to the comparison of the actual and budgeted costs of the raw materials. Other approach that can be viewed as innovative to the U. S. is the German approach, one of the more innovative accounting practices available today is resource consumption accounting. Consistent with other roles in corporations, management accountants have a dual reporting relationship. A function of management accounting in such organizations is to work closely with the IT department to provide IT cost transparency, given the above, one view of the progression of the accounting and finance career path is that financial accounting is a stepping stone to management accounting. Consistent with the notion of creation, management accountants help drive the success of the business while strict financial accounting is more of a compliance. Activity-based costing was first clearly defined in 1987 by Robert S. Kaplan and W. Bruns as a chapter in their book Accounting and Management, A Field Study Perspective. For example, increased automation has reduced labor, which is a direct cost, but has increased depreciation, the term Grenzplankostenrechnung, often referred to as GPK, has best been translated as either marginal planned cost accounting or flexible analytic cost planning and accounting. GPK is published in cost accounting textbooks, notably Flexible Plankostenrechnung und Deckungsbeitragsrechnung, in the mid- to late-1990s several books were written about accounting in the lean enterprise. The term lean accounting was coined during that period and these books contest that traditional accounting methods are better suited for mass production and do not support or measure good business practices in just-in-time manufacturing and services. The movement reached a point during the 2005 Lean Accounting Summit in Dearborn, Michigan. 320 individuals attended and discussed the advantages of a new approach to accounting in the lean enterprise,520 individuals attended the 2nd annual conference in 2006 and it has varied between 250 and 600 attendees since that time
6.
Financial accounting
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Financial accounting is the field of accounting concerned with the summary, analysis and reporting of financial transactions pertaining to a business. This involves the preparation of financial statements available for public consumption, stockholders, suppliers, banks, employees, government agencies, business owners, and other stakeholders are examples of people interested in receiving such information for decision making purposes. Financial accountancy is governed by local and international accounting standards. Generally Accepted Accounting Principles is the framework of guidelines for financial accounting used in any given jurisdiction. It includes the standards, conventions and rules that follow in recording and summarizing. IFRS are issued by the International Accounting Standards Board, with IFRS becoming more widespread on the international scene, consistency in financial reporting has become more prevalent between global organizations. Financial accounting and financial reporting are often used as synonyms, according to the European Accounting Association, Capital maintenance is a competing objective of financial reporting. When producing financial statements, they must comply to the following, Relevance and it must be possible for accounting information to influence decisions. Unless this characteristic is present, there is no point in cluttering statements, materiality, information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Reliability, accounting must be free from significant error or bias and it should be easily relied upon by managers. Often information that is highly relevant isn’t very reliable, and vice versa, understandability, accounting reports should be expressed as clearly as possible and should be understood by those to whom the information is relevant. Comparability can be ensured by applying the same accounting policies over time, the statement of cash flows considers the inputs and outputs in concrete cash within a stated period. During that same month, Ellen borrowed $20 from Tom, at the end of the month, Ellen bought a pair of shoes for $7. Theyd originally bought the tables for $25 each, and sold them at a price of $50 per table, the first table was paid out in cash however the second one was bought in credit terms. WikiTables cash flow statement for the month of June looks like this, Cash inflow and they didnt receive cash for the second table. Cash outflow, $50 - How much theyd originally bought the 2 tables for, opening balance, $0 Closing balance, $50 – $25 + $0 = $25–25=$0 - Indeed, the cash flow for the month of June for WikiTables amounts to $0 and not $50. Important, the cash flow statement only considers the exchange of actual cash, in the case of service organizations, they are called as profit & loss a/c as income statement. The right and left sides are equal in dollar amount
7.
Financial audit
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A financial audit is conducted to provide an opinion whether financial statements are stated in accordance with specified criteria. In accordance with the US GAAP, auditors must release an opinion of the financial statements in the auditors report. Auditors can release three types of other than an unqualified/unmodified opinion. The unqualified auditors opinion is the opinion that the statements are presented fairly. A qualified opinion can also be issued for a limitation that is of limited significance. Further the auditor can instead issue a disclaimer, because there is insufficient, in a disclaimer the auditor explains the reasons for withholding an opinion and explicitly indicates that no opinion is expressed. Finally, an audit opinion is issued when the financial statements do not present fairly due to departure from US GAAP. Financial audits are performed by firms of practicing accountants who are experts in financial reporting. The financial audit is one of many assurance functions provided by accounting firms, many organizations separately employ or hire internal auditors, who do not attest to financial reports but focus mainly on the internal controls of the organization. External auditors may choose to place limited reliance on the work of internal auditors, Auditing promotes transparency and accuracy in the financial disclosures made by an organization, therefore would likely reduce such corporations concealmeant of unscrupulous dealings. Internationally, the International Standards on Auditing issued by the International Auditing, almost all jurisdictions require auditors to follow the ISA or a local variation of the ISA. A misstatement is defined in ISA450 as an error, omitted disclosure or inappropriate accounting policy, material is an error or omission that would affect the users decision. Audits exist because they add value through easing the cost of asymmetry and reducing information risk. They handle the vast majority of audits for publicly traded companies as well as private companies. It is reported that the Big Four audit 99% of the companies in the FTSE100, and 96% of the companies in the FTSE250 Index, the Big Four firms are shown below, with their latest publicly available data. None of the Big Four firms is a firm, rather. Each is a network of firms, owned and managed independently, each network has established an entity to co-ordinate the activities of the network. In one case, the entity is Swiss, and in three cases the co-ordinating entity is a UK limited company
8.
Legal personality
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To have legal personality means to be capable of holding legal rights and obligations within a certain legal system, such as entering into contracts, suing, and being sued. Legal personality is a prerequisite to legal capacity, the ability of any person to amend rights. In international law, consequently, legal personality is a prerequisite for an organization to be able to sign international treaties in its own name. A holder of legal personality is called as a person, Persons are of two kinds, natural persons and juridical persons – entities such as corporations, which are treated in law as if they are persons. While human beings acquire legal personhood when they are born, juridical persons do so when they are incorporated in accordance with law, artificial personality, juridical personality, or juristic personality is the characteristic of a non-living entity regarded by law to have the status of personhood. A juridical or artificial person has a name and has certain rights, protections, privileges, responsibilities. The concept of a person is a fundamental legal fiction. It is pertinent to the philosophy of law, as it is essential to laws affecting a corporation, juridical personality allows one or more natural persons to act as a single entity for legal purposes. In many jurisdictions, artificial personality allows that entity to be considered under law separately from its individual members and they may sue and be sued, enter contracts, incur debt, and own property. Entities with legal personality may also be subjected to legal obligations. An entity with legal personality may shield its members from personal liability, in some common law jurisdictions a distinction is drawn between corporation aggregate and a corporation sole. Historically most corporations sole were ecclesiastical in nature, but a number of public offices are now formed as corporations sole. The concept of personality is not absolute. The concept of a person is now central to Western law in both common-law and civil-law countries, but it is also found in virtually every legal system. Examples are a religious officiant in that capacity, or The Crown in the Commonwealth realms, a corporation aggregate is a corporation constituted by more than one member. Municipal corporations are creatures of statute, other organizations may be created by statute as legal persons, including European economic interest groupings. Unincorporated associations, that is aggregates of two or more persons, are treated as persons in some jurisdictions but not others. Partnerships, an aggregate of two or more persons to carry on a business in common for profit and created by agreement, traditionally, partnerships did not have continuing legal personality, but many jurisdictions now treat them as having an independent legal personality
9.
Cooperative
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Cooperatives frequently have social goals which they aim to accomplish by investing a proportion of trading profits back into their communities. As an example of this, in 2013, retail co-operatives in the UK invested 6. 9% of their profits in the communities in which they trade as compared with 2. 4% for other rival supermarkets. The International Co-operative Alliance was the first international association formed by the cooperative movement and it includes the World Council of Credit Unions. A second organization was formed later in Germany, the International Raiffeisen Union, in the United States, the National Cooperative Business Association serves as the sectors oldest national membership association. It is dedicated to ensuring that cooperative businesses have the same opportunities as other businesses operating in the country, a U. S. National Cooperative Bank was formed in the 1970s. By 2004, a new association focused on worker co-ops was founded, since 2002 cooperatives and credit unions could be distinguished on the Internet by use of a. coop domain. Since 2014, following International Cooperative Alliances introduction of the Cooperative Marque, ICA cooperatives, cooperation dates back as far as human beings have been organizing for mutual benefit. Tribes were organized as cooperative structures, allocating jobs and resources among each other, in alpine environments, trade could only be maintained in organized cooperatives to achieve a useful condition of artificial roads such as Viamala in 1472. Pre-industrial Europe is home to the first cooperatives from an industrial context, in 1761, the Fenwick Weavers Society was formed in Fenwick, East Ayrshire, Scotland to sell discounted oatmeal to local workers. Its services expanded to include assistance with savings and loans, emigration and education, owen left New Lanark to pursue other forms of cooperative organization and develop coop ideas through writing and lecture. Cooperative communities were set up in Glasgow, Indiana and Hampshire, in 1828, William King set up a newspaper, The Cooperator, to promote Owens thinking, having already set up a cooperative store in Brighton. The Rochdale Society of Equitable Pioneers, founded in 1844, is considered the first successful cooperative enterprise, used as a model for modern coops. A group of 28 weavers and other artisans in Rochdale, England set up the society to open their own store selling food items they could not otherwise afford, within ten years there were over a thousand cooperative societies in the United Kingdom. Other events such as the founding of a society by the Tolpuddle Martyrs in 1832 were key occasions in the creation of organized labor. Cooperatives traditionally combine social benefit interests with capitalistic property-right interests, Cooperatives achieve a mix of social and capital purposes by democratically governing distribution questions by and between equal by not controlling members. Democratic oversight of decisions to equitably distribute assets and other benefits means capital ownership is arranged in a way for social benefit inside the organization, external societal benefit is also encouraged by incorporating the operating-principle of cooperation between co-operatives. In the final year of the 20th century, cooperatives banded together to establish a number of social enterprise agencies which have moved to adopt the cooperative model. In the years 1994–2009 the EU and its member nations gradually revised national accounting systems to make visible the increasing contribution of social economy organizations, the roots of the cooperative movement can be traced to multiple influences and extend worldwide
10.
Corporation
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A corporation is a company or group of people authorized to act as a single entity and recognized as such in law. Early incorporated entities were established by charter, most jurisdictions now allow the creation of new corporations through registration. Corporations chartered in regions where they are distinguished by whether they are allowed to be for profit or not are referred to as for profit and not-for-profit corporations, there is some overlap between stock/non-stock and for profit/not-for-profit in that not-for-profit corporations are always non-stock as well. A for profit corporation is almost always a stock corporation, registered corporations have legal personality and are owned by shareholders whose liability is limited to their investment. Shareholders do not typically actively manage a corporation, shareholders instead elect or appoint a board of directors to control the corporation in a fiduciary capacity, in American English, the word corporation is most often used to describe large business corporations. In British English and in the Commonwealth countries, the company is more widely used to describe the same sort of entity while the word corporation encompasses all incorporated entities. In American English, the company can include entities such as partnerships that would not be referred to as companies in British English as they are not a separate legal entity. Despite not being human beings, corporations, as far as the law is concerned, are legal persons. Corporations can exercise human rights against real individuals and the state, Corporations can be dissolved either by statutory operation, order of court, or voluntary action on the part of shareholders. Corporations can even be convicted of offenses, such as fraud. However, corporations are not considered living entities in the way humans are. While not a corporation, this new type of entity became very attractive as an alternative for corporations not needing to issue stock, in Germany, the organization was referred to as Gesellschaft mit beschränkter Haftung or GmbH. In the last quarter of the 20th Century this new form of organization became available in the United States and other countries. Since the GmbH and LLC forms of organization are technically not corporations they will not be discussed in this article, the word corporation derives from corpus, the Latin word for body, or a body of people. By the time of Justinian, Roman law recognized a range of corporate entities under the names universitas and these included the state itself, municipalities, and such private associations as sponsors of a religious cult, burial clubs, political groups, and guilds of craftsmen or traders. Such bodies commonly had the right to own property and make contracts, to receive gifts and legacies, to sue and be sued, private associations were granted designated privileges and liberties by the emperor. Entities which carried on business and were the subjects of rights were found in ancient Rome. In medieval Europe, churches became incorporated, as did local governments, such as the Pope, the point was that the incorporation would survive longer than the lives of any particular member, existing in perpetuity
11.
Partnership
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A partnership is an arrangement where parties, known as partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, organizations may partner together to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may be governed by a contract. In this case, the alliance may be structured in a process comparable to a Mergers & Acquisitions transaction, Partnerships present the involved parties with complex negotiation and special challenges that must be navigated unto agreement. Once agreement is reached, the partnership is typically enforceable by civil law, Partners who wish to make their agreement affirmatively explicit and enforceable typically draw up Articles of Partnership. It is common for information about formally partnered entities to be public, such as through a press release. While industrial partnerships stand to amplify mutual interests and accelerate success, when a politician, for example, partners with a corporation to advance the latters interest in exchange for some benefit, a conflict of interest results, consequentially, the public good may suffer. While technically lawful in some jurisdictions, such practice is viewed negatively or as corruption. Partnerships recognized by a government body may enjoy special benefits from taxation policy, in such countries, partnerships are often regulated via anti-trust laws, so as to inhibit monopolistic practices and foster free market competition. Enforcement of the laws, however, varies considerably, domestic partnerships recognized by governments typically enjoy tax benefits, as well. Under common law systems, the basic form of partnership is a general partnership. There are two types of partners, general partners have an obligation of strict liability to third parties injured by the Partnership. General partners may have joint liability or joint and several liability depending upon circumstances, the liability of limited partners is limited to their investment in the partnership. Summarising s.5 of the Partnership Act 1958, for a partnership in Australia to exist and they are, Valid Agreement between the parties, To carry on a business – this is defined in s. A partnership is defined as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all, the law does not require written partnership agreement between the partners to form a partnership. A partnership does not also required to be registered, however an unregistered partnership has a number of limitation regarding enforcing its rights in any court, a partnership is considered as a separate legal identity in Bangladesh only if the partnership is registered. There must be a minimum of 2 partners and maximum of 20 partners, statutory regulation of partnerships in Canada fall under provincial jurisdiction. A partnership is not a legal entity and partnership income is taxed at the rate of the partner receiving the income
12.
Corporate governance
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Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed. Corporate governance includes the processes through which corporations objectives are set and pursued in the context of the social, regulatory, Governance mechanisms include monitoring the actions, policies, practices, and decisions of corporations, their agents, and affected stakeholders. Corporate governance practices are affected by attempts to align the interests of stakeholders, Corporate scandals of various forms have maintained public and political interest in the regulation of corporate governance. In the U. S. these include Enron and MCI Inc and their demise led to the enactment of the Sarbanes-Oxley Act in 2002, a U. S. federal law intended to restore public confidence in corporate governance. Comparable failures in Australia are associated with the passage of the CLERP9 reforms. Similar corporate failures in other countries stimulated increased regulatory interest, internal stakeholders are the board of directors, executives, and other employees. Much of the contemporary interest in governance is concerned with mitigation of the conflicts of interests between stakeholders. The danger arises that, rather than overseeing management on behalf of shareholders and this aspect is particularly present in contemporary public debates and developments in regulatory policy. Ways of mitigating or preventing these conflicts of interests include the processes, customs, policies, laws, an important theme of governance is the nature and extent of corporate accountability. A related discussion at the macro level focuses on the effect of a corporate governance system on economic efficiency and this has resulted in a literature focussed on economic analysis. In this sense, Governance and Corporate Governance are different from management because governance must be EXTERNAL to the object being governed, governing agents do not have personal control over, and are not part of the object that they govern. For example, it is not possible for a CIO to govern the IT function and they are personally accountable for the strategy and management of the function. As such, they “manage” the IT function, they do not “govern” it, at the same time, there may be a number of policies, authorized by the board, that the CIO follows. When the CIO is following these policies, they are performing “governance” activities because the intention of the policy is to serve a governance purpose. Without these policies, procedures and indicators, the board has no way of governing, one source defines corporate governance as the set of conditions that shapes the ex post bargaining over the quasi-rents generated by a firm. The firm itself is modelled as a structure acting through the mechanisms of contract. Here corporate governance may include its relation to corporate finance, the Cadbury and Organisation for Economic Co-operation and Development reports present general principles around which businesses are expected to operate to assure proper governance. Rights and equitable treatment of shareholders, Organizations should respect the rights of shareholders and they can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings
13.
Board of directors
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A board of directors is a body of elected or appointed members who jointly oversee the activities of a corporation or organization, which can include a non-profit organization or a government agency. A board of directors activities are determined by the powers, duties and responsibilities conferred on it by an authority outside itself and these matters are typically detailed in regulations or in the organizations constitution and bylaws. These authorities may specify the number of members of the board, how they are to be chosen, and how often they are to meet. In an organization with voting members, the board is accountable to, and might be subordinate to, the full membership. In a stock corporation, non-executive directors are voted for by the shareholders, the board of directors appoints the chief executive officer of the corporation and sets out the overall strategic direction. In corporations with dispersed ownership, the identification and nomination of directors are often done by the board itself, in a non-stock corporation with no general voting membership, the board is the supreme governing body of the institution, its members are sometimes chosen by the board itself. Other names include Board of directors and advisors, board of governors, board of managers, board of regents, board of trustees and it may also be called the executive board and is often simply referred to as the board. For companies with publicly trading stock, these responsibilities are typically much more rigorous, typically, the board chooses one of its members to be the chairman, who holds whatever title is specified in the bylaws or articles of association. However, in organizations, the members elect the president of the organization. The directors of an organization are the persons who are members of its board, several specific terms categorize directors by the presence or absence of their other relationships to the organization. An inside director is a director who is also an employee, officer, chief executive, major shareholder, inside directors represent the interests of the entitys stakeholders, and often have special knowledge of its inner workings, its financial or market position, and so on. Executive directors often have an area of responsibility in the organization, such as finance, marketing, human resources. An outside director is a member of the board who is not otherwise employed by or engaged with the organization, a typical example is a director who is president of a firm in a different industry. Outside directors are not employees of the company or affiliated with it in any other way, outside directors bring outside experience and perspectives to the board. One of the arguments for having outside directors is that they can keep a eye on the inside directors. Outside directors are unlikely to tolerate insider dealing between insider directors, as outside directors do not benefit from the company or organization, outside directors are often useful in handling disputes between inside directors, or between shareholders and the board. They are thought to be advantageous because they can be objective, director - a person appointed to serve on the board of an organization, such as an institution or business. This practice results in an interlocking directorate, where a small number of individuals have significant influence over a large number of important entities
14.
Advisory board
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An advisory board is a body that provides non-binding strategic advice to the management of a corporation, organization, or foundation. The informal nature of an advisory board gives greater flexibility in structure, unlike the Board of Directors, the advisory board does not have authority to vote on corporate matters or bear legal fiduciary responsibilities. Many new or small businesses choose to have advisory boards in order to benefit from the knowledge of others, the function of an advisory board is to offer assistance to enterprises with anything from marketing to managing human resources to influencing the direction of regulators. Advisory boards are composed of accomplished experts offering advice and dynamic perspectives. Meeting quarterly or biannually, boards can provide direction, guide quality improvement. Thus, a board may be a more suitable solution to entrepreneurs who want access to high-quality advice. Advisory board, as a group, could also provide non-biased information. Advisory board members should provide the company with knowledge, understanding, Companies should seek advisory board members whose qualities complement the existing board of directors and not mask gaps in knowledge or skill in the main board. An advisory board strengthens the existing board, but does not interfere with authorities of the existing board. ”, There are two key questions to be asked when creating and operating an advisory board. The first question is who is trying to achieve what from an advisory board, the second question is how the business of the board should be conducted. The following issues need to be addressed, the type of advisory board members should be determined by the nature of what is sought and expected from them by the enterprise. Advisory board members should have knowledge on different aspects of business such as marketing, product development. Eventually, it could result in a waste of resources and time for the enterprise, the advisory board must determine what the focus of the committee is, whether it is a broad focus or a narrow one on a specific product feature. Individuals in a board should share a common goal or similar interests. For example, Algorithmics Incorporated, a company acquired by IBM in 2011, employees in Algorithmics specialize in software development, mathematics, financial engineering and risk analytics. This common interest help ensure that the board would be committed and pleased to meet with the CEO of Algorithmics. Size of an advisory board influences the efficiency of delivering ongoing information, a large advisory board may result in managerial issues. Therefore, if is recommended an advisory board to begin with the advisory board leader, group dynamics suggests the maximum size for an advisory board is eight members, which takes into account of the need for enterprise people and other facilitators at meetings
15.
Corporate law
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Corporate law is the practice or study of how shareholders, directors, employees, creditors, and other stakeholders such as consumers, the community, and the environment interact with one another. Corporate law is a part of a broader companies law, other types of business associations can include partnerships, or trusts, or companies limited by guarantee. Under corporate law, corporations of all sizes have separate legal personality, shareholders control the company through a board of directors which, in turn, typically delegates control of the corporations day-to-day operations to a full-time executive. Corporate law deals with firms that are incorporated or registered under the corporate or company law of a state or their subnational states. Corporate law is divided into corporate governance and corporate finance. The word corporation is generally synonymous with large publicly owned companies in the United States, in United Kingdom, company is more frequently used as the legal term for any business incorporated under the Companies Act 2006. Large scale companies will be PLCs in the United Kingdom and will usually have shares listed on a Stock Market. In British legal usage any registered company, created under the Companies Act 2006 and previous equivalent legislation, is, strictly, such a company is created by the administrative process of registration under the Companies Act as a general piece of legislation. A corporation, in this British sense, can be a corporation sole which consists of an office occupied by one person e. g. the monarch or certain bishops in England. Here, the office is recognized as separate from the individual who holds it, in the United States, a company may or may not be a separate legal entity, and is often used synonymously with firm or business. A corporation may accurately be called a company, however, a company should not necessarily be called a corporation, which has distinct characteristics. According to Blacks Law Dictionary, in America a company means a corporation — or, less commonly, the defining feature of a corporation is its legal independence from the people who create it. If a corporation fails, its shareholders will lose their money, shareholders are not liable for any remaining debts owed to the corporations creditors. This rule is called limited liability, and it is why corporations end with Ltd, in the words of British judge, Walton J, a company is. only a juristic figment of the imagination, lacking both a body to be kicked and a soul to be damned. But despite this, under just about every system in existence and as per international norms, corporations have the same legal rights. Corporations can exercise human rights against real individuals and the state, just as they are born into existence through its members obtaining a certificate of incorporation, they can die when they lose money into insolvency. Corporations can even be convicted of offences, such as fraud. Although some forms of companies are thought to have existed during Ancient Rome and Ancient Greece, with increasing international trade, Royal charters were granted in Europe to merchant adventurers
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Trade
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Trade, or commerce, involves the transfer of goods or services from one person or entity to another, often in exchange for money. A network that allows trade is called a market, the original form of trade, barter, saw the direct exchange of goods and services for other goods and services. Barter is trading things without the use of money, later one side of the barter started to involve precious metals, which gained symbolic as well as practical importance. Modern traders generally negotiate through a medium of exchange, such as money, as a result, buying can be separated from selling, or earning. The invention of money greatly simplified and promoted trade, Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade. Trade exists due to the specialization and division of labor, in which most people concentrate on an aspect of production. As such, trade at prices between locations can benefit both locations. Trade originated with human communication in prehistoric times, trading was the main facility of prehistoric people, who bartered goods and services from each other before the innovation of modern-day currency. Peter Watson dates the history of commerce from circa 150,000 years ago. In the Mediterranean region the earliest contact between cultures were of members of the species Homo sapiens principally using the Danube river, at a time beginning 35–30,000 BCE, Trade is believed to have taken place throughout much of recorded human history. There is evidence of the exchange of obsidian and flint during the stone age, Trade in obsidian is believed to have taken place in Guinea from 17,000 BCE. The earliest use of obsidian in the Near East dates to the Lower, Trade in the stone age was investigated by Robert Carr Bosanquet in excavations of 1901. Trade is believed to have first begun in south west Asia, obsidian was traded at distances of 900 kilometres within the Mediterranean region. Trade in the Mediterranean during the Neolithic of Europe was greatest in this material, networks were in existence at around 12,000 BCE Anatolia was the source primarily for trade with the Levant, Iran and Egypt according to Zarins study of 1990. Melos and Lipari sources produced among the most widespread trading in the Mediterranean region as known to archaeology, the Sari-i-Sang mine in the mountains of Afghanistan was the largest source for trade of Lapis Lazuli. The material was most largely traded during the Kassite period of Babylonia beginning 1595 BCE, ebla was a prominent trading centre during the third millennia, with a network reaching into Anatolia and north Mesopotamia. Materials used for creating jewelry were traded with Egypt since 3000 BCE, long-range trade routes first appeared in the 3rd millennium BCE, when Sumerians in Mesopotamia traded with the Harappan civilization of the Indus Valley. The Phoenicians were noted sea traders, traveling across the Mediterranean Sea, for this purpose they established trade colonies the Greeks called emporia
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Contract
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A contract is a voluntary arrangement between two or more parties that is enforceable by law as a binding legal agreement. Contract is a branch of the law of obligations in jurisdictions of the civil law tradition, Contract law concerns the rights and duties that arise from agreements. A contract arises when the parties agree that there is an agreement, formation of a contract generally requires an offer, acceptance, consideration, and a mutual intent to be bound. Each party to a contract must have capacity to enter the agreement, minors, intoxicated persons, and those under a mental affliction may have insufficient capacity to enter a contract. Some types of contracts may require formalities, such as a memorialization in writing, at common law, the elements of a contract are offer, acceptance, intention to create legal relations, and consideration. Not all agreements are necessarily contractual, as the parties generally must be deemed to have an intention to be legally bound, a so-called gentlemens agreement is one which is not intended to be legally enforceable, and which is binding in honour only. In order for a contract to be formed, the parties must reach mutual assent and this is typically reached through offer and an acceptance which does not vary the offers terms, which is known as the mirror image rule. An offer is a statement of the offerors willingness to be bound should certain conditions be met. If a purported acceptance does vary the terms of an offer, it is not an acceptance but a counteroffer and, therefore, the Uniform Commercial Code disposes of the mirror image rule in §2-207, although the UCC only governs transactions in goods in the USA. As a court cannot read minds, the intent of the parties is interpreted objectively from the perspective of a reasonable person and it is important to note that where an offer specifies a particular mode of acceptance, only an acceptance communicated via that method will be valid. Contracts may be bilateral or unilateral, a bilateral contract is an agreement in which each of the parties to the contract makes a promise or set of promises to each other. For example, in a contract for the sale of a home, less common are unilateral contracts in which one party makes a promise, but the other side does not promise anything. In these cases, those accepting the offer are not required to communicate their acceptance to the offeror, in a reward contract, for example, a person who has lost a dog could promise a reward if the dog is found, through publication or orally. The payment could be conditioned on the dog being returned alive. Those who learn of the reward are not required to search for the dog, but if someone finds the dog and delivers it, the High Court of Australia stated that the term unilateral contract is unscientific and misleading. In certain circumstances, a contract may be created. A contract is implied in fact if the circumstances imply that parties have reached an agreement even though they have not done so expressly, quantum meruit claims are an example. Carbolic, a firm, advertised a smoke ball marketed as a wonder drug that would, according to the instructions
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Corporate crime
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In criminology, corporate crime refers to crimes committed either by a corporation, or by individuals acting on behalf of a corporation or other business entity. Some negative behaviours by corporations may not actually be criminal, laws vary between jurisdictions, for example, some jurisdictions allow insider trading. The world’s gross criminal product has been estimated at 20 percent of world trade, and state-corporate crime because, in many contexts, the opportunity to commit crime emerges from the relationship between the corporation and the state. In English law, this was matched by the decision in Salomon v Salomon & Co AC22, in Australian law, under the Corporations Act 2001, a corporation is legally a person. Corporate crime has become politically sensitive in some countries, the Law Reform Commission of New South Wales offers an explanation of such criminal activities, Corporate crime poses a significant threat to the welfare of the community. Similarly, Russell Mokhiber and Robert Weissman assert, At one level and these may serve the economic interests of mass consumers by introducing new products and more efficient methods of mass production. On another level, given the absence of political control today, corporations serve to destroy the foundations of the civic community, Behavior can be regulated by the civil law or the criminal law. In deciding to criminalize particular behavior, the legislature is making the judgment that this behavior is sufficiently culpable to deserve the stigma of being labelled as a crime. In law, corporations can commit the same offences as natural persons, but states depend on the business sector to deliver a functioning economy, so the politics of regulating the individuals and corporations which supply that stability become more complex. For the views of Marxist criminology, see Snider and Snider & Pearce, for Left realism, see Pearce & Tombs and Schulte-Bockholt, more specifically, the historical tradition of sovereign state control of prisons is ending through the process of privatisation. Corporate profitability in these areas therefore depends on building more facilities, managing their operations. In turn, this requires a steady stream of prisoners able to work, bribery and corruption are problems in the developed world, and the corruption of public officials is thought to be a serious problem in developing countries, and an obstacle to development. Edwin Sutherlands definition of white collar crime also is related to notions of corporate crime, one paper discusses some of the issues that arise in the relationship between private sector and corruption. The findings can be summarized as follows, They present evidence that corruption induces informality by acting as a barrier to entry into the formal sector, firms that are forced to go underground operate at a smaller scale and are less productive. Corruption also affects the growth of firms in the private sector and this result seems to be independent of the size of the firm. A channel through which corruption may affect the prospects of firms is through its negative impact on product innovation. SMEs pay higher bribes as percentage of revenue compared with large companies, bribery is not the only form of corruption affecting large firms. Embezzlement by a company’s own employees, corporate fraud, and insider trading can be damaging to enterprises too
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Insolvency law
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Insolvency is the state of being unable to pay the money owed, by a person or company, on time, those in a state of insolvency are said to be insolvent. There are two forms, cash-flow insolvency and balance-sheet insolvency, cash-flow insolvency is when a person or company has enough assets to pay what is owed, but does not have the appropriate form of payment. For example, a person may own a house and a valuable car. Cash-flow insolvency can usually be resolved by negotiation, for example, the bill collector may wait until the car is sold and the debtor agrees to pay a penalty. Balance-sheet insolvency is when a person or company does not have enough assets to pay all of their debts, the person or company might enter bankruptcy, but not necessarily. Once a loss is accepted by all parties, negotiation is often able to resolve the situation without bankruptcy, a company that is balance-sheet insolvent may still have enough cash to pay its next bill on time. However, most laws will not let the company pay that bill unless it will help all their creditors. For example, an insolvent farmer may be allowed to people to help harvest the crop. While technical insolvency is a synonym for insolvency, cash-flow insolvency. The term cash-flow insolvent carries a connotation that the debtor is balance-sheet solvent. Cash-flow insolvency involves a lack of liquidity to pay debts as they fall due, balance sheet insolvency involves having negative net assets—where liabilities exceed assets. Insolvency is not a synonym for bankruptcy, which is a determination of insolvency made by a court of law with resulting legal orders intended to resolve the insolvency, accounting insolvency happens when total liabilities exceed total assets. This is known as business turnaround or business recovery, implementing a business turnaround may take many forms, including keep and restructure, sale as a going concern, or wind-down and exit. In some jurisdictions, it is an offence under the laws for a corporation to continue in business while insolvent. In others, the business may continue under a declared protective arrangement while alternative options to achieve recovery are worked out, increasingly, legislatures have favored alternatives to winding up companies for good. It can be, in several jurisdictions, grounds for an action or even an offence. Debt restructurings are typically handled by professional insolvency and restructuring practitioners, and are less expensive. Although the term bankrupt may be used referring to a government and this is so because bankruptcy is governed by national law, there exists no entity to take over such a government and distribute assets to creditors
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Mergers and acquisitions
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Mergers and acquisitions are transactions in which the ownership of companies, other business organizations or their operating units are transferred or combined. As an aspect of management, M&A can allow enterprises to grow, shrink. An acquisition or takeover is the purchase of one business or company by company or other business entity. Specific acquisition targets can be identified through a myriad of avenues including market research, trade expos, or sent up from internal business units, such purchase may be of 100%, or nearly 100%, of the assets or ownership equity of the acquired entity. Consolidation occurs when two companies combine to form a new enterprise altogether, and neither of the previous companies remains independently, Acquisitions are divided into private and public acquisitions, depending on whether the acquiree or merging company is or is not listed on a public stock market. Some public companies rely on acquisitions as an important value creation strategy, an additional dimension or categorization consists of whether an acquisition is friendly or hostile. Achieving acquisition success has proven to be difficult, while various studies have shown that 50% of acquisitions were unsuccessful. Serial acquirers appear to be successful with M&A than companies who only make an acquisition occasionally. It is normal for M&A deal communications to take place in a so-called confidentiality bubble wherein the flow of information is restricted pursuant to confidentiality agreements. Hostile acquisitions can, and often do, ultimately become friendly and this usually requires an improvement in the terms of the offer and/or through negotiation. Acquisition usually refers to a purchase of a firm by a larger one. Sometimes, however, a firm will acquire management control of a larger and/or longer-established company. This is known as a reverse takeover, another type of acquisition is the reverse merger, a form of transaction that enables a private company to be publicly listed in a relatively short time frame. A reverse merger occurs when a privately held company buys a publicly listed company, usually one with no business. The overall net effect of M&A transactions appears to be positive, almost all studies report positive returns for the investors in the combined buyer and this implies that M&A creates economic value, presumably by transferring assets to management teams that operate them more efficiently. The buyer buys the assets of the target company, the cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. This type of leaves the target company as an empty shell. A buyer often structures the transaction as a purchase to cherry-pick the assets that it wants and leave out the assets
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Economics
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Economics is a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services according to the Merriam-Webster Dictionary. Economics focuses on the behaviour and interactions of economic agents and how economies work, consistent with this focus, textbooks often distinguish between microeconomics and macroeconomics. Microeconomics examines the behaviour of elements in the economy, including individual agents and markets, their interactions. Individual agents may include, for example, households, firms, buyers, macroeconomics analyzes the entire economy and issues affecting it, including unemployment of resources, inflation, economic growth, and the public policies that address these issues. Economic analysis can be applied throughout society, as in business, finance, health care, Economic analyses may also be applied to such diverse subjects as crime, education, the family, law, politics, religion, social institutions, war, science, and the environment. At the turn of the 21st century, the domain of economics in the social sciences has been described as economic imperialism. The ultimate goal of economics is to improve the conditions of people in their everyday life. There are a variety of definitions of economics. Some of the differences may reflect evolving views of the subject or different views among economists, to supply the state or commonwealth with a revenue for the publick services. Say, distinguishing the subject from its uses, defines it as the science of production, distribution. On the satirical side, Thomas Carlyle coined the dismal science as an epithet for classical economics, in this context and it enquires how he gets his income and how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man. He affirmed that previous economists have usually centred their studies on the analysis of wealth, how wealth is created, distributed, and consumed, but he said that economics can be used to study other things, such as war, that are outside its usual focus. This is because war has as the goal winning it, generates both cost and benefits, and, resources are used to attain the goal. If the war is not winnable or if the costs outweigh the benefits. Some subsequent comments criticized the definition as overly broad in failing to limit its subject matter to analysis of markets, there are other criticisms as well, such as in scarcity not accounting for the macroeconomics of high unemployment. The same source reviews a range of included in principles of economics textbooks. Among economists more generally, it argues that a particular definition presented may reflect the direction toward which the author believes economics is evolving, microeconomics examines how entities, forming a market structure, interact within a market to create a market system
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Commodity
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In economics, a commodity is a marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services, the word commodity came into use in English in the 15th century, from the French commodité, amenity, convenience. Going further back, the French word derives from the Latin commoditas, meaning suitability, convenience, the Latin word commodus meant variously appropriate, proper measure, time, or condition, and advantage, benefit. The term commodity is specifically used for a good or service when the demand for it has no qualitative differentiation across a market. In other words, a commodity good or service has full or partial but substantial fungibility, that is, the market treats its instances as equivalent or nearly so with no regard to who produced them. As the saying goes, From the taste of wheat, it is not possible to tell who produced it, a Russian serf, petroleum and copper are other examples of such commodities, their supply and demand being a part of one universal market. Items such as systems, on the other hand, have many aspects of product differentiation, such as the brand, the user interface. The demand for one type of stereo may be larger than demand for another. In contrast, one of the characteristics of a commodity good is that its price is determined as a function of its market as a whole, well-established physical commodities have actively traded spot and derivative markets. Generally, these are basic resources and agricultural products such as ore, sugar. Soft commodities are goods that are grown, while hard commodities are ones that are extracted through mining, there is another important class of energy commodities which includes electricity, gas, coal and oil. Electricity has the characteristic that it is usually uneconomical to store, hence. Commoditization occurs as a goods or services market loses differentiation across its supply base, as such, goods that formerly carried premium margins for market participants have become commodities, such as generic pharmaceuticals and DRAM chips. Following this trend, nanomaterials are emerging from carrying premium profit margins for market participants to a status of commodification, there is a spectrum of commoditization, rather than a binary distinction of commodity versus differentiable product. Many products degree of commoditization depends on the mentality and means. For example, milk, eggs, and notebook paper are not differentiated by many customers, for them, other customers take into consideration other factors besides price, such as environmental sustainability and animal welfare. This is a list of companies trading globally in commodities, descending by size as of October 28,2011, on a commodity exchange, it is the underlying standard stated in the contract that defines the commodity, not any quality inherent in a specific producers product. Commodities exchanges include, Bourse Africa Bursa Malaysia Derivatives Chicago Board of Trade Chicago Mercantile Exchange Dalian Commodity Exchange Euronext and these markets will quickly respond to changes in supply and demand to find an equilibrium price and quantity
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Public economics
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Public economics is the study of government policy through the lens of economic efficiency and equity. At its most basic level, public economics provides a framework for thinking about whether or not the government should participate in economic markets and to what extent it should do so. In order to do this, microeconomic theory is utilized to assess whether the market is likely to provide efficient outcomes in the absence of governmental interference. Inherently, this involves the analysis of government taxation and expenditures. This subject encompasses a host of topics including market failures, externalities, Public economics builds on the theory of welfare economics and is ultimately used as a tool to improve social welfare. Emphasis is on analytical and scientific methods and normative-ethical analysis, as distinguished from ideology, examples of topics covered are tax incidence, optimal taxation, and the theory of public goods. The Journal of Economic Literature classification codes are one way categorizing the range of economics subjects, there, Public Economics, one of 19 primary classifications, has 8 categories. Diamond and James A. Mirrlees published a paper which showed that even when lump-sum taxation is not available. One of the achievements for which the great English economist A. C. Pigou is known, was his work on the divergences between marginal private costs and marginal social costs, in his book, The Economics of Welfare, Pigou describes how these divergences come about. It is, however, possible for the State, if it so chooses, the most obvious forms which these encouragements and restraints may assume are, of course, those of bounties and taxes. Alternatively, he describes negative externalities, such as the factory that destroys a great part of the amenities of neighboring sites, in 1960, the economist Ronald H. Coase proposed an alternative scheme whereby negative externalities are dealt with through the appropriate assignment of property rights. This result is known as the Coase theorem, Public goods, or collective consumption goods, exhibit two properties, non-rivalry and non-excludability. Something is non-excludable if its use cannot be limited to a group of people. Again, since one cannot prevent people from viewing a firework display it is non-excludable, conceptually, another example of public good is the service that is provided by law enforcement organizations, such as sheriffs and police. Typically, cities and towns are served by one police department. The latter book is considered a classic in the field of operations research. In subsequent years, several important works appeared, Jack Hirshleifer, James DeHaven. Lectures in Public Economics, McGraw-Hill Auerbach, Alan J. and Martin S. Feldstein, Economics of the Welfare State, 4th ed. Oxford University Press
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Labour economics
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Labour economics seeks to understand the functioning and dynamics of the markets for wage labour. Labour markets or job markets function through the interaction of workers and employers, Labour economics looks at the suppliers of labour services and the demanders of labour services, and attempts to understand the resulting pattern of wages, employment, and income. In economics, labour is a measure of the work done by human beings and it is conventionally contrasted with such other factors of production as land and capital. There are theories which have developed a concept called human capital, there are two sides to labour economics. Labour economics can generally be seen as the application of microeconomic or macroeconomic techniques to the labour market, microeconomic techniques study the role of individuals and individual firms in the labour market. Macroeconomic techniques look at the interrelations between the market, the goods market, the money market, and the foreign trade market. It looks at how these interactions influence macro variables such as employment levels, participation rates, aggregate income, the labour force is defined as the number of people of working age, who are either employed or actively looking for work. The participation rate is the number of people in the force divided by the size of the adult civilian noninstitutional population. The unemployment level is defined as the labour force minus the number of people currently employed, the unemployment rate is defined as the level of unemployment divided by the labour force. The employment rate is defined as the number of people currently employed divided by the adult population, in these statistics, self-employed people are counted as employed. Variables like employment level, unemployment level, labour force, and they can be contrasted with flow variables which measure a quantity over a duration of time. Changes in the force are due to flow variables such as natural population growth, net immigration, new entrants. Technological advancement often reduces frictional unemployment, for example, internet search engines have reduced the cost, structural unemployment – This reflects a mismatch between the skills and other attributes of the labour force and those demanded by employers. The process of globalization has contributed to changes in labour markets. Natural rate of unemployment – This is the summation of frictional and structural unemployment and it is the lowest rate of unemployment that a stable economy can expect to achieve, given that some frictional and structural unemployment is inevitable. Economists do not agree on the level of the rate, with estimates ranging from 1% to 5%. The estimated rate varies from country to country and from time to time, demand deficient unemployment – In Keynesian economics, any level of unemployment beyond the natural rate is probably due to insufficient goods demand in the overall economy. During a recession, aggregate expenditure is deficient causing the underutilisation of inputs, neoclassical economists view the labour market as similar to other markets in that the forces of supply and demand jointly determine price and quantity
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Development economics
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Development economics is a branch of economics which deals with economic aspects of the development process in low-income countries. Development economics involves the creation of theories and methods that aid in the determination of policies and practices, unlike in many other fields of economics, approaches in development economics may incorporate social and political factors to devise particular plans. Also unlike many other fields of economics, there is no consensus on what students should know, different approaches may consider the factors that contribute to economic convergence or non-convergence across households, regions, and countries. The earliest Western theory of development economics was mercantilism, which developed in the 17th century, earlier theories had given little attention to development. For example, Scholasticism the dominant school of thought during medieval feudalism, emphasized reconciliation with Christian theology and ethics, the 16th- and 17th-century School of Salamanca, credited as the earliest modern school of economics, likewise did not address development specifically. Mercantilism held that a nations prosperity depended on its supply of capital and it emphasised the maintenance of a high positive trade balance as a means of accumulating this bullion. To achieve a trade balance, protectionist measures such as tariffs. Mercantilist development theory also advocated colonialism, in France, mercantilist policy is most associated with 17th-century finance minister Jean-Baptiste Colbert, whose policies proved influential in later American development. Mercantilist ideas continue in the theories of nationalism and neomercantilism. A significant difference from mercantilism was the de-emphasis on colonies, in favor of a focus on domestic production, the names most associated with 19th-century economic nationalism are the American Alexander Hamilton, the German-American Friedrich List, and the American Henry Clay. Hamiltons 1791 Report on Manufactures, his opus, is the founding text of the American System. The key authors are Paul Rosenstein-Rodan, Kurt Mandelbaum, Ragnar Nurkse, only after the war did economists turn their concerns towards Asia, Africa and Latin America. At the heart of these studies, by such as Simon Kuznets and W. Arthur Lewis was an analysis of not only economic growth. The linear-stages-of-growth model posits that there are a series of five stages of development which all countries must go through during the process of development. Such theories have been criticized for not recognizing that, while necessary and that is to say that this early and simplistic theory failed to account for political, social and institutional obstacles to development. Furthermore, this theory was developed in the years of the Cold War and was largely derived from the successes of the Marshall Plan. This has led to the criticism that the theory assumes that the conditions found in developing countries are the same as those found in post-WWII Europe. There are two forms of structural-change theory, W
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International economics
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It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration. International finance studies the flow of capital across international markets. International monetary economics and international macroeconomics study flows of money across countries, the economic theory of international trade differs from the remainder of economic theory mainly because of the comparatively limited international mobility of the capital and labour. In that respect, it would appear to differ in degree rather than in principle from the trade between regions in one country. Thus the methodology of international trade economics differs little from that of the remainder of economics, modern trade analysis, on the other hand, depends mainly upon empirical analysis. However, extremely restrictive assumptions have had to be adopted in order to make the problem amenable to theoretical analysis, on those assumptions, it derives a model of the trade patterns that would arise solely from international differences in the relative abundance of labour and capital. The resulting theorem states that, on those assumptions, a country with an abundance of capital would export capital-intensive products. The Stolper-Samuelson theorem, which is described as a corollary of the H-O theorem, was an early example. In its most general form it states that if the price of a good rises then the price of the factor used intensively in that industry will also rise while the price of the factor will fall. In the international context for which it was devised it means that trade lowers the real wage of the scarce factor of production. Those theories have sometimes taken to mean that trade between an industrialised country and a developing country would lower the wages of the unskilled in the industrialised country. Modern trade analysis moves away from the assumptions of the H-O theorem and explores the effects upon trade of a range of factors, including technology. It makes extensive use of econometrics to identify from the available statistics, the contributions of differences of technology have been evaluated in several such studies. The temporary advantage arising from a development of a new technology is seen as contributory factor in one study. Another econometric study also established a correlation between size and the share of exports made up of goods in the production of which there are scale economies. There is a presumption that any exchange that is freely undertaken will benefit both parties, but that does not exclude the possibility that it may be harmful to others. However Paul Samuelson has proved that it always be possible for the gainers from international trade to compensate the losers. They suggested that much of the gain arises from the growth of the most productive firms at the expense of the less productive
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Econometrics
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Econometrics is the application of statistical methods to economic data and is described as the branch of economics that aims to give empirical content to economic relations. More precisely, it is the analysis of actual economic phenomena based on the concurrent development of theory and observation. An introductory economics textbook describes econometrics as allowing economists to sift through mountains of data to extract simple relationships, the first known use of the term econometrics was by Polish economist Paweł Ciompa in 1910. Ragnar Frisch is credited with coining the term in the sense in which it is used today, the basic tool for econometrics is the multiple linear regression model. Econometric theory uses statistical theory and mathematical statistics to evaluate and develop econometric methods, econometricians try to find estimators that have desirable statistical properties including unbiasedness, efficiency, and consistency. Applied econometrics uses theoretical econometrics and real-world data for assessing economic theories, developing models, analyzing economic history. The basic tool for econometrics is the linear regression model. In modern econometrics, other tools are frequently used. Estimating a linear regression on two variables can be visualized as fitting a line through points representing paired values of the independent and dependent variables. For example, consider Okuns law, which relates GDP growth to the unemployment rate, the unknown parameters β0 and β1 can be estimated. Here β1 is estimated to be −1.77 and β0 is estimated to be 0.83 and this means that if GDP growth increased by one percentage point, the unemployment rate would be predicted to drop by 1.77 points. The model could then be tested for statistical significance as to whether an increase in growth is associated with a decrease in the unemployment, as hypothesized. If the estimate of β1 were not significantly different from 0, the variance in a prediction of the dependent variable as a function of the independent variable is given in polynomial least squares. Econometric theory uses statistical theory and mathematical statistics to evaluate and develop econometric methods, econometricians try to find estimators that have desirable statistical properties including unbiasedness, efficiency, and consistency. Ordinary least squares is used for estimation since it provides the BLUE or best linear unbiased estimator given the Gauss-Markov assumptions. Estimators that incorporate prior beliefs are advocated by those who favor Bayesian statistics over traditional, classical or frequentist approaches, applied econometrics uses theoretical econometrics and real-world data for assessing economic theories, developing econometric models, analyzing economic history, and forecasting. Econometrics may use standard statistical models to study economic questions, but most often they are with observational data, rather than in controlled experiments. In this, the design of studies in econometrics is similar to the design of studies in other observational disciplines, such as astronomy, epidemiology, sociology
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Environmental economics
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Environmental economics is a sub-field of economics that is concerned with environmental issues. Particular issues include the costs and benefits of alternative policies to deal with air pollution, water quality, toxic substances, solid waste. Environmental economics is distinguished from ecological economics in that ecological economics emphasizes the economy as a subsystem of the ecosystem with its focus upon preserving natural capital, central to environmental economics is the concept of market failure. Market failure means that markets fail to allocate resources efficiently, as stated by Hanley, Shogren, and White in their textbook Environmental Economics, A market failure occurs when the market does not allocate scarce resources to generate the greatest social welfare. A wedge exists between what a person does given market prices and what society might want him or her to do to protect the environment. Such a wedge implies wastefulness or economic inefficiency, resources can be reallocated to make at least one person better off without making anyone worse off. Common forms of failure include externalities, non-excludability and non-rivalry. An externality exists when a person makes a choice that affects people in a way that is not accounted for in the market price. An externality can be positive or negative, but is associated with negative externalities in environmental economics. For instance, water seepage in residential buildings happen in upper floor affect the lower floor, or a firm emitting pollution will typically not take into account the costs that its pollution imposes on others. As a result, pollution may occur in excess of the efficient level. When it is too costly to some people from access to an environmental resource. In either case of non-exclusion, market allocation is likely to be inefficient and these challenges have long been recognized. Hardins concept of the tragedy of the commons popularized the challenges involved in non-exclusion and common property, the basic problem is that if people ignore the scarcity value of the commons, they can end up expending too much effort, over harvesting a resource. Hardin theorizes that in the absence of restrictions, users of a resource will use it more than if they had to pay for it and had exclusive rights. See, however, Ostroms work on how people using real common property resources have worked to establish self-governing rules to reduce the risk of the tragedy of the commons. The mitigation of climate change effects is an example of a public good and this is a public good since the risks of climate change are both non-rival and non-excludable. Such efforts are non-rival since climate mitigation provided to one does not reduce the level of mitigation that anyone else enjoys and they are non-excludable actions as they will have global consequences from which no one can be excluded
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Microeconomics
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One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods and services and allocate limited resources among alternative uses. Microeconomics shows conditions under which free markets lead to desirable allocations and it also analyzes market failure, where markets fail to produce efficient results. Microeconomics also deals with the effects of economic policies on the aspects of the economy. Particularly in the wake of the Lucas critique, much of modern macroeconomic theory has been built upon microfoundations—i. e, based upon basic assumptions about micro-level behavior. Microeconomic theory typically begins with the study of a single rational, to economists, rationality means an individual possesses stable preferences that are both complete and transitive. The technical assumption that preference relations are continuous is needed to ensure the existence of a utility function, microeconomic theory progresses by defining a competitive budget set which is a subset of the consumption set. It is at point that economists make the technical assumption that preferences are locally non-satiated. Without the assumption of LNS there is no guarantee that an individual would maximize utility. With the necessary tools and assumptions in place the utility maximization problem is developed, the utility maximization problem is the heart of consumer theory. The utility maximization problem attempts to explain the action axiom by imposing rationality axioms on consumer preferences, the utility maximization problem serves not only as the mathematical foundation of consumer theory but as a metaphysical explanation of it as well. That is, the utility maximization problem is used by economists to not only explain what or how individuals make choices, the utility maximization problem is a constrained optimization problem in which an individual seeks to maximize utility subject to a budget constraint. Economists use the extreme value theorem to guarantee that a solution to the utility maximization problem exists and that is, since the budget constraint is both bounded and closed, a solution to the utility maximization problem exists. Economists call the solution to the utility maximization problem a Walrasian demand function or correspondence, the utility maximization problem has so far been developed by taking consumer tastes as the primitive. However, a way to develop microeconomic theory is by taking consumer choice as the primitive. This model of microeconomic theory is referred to as Revealed preference theory, the theory of supply and demand usually assumes that markets are perfectly competitive. This implies that there are buyers and sellers in the market and none of them have the capacity to significantly influence prices of goods. In many real-life transactions, the assumption fails because some individual buyers or sellers have the ability to influence prices, quite often, a sophisticated analysis is required to understand the demand-supply equation of a good model. However, the works well in situations meeting these assumptions
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Macroeconomics
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Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole. This includes national, regional, and global economies, Macroeconomics and microeconomics, a pair of terms coined by Ragnar Frisch, are the two most general fields in economics. Macroeconomic models and their forecasts are used by governments to assist in the development, Macroeconomics encompasses a variety of concepts and variables, but there are three central topics for macroeconomic research. Macroeconomic theories usually relate the phenomena of output, unemployment, outside of macroeconomic theory, these topics are also important to all economic agents including workers, consumers, and producers. National output is the amount of everything a country produces in a given period of time. Everything that is produced and sold generates an equal amount of income, therefore, output and income are usually considered equivalent and the two terms are often used interchangeably. Output can be measured as total income, or it can be viewed from the side and measured as the total value of final goods. Macroeconomic output is measured by gross domestic product or one of the other national accounts. Economists interest in long-run increases in output study economic growth, advances in technology, accumulation of machinery and other capital, and better education and human capital all lead to increased economic output over time. However, output does not always increase consistently, business cycles can cause short-term drops in output called recessions. Economists look for macroeconomic policies that prevent economies from slipping into recessions, the amount of unemployment in an economy is measured by the unemployment rate, i. e. the percentage of workers without jobs in the labor force. The unemployment rate in the force only includes workers actively looking for jobs. People who are retired, pursuing education, or discouraged from seeking work by a lack of job prospects are excluded, unemployment can be generally broken down into several types that are related to different causes. Classical unemployment theory suggests that unemployment occurs when wages are too high for employers to be willing to hire more workers, other more modern economic theories suggest that increased wages actually decrease unemployment by creating more consumer demand. Structural unemployment covers a variety of causes of unemployment including a mismatch between workers skills and the skills required for open jobs. Large amounts of unemployment can occur when an economy is transitioning industries. While some types of unemployment may occur regardless of the condition of the economy, Okuns law represents the empirical relationship between unemployment and economic growth. The original version of Okuns law states that a 3% increase in output would lead to a 1% decrease in unemployment, a general price increase across the entire economy is called inflation
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Economic development
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Economic development is the process by which a nation improves the economic, political, and social well-being of its people. The term has been used frequently by economists, politicians, and others in the 20th, the concept, however, has been in existence in the West for centuries. Modernization, Westernization, and especially Industrialization are other people have used while discussing economic development. Economic development has a relationship with the environment and environmental issues. Whereas economic development is a policy intervention endeavor with aims of economic and social well-being of people, economic growth is a phenomenon of market productivity, consequently, as economist Amartya Sen points out, economic growth is one aspect of the process of economic development. The scope of development includes the process and policies by which a nation improves the economic, political. The University of Iowas Center for International Finance and Development states that, Economic development is a term that economists, politicians, the concept, however, has been in existence in the West for centuries. Modernization, Westernisation, and especially Industrialisation are other people have used while discussing economic development. Economic development has a relationship with the environment. Although nobody is certain when the concept originated, some agree that development is closely bound up with the evolution of capitalism. Economic development can also be considered as a theory that documents the state of an economy at a certain time. According to Schumpeter and Backhaus, the changes in equilibrium state to document in economic theory can only be caused by intervening factors coming from the outside. Economic development originated in the period of reconstruction initiated by the United States. Their food is inadequate, they are victims of disease and their economic life is primitive and stagnant. Their poverty is a handicap and a both to them and to more prosperous areas. For the first time in history humanity possesses the knowledge and the skill to relieve the suffering of these people, greater production is the key to prosperity and peace. And the key to production is a wider and more vigorous application of modem scientific. There have been several phases of development theory since 1945
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Economic statistics
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Economic statistics is a topic in applied statistics that concerns the collection, processing, compilation, dissemination, and analysis of economic data. It is also common to call the data themselves economic statistics, the data of concern to economic statistics may include those of an economy of region, country, or group of countries. Economic statistics may also refer to a subtopic of official statistics for data produced by official organizations, analyses within economic statistics both make use of and provide the empirical data needed in economic research, whether descriptive or econometric. They are a key input for decision making as to economic policy, the subject includes statistical analysis of topics and problems in microeconomics, macroeconomics, business, finance, forecasting, data quality, and policy evaluation. It also includes such considerations as what data to collect in order to some particular aspect of an economy. Business statistics Survey of production Allen, R. G. D.1956, an Introduction to the Methods of Economic Statistics, AW Shaw Co. ISBN 978-92-64-03312-2 Fox, Karl A.1968, Economic Statistics and Econometrics, Harper and Row. On the Accuracy of Economic Observations, 2nd rev. ed. Princeton University Press. Economic Statistics and Econometrics, 3rd ed. Prentice Hall, the Correlation of Economic Statistics, Publications of the American Statistical Association,12, pp. 287-322. Wonnacott, Thomas H. and Ronald J. Wonnacott,1990, introductory Statistics for Business and Economics, 4th ed. Wiley. Ullah, Aman, and David E. A. Giles, handbook of Applied Economic Statistics, Marcel Dekker. Readings in Economic Statistics and Econometrics, Little, Brown & Co. S
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Finance
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Finance is a field that deals with the study of investments. It includes the dynamics of assets and liabilities over time under conditions of different degrees of uncertainty, Finance can also be defined as the science of money management. Finance aims to price assets based on their level and their expected rate of return. Finance can be broken into three different sub-categories, public finance, corporate finance and personal finance. g, health and property insurance, investing and saving for retirement. Personal finance may also involve paying for a loan, or debt obligations, net worth is a persons balance sheet, calculated by adding up all assets under that persons control, minus all liabilities of the household, at one point in time. Household cash flow totals up all the sources of income within a year. From this analysis, the financial planner can determine to what degree, adequate protection, the analysis of how to protect a household from unforeseen risks. These risks can be divided into the following, liability, property, death, disability, health, some of these risks may be self-insurable, while most will require the purchase of an insurance contract. Determining how much insurance to get, at the most cost effective terms requires knowledge of the market for personal insurance, business owners, professionals, athletes and entertainers require specialized insurance professionals to adequately protect themselves. Since insurance also enjoys some tax benefits, utilizing insurance investment products may be a piece of the overall investment planning. Tax planning, typically the income tax is the single largest expense in a household, managing taxes is not a question of if you will pay taxes, but when and how much. Government gives many incentives in the form of tax deductions and credits, most modern governments use a progressive tax. Typically, as ones income grows, a marginal rate of tax must be paid. Understanding how to take advantage of the tax breaks when planning ones personal finances can make a significant impact in which it can later save you money in the long term. Investment and accumulation goals, planning how to accumulate enough money - for large purchases, major reasons to accumulate assets include, purchasing a house or car, starting a business, paying for education expenses, and saving for retirement. Achieving these goals requires projecting what they will cost, and when you need to withdraw funds that will be necessary to be able to achieve these goals, a major risk to the household in achieving their accumulation goal is the rate of price increases over time, or inflation. Using net present value calculators, the planner will suggest a combination of asset earmarking. In order to overcome the rate of inflation, the investment portfolio has to get a higher rate of return, managing these portfolio risks is most often accomplished using asset allocation, which seeks to diversify investment risk and opportunity
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Financial statement
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Financial statements is a formal record of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a manner and in a form easy to understand. A profit and loss statement provides information on the operation of the enterprise and these include sales and the various expenses incurred during the stated period. A Statement of changes in equity, also known as equity statement or statement of retained earnings, a cash flow statement reports on a companys cash flow activities, particularly its operating, investing and financing activities. For large corporations, these statements may be complex and may include a set of footnotes to the financial statements and management discussion. The notes typically describe each item on the sheet, income statement. Notes to financial statements are considered a part of the financial statements. Financial statements should be understandable, relevant, reliable and comparable, reported assets, liabilities, equity, income and expenses are directly related to an organizations financial position. Financial statements may be used by users for different purposes, Owners and managers require financial statements to make important business decisions that affect its continued operations, Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are used as part of managements annual report to the stockholders. Prospective investors make use of statements to assess the viability of investing in a business. Financial analyses are used by investors and are prepared by professionals. Financial institutions use them to decide whether to grant a company with fresh working capital or extend debt securities to finance expansion, the rules for the recording, measurement and presentation of government financial statements may be different from those required for business and even for non-profit organizations. They may use either of two accounting methods, accrual accounting, or cost accounting, or a combination of the two, a complete set of chart of accounts is also used that is substantially different from the chart of a profit-oriented business. Personal financial statements may be required from persons applying for a loan or financial aid. Typically, a financial statement consists of a single form for reporting personally held assets and liabilities, or personal sources of income and expenses. The form to be filled out is determined by the organization supplying the loan or aid, although laws differ from country to country, an audit of the financial statements of a public company is usually required for investment, financing, and tax purposes. These are usually performed by independent accountants or auditing firms, results of the audit are summarized in an audit report that either provide an unqualified opinion on the financial statements or qualifications as to its fairness and accuracy
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Insurance
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Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, an entity which provides insurance is known as an insurer, insurance company, or insurance carrier. A person or entity who buys insurance is known as an insured or policyholder, the insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. The amount of money charged by the insurer to the insured for the coverage set forth in the policy is called the premium. If the insured experiences a loss which is covered by the insurance policy. Methods for transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessels capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c.1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the guarantee to cancel the loan should the shipment be stolen. At some point in the 1st millennium BC, the inhabitants of Rhodes created the general average and this allowed groups of merchants to pay to insure their goods being shipped together. The collected premiums would be used to any merchant whose goods were jettisoned during transport. Separate insurance contracts were invented in Genoa in the 14th century, the first known insurance contract dates from Genoa in 1347, and in the next century maritime insurance developed widely and premiums were intuitively varied with risks. These new insurance contracts allowed insurance to be separated from investment, Insurance became far more sophisticated in Enlightenment era Europe, and specialized varieties developed. Property insurance as we know it today can be traced to the Great Fire of London, initially,5,000 homes were insured by his Insurance Office. At the same time, the first insurance schemes for the underwriting of business ventures became available, by the end of the seventeenth century, Londons growing importance as a center for trade was increasing demand for marine insurance. These informal beginnings led to the establishment of the insurance market Lloyds of London and several related shipping, the first life insurance policies were taken out in the early 18th century. The first company to offer life insurance was the Amicable Society for a Perpetual Assurance Office, founded in London in 1706 by William Talbot, edward Rowe Mores established the Society for Equitable Assurances on Lives and Survivorship in 1762. In the late 19th century, accident insurance began to become available and this operated much like modern disability insurance. The first company to offer accident insurance was the Railway Passengers Assurance Company, by the late 19th century, governments began to initiate national insurance programs against sickness and old age
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Factoring (finance)
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Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable to a third party at a discount. A business will sometimes factor its receivable assets to meet its present, forfaiting is a factoring arrangement used in international trade finance by exporters who wish to sell their receivables to a forfaiter. Factoring is commonly referred to as accounts receivable factoring, invoice factoring, accounts receivable financing is a term more accurately used to describe a form of asset based lending against accounts receivable. The Commercial Finance Association is the trade association of the asset-based lending and factoring industries. Factoring is not the same as invoice discounting, factoring is the sale of receivables, whereas invoice discounting is a borrowing that involves the use of the accounts receivable assets as collateral for the loan. It is therefore not considered to be borrowing in the UK. In the UK the arrangement is usually confidential in that the debtor is not notified of the assignment of the receivable, in the UK, the main difference between factoring and invoice discounting is confidentiality. Scots law differs from that of the rest of the UK, the Scottish Law Commission is currently reviewing this position. The seller sells the receivables at a discount to the third party and this process is sometimes used in manufacturing industries when the immediate need for raw material outstrips their available cash and ability to purchase on account. Both invoice discounting and factoring are used by B2B companies to ensure they have the cash flow necessary to meet their current. Invoice factoring is not a relevant financing option for retail or B2C companies because they generally do not have business or commercial clients, the sale of the receivable transfers ownership of the receivable to the factor, indicating the factor obtains all of the rights associated with the receivables. The arrangement is usually confidential in that the debtor is not notified of the assignment of the receivable, if the factoring transfers the receivable without recourse, the factor must bear the loss if the account debtor does not pay the invoice amount. If the factoring transfers the receivable with recourse, the factor has the right to collect the unpaid invoice amount from the transferor, sometimes the factors charges paid by the seller covers a discount fee, additional credit risk the factor must assume, and other services provided. The factors overall profit is the difference between the price it paid for the invoice and the money received from the debtor, less the amount lost due to non-payment, factoring is a method used by some firms to obtain cash. The use of factoring to obtain the cash needed to accommodate a firms immediate cash needs will allow the firm to maintain a smaller ongoing cash balance, by reducing the size of its cash balances, more money is made available for investment in the firms growth. Debt factoring is also used as an instrument to provide better cash flow control especially if a company currently has a lot of accounts receivables with different credit terms to manage. Accordingly, factoring occurs when the rate of return on the proceeds invested in production exceed the associated with factoring the receivables. Many businesses have cash flow that varies and it might be relatively large in one period, and relatively small in another period
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