FINANCIAL

ANALYSIS AND
ACCOUNTING
PRESENTED BY:
BSCE – 3H
GROUP 5
01
FINANCIAL ANALYSIS
FINANCIAL ANALYSIS

It refers to an assessment of the

viability, stability, and profitability of a
business, sub-business or project.

It is performed by professionals
(financial analyst) who prepare reports
using ratios and other techniques, that
make use of information taken from
financial statements and other
reports.
WHAT IS A FINANCIAL ANALYST?
FINANCIAL ANALYST

A financial analyst is
responsible for a wide
range of activities including
gathering data, organizing
information, analysing
historical results, making
forecasts and projections,
making recommendations,
and generating Excel
models, presentations, and
reports.
TYPES OF FINANCIAL ANALYSIS
HORIZONTAL
ANALYSIS
Horizontal analysis entails selecting
several years of comparable financial
data. One year is selected as the
baseline, often the oldest. Then, each
account for each subsequent year is
compared to this baseline, creating a
percentage that easily identifies which
accounts are growing and which
accounts are shrinking.
VERTICAL
ANALYSIS
Vertical analysis entails choosing a specific
line item benchmark, then seeing how every
other component on a financial statement
compares to that benchmark. Most often, net
sales is used as the benchmark. A company
would then compare cost of goods sold, gross
profit, operating profit, or net income as a
percentage to this benchmark. Companies
can then track how the percent changes over
time.
02
ACCOUNTING
EQUATION
ACCOUNTING EQUATION
On a company’s balance sheet, it
shows that a company’s total
assets are equal to the sum of the
company’s liabilities and
shareholders’ equity.

(Asset = Liabilities + Equity)

 THREE ELEMENTS IN THE
ACCOUNTING EQUATION FORMULA
 ASSETS
Assets represent the ability your business has to provide
goods and services. Or in other words, it includes all
things of value that are used to perform activities such as
production and sales. Assets are divided into short-term
assets which are expected to be consumed within a year
and long-term assets extend their use over the one-
year period.

Examples:

• Cash
• Prepaid expenses
• Equipment and machinery
• Inventory
• Buildings or property
 LIABILITIES
Liabilities (or obligations) are assets
owed to creditors. Creditors include
people or entities the business owes
money to, such as employees,
government agencies, banks, and more.
We classify liabilities the same way we do
assets, based on current, or long-term
periods of time. Current or short-term
liabilities are employee payroll, invoices,
utility, and supply expenses. Long-term
liabilities cover loans, mortgages, and
deferred taxes.
 EQUITY
The equity is the value of assets that
belong to the owner(s). More specifically,
it’s the amount left once assets are
liquidated and liabilities get paid off.

Shareholders’ equity represents the

amount of money that would be returned
to shareholders if all of the assets were
liquidated and all of the company’s debt
was paid off.
 WHAT CAUSES INCREASES AND DECREASES IN
THE EQUITY

Increases in Equity Investments by

the owner, and
Revenue
Decreases in Equity Drawings and
Expenses
ACCOUNTING
METHODS

PRESENTED BY: NINO RYAN BRIOSO

BSCE 3H
ACCOUNTING METHODS

An accounting method refers to the rules a company

follows in reporting revenues and expenses.

1. CASH ACCOUNTING: an accounting method that is

relatively simple and is commonly used by small
businesses.

 Transactions are only recorded when cash is spent or

received.

2. ACCRUAL ACCOUNTING: based on the matching

principle, which is intended to match the timing of
revenue and expense recognition.

 By matching revenues with expenses, the accrual

method gives a more accurate picture of a
company's true financial condition.
CASH ACCOUNTING VS ACCRUAL ACCOUNTING
FINANCIAL STATEMENTS
BY: RANDEL V. DULFA
 WHAT IS A FINANCIAL STATEMENT?

A financial statement is a quantitative way of showing how a

company is doing.
Three different ways of representing the financial state of a
company:
1. Cash Management (can the company meet its
obligations?)
2. Profitability (Is it making money?) - the income statement
3. Assets versus Liabilities (what is the value of the
company? Who owns what?) - the balance sheet
Each one of these questions is answered by our Financial
Statements.
 THE BIG THREE

• Cash Flow Statements

• These answer the important managerial question “do I
have enough cash to run my business”

• Income Statements
• This is the financial sheet that tells you if your company
is profitable or not.

• Balance Sheets
• How much debt do I have? How large are my assets?
This sheet tells you the answer to these questions.
 CASH FLOW
STATEMENTS

• A report of all a firm’s transactions that involve

cash
• The key elements are revenues (money flowing in)
and expenses (money flowing out).
• Cash flow statements compare the sum of the
revenues to the sum of the expenses on a regular
time basis – usually monthly.

“Manning Electronics” (Engineering 9) – Did

Ms. Manning have enough cash to buy that
piece of equipment for her boat business?
WHAT ARE REVENUES?

• Sales
• Interest from firm’s investments (e.g., a company
savings account)
• Royalty and Licensing payments for appropriate use of
firm’s intellectual property

Another source of cash inflow, but not a revenue is the

cash the firm receives from borrowing money.
WHAT ARE EXPENSES?

There are two types of expenses:

FIXED COSTS
and
VARIABLE COSTS
 FIXED COSTS

• Rent payments
• Salaried employees
• Capital Investments and (some) maintenance
• Utilities (phone, water, electric, etc)
• Insurance
• Taxes (on property, plant, and equipment)
• Advertising (*)
• Others things that do not depend on number of units
produced.
VARIABLE COSTS

• Materials Cost
• Supplies
• Production Wages
• Outside / Contracted labor
• Advertising (*)
• Sales Commissions / Distribution Costs
• Equipment Maintenance
• Other things that depend on the number of units produced (e.g.
royalties paid)
PUTTING IT ALL TOGETHER
So, placing the revenues at the “top” and the expenses below –
you get the following three month cash flow statement for a
hypothetical startup:

Jan-00 Feb-00 Mar-00

REVENUES (inflow)
SALES $0.00 $0.00 $1,000.00
INTEREST $239.27 $167.04
RECEIPTS $0.00 $239.27 $1,167.04

EXPENDITURES (outflow)
MATERIALS COST AND MFG. LABOR $0.00 $0.00 $50.00
SALES COMMISSIONS $0.00 $0.00 $100.00
COST OF GOODS SOLD (COGS) $0.00 $0.00 $150.00

GROSS MARGIN $0.00 $239.27 $1,017.04

SALARY AND BENEFITS OF CEO $3,000.00 $3,000.00 $3,000.00

SALARY AND BENEFITS OF ASSISTANT $2,000.00 $2,000.00 $2,000.00
RENT $500.00 $500.00 $500.00
TELEPHONE AND OTHER $75.00 $75.00 $75.00
ADVERTISING $2,000.00 $2,000.00 $2,000.00
EQUIPMENT $20,000.00 $10,000.00 $10,000.00
TOTAL FIXED COSTS $27,575.00 $17,575.00 $17,575.00

MONTHLY CASH FLOW ($27,575.00) ($17,335.73) ($16,557.96)

 CASH FLOW (CONT.)

Jan-00 Feb-00 Mar-00

REVENUES (inflow)
“Receipts” is the sum of all SALES $0.00 $0.00 $1,000.00
the firm’s sales and interest INTEREST $239.27 $167.04
RECEIPTS $0.00 $239.27 $1,167.04
it collected that month
EXPENDITURES (outflow)
MATERIALS COST AND MFG. LABOR $0.00 $0.00 $50.00
SALES COMMISSIONS $0.00 $0.00 $100.00
Gross Margin is the Receipts COST OF GOODS SOLD (COGS) $0.00 $0.00 $150.00
minus the COGS GROSS MARGIN $0.00 $239.27 $1,017.04

SALARY AND BENEFITS OF CEO $3,000.00 $3,000.00 $3,000.00

SALARY AND BENEFITS OF ASSISTANT $2,000.00 $2,000.00 $2,000.00
RENT $500.00 $500.00 $500.00
Total Fixed Costs is the sum of all TELEPHONE AND OTHER $75.00 $75.00 $75.00
ADVERTISING $2,000.00 $2,000.00 $2,000.00
the fixed costs EQUIPMENT $20,000.00 $10,000.00 $10,000.00
TOTAL FIXED COSTS $27,575.00 $17,575.00 $17,575.00

MONTHLY CASH FLOW ($27,575.00) ($17,335.73) ($16,557.96)

Monthly Cash flow is the Gross

Margin minus the Total Fixed Costs
 SIMPLE EXAMPLE

• If a company has sales of $500/mo, COGS of $200/mo,

pays $50/mo in salary, and has no other fixed costs,
what is that firm’s three month cash flow statement?

January February March

Revenues $500 $500 $500

(Sales)
• Answer: COGS $200 $200 $200

Salary $50 $50 $50

Monthly $250 $250 $250

Cash Flow
CUMULATIVE CASH FLOW -
CASH BALANCE

• Just like the average person keeps their checking

account balance – a firm also needs to know their
cumulative cash flow or cash balance.
• It is an easy calculation – simply take the cumulative
cash flow from this month and add it to the previous
month’s cash balance.
• Your very first month’s cumulative cash balance is your
first month’s monthly cash flow added to your start-up
capital (probably an initial loan or first round financing).
INCOME STATEMENT

• Income Statement compares the profitability of the

firm to prior years Operating Information

Net Earnings $ 172,593.77

• Total (yearly) revenues Expenses

Cost of Goods Sold $ 25,725.00
minus total (yearly) Total Salary/Benefits $ 60,000.00
Advertising $ 24,000.00
expenditures Rent
Other
$
$
6,000.00
900.00

EBIDT Profits $ 55,968.77

Depreciation $ 4,500.00
Taxes $ 23,160.95

AFTER TAX PROFIT $ 28,307.82

Accumulated Interest Expenses $ 6,800.00

Earnings After Accumulated Interest $ 21,507.82

 IMPORTANCE OF INCOME
STATEMENT

• Assessing Profitability: The income statement allows stakeholders to evaluate a

company's profitability by analyzing the relationship between revenues and
expenses.
• Performance Evaluation: Comparing income statements across different periods
helps assess a company's financial performance over time.
• Investment Decision-Making: Potential investors use the income statement to gauge
a company's financial health and profitability before making investment decisions.
 ASPECTS OF INCOME STATEMENT

• Revenue Recognition: The income statement begins with reporting the

company's revenues, which are derived from the sale of goods,
provision of services, or other operating activities. Operating Expenses:
Operating expenses represent the costs incurred to generate revenues.
They include expenses such as salaries, rent, utilities, marketing, and
administrative expenses.
• Non-Operating Items: Non-operating items include gains or losses from
activities outside the company's core operations, such as interest
income, interest expense, gains or losses from investments, or one-
time extraordinary events.
COMPARISON (CONT.)

• Further the Income Statement’s year-end figures for

COGS, Salary, Rent, Advertising, and sales should be
the 12 month totals of the cash-flows corresponding to
the respective line item
• Likewise, depreciation and taxes should be equal for
that fiscal year
BALANCE SHEETS

• Unlike Cash-Flow and Income Statements, Balance Sheets lists

ASSETS and LIABILITIES

• Examples of Assets include:

• Land and Capital Equipment less accrued depreciation
• Intellectual Property (if purchased)
• Cash on Hand (which is equal to the year end Cumulative Cash
Balance)
• Accounts Receivable
• Inventory
• Retained Earnings from Previous Years
ASSETS

1. Current Assets:
 Cash and cash equivalents

 Marketable securities

2. Non-current Assets (also known as long-term assets):

 Property, plant, and equipment

 Intangible assets (e.g., patents, trademarks)

 Investments in other companies

 LIABILITIES

1. Current Liabilities:
 Accounts payable (outstanding bills to suppliers)

 Short-term debt (e.g., loans, lines of credit)

2. Non-current Liabilities (also known as long-term

liabilities):
 Long-term debt (e.g., bonds, mortgages)

 Deferred tax liabilities

 Pension obligations
EQUITY

• Shareholders' equity, also known as owners' equity or net worth, represents the
residual interest in the assets of a company after deducting its liabilities. It includes:
1. Contributed Capital:
 Common stock
 Preferred stock
 Additional paid-in capital

2. Retained Earnings:
 Accumulated profits or losses
 Dividends sign up with the one up liquidity ratio
BALANCE SHEETS (CONT.)

• Examples of Liabilities include:

• Short Term Debt (loans)
• Long Term Debt (bond issues, etc)
• Accounts Payable
• Interest Payable
• Taxes Payable

• The difference between Assets and Liabilities is your

EQUITY
FINANCIAL RATIOS
PRESENTED BY: JANN DALE HELIG
BSCE – 3H
GROUP 5
WHAT ARE FINANCIAL RATIOS?
FINANCIAL RATIOS ARE POWERFUL TOOLS TO HELP SUMMARIZE FINANCIAL STATEMENTS AND
THE HEALTH OF A COMPANY OR ENTERPRISE. FINANCIAL RATIOS ARE WIDELY USED IN
FINANCIAL ANALYSIS TO DETERMINE HOW COMPANIES ARE PERFORMING INTERNALLY
AND/OR RELATIVE TO ONE ANOTHER. THESE RATIOS GENERALLY FALL WITHIN ONE OF FOUR
TYPES OF MEASUREMENTS: PROFITABILITY, LIQUIDITY, SOLVENCY, AND VALUATION.
UNDERSTANDING AND APPLYING RATIOS FROM ALL OF THESE CATEGORIES CAN ENABLE
INVESTORS TO MAKE SMARTER STOCK PURCHASES AND POTENTIALLY AVOID HEFTY LOSSES.
WORKING CAPITAL RATIO
Working capital represents a company’s ability to pay
its current liabilities with its current assets. It's a
metric that provides an overview of financial health and
liquidity, indicating whether current liabilities can be paid
by existing assets.
WORKING CAPITAL RATIO FORMULA
DEBT-EQUITY RATIO

Debt-to-equity (D/E) ratio is used to evaluate a company’s

financial leverage and is calculated by dividing a
company’s total liabilities by its shareholder equity. D/E
ratio is an important metric in corporate finance. It is a
measure of the degree to which a company is financing its
operations with debt rather than its own resources. Debt-
to-equity ratio is a particular type of gearing ratio.
 DEBT-EQUITY RATIO FORMULA
45
RETURN ON EQUITY
Return on equity signifies how good the company is in
generating returns on the investment it received from its
shareholders.
RETURN ON EQUITY FORMULA
BREAK-EVEN ANALYSIS
A break-even analysis is a financial calculation that weighs
the costs of a new business, service or product against the
unit sell price to determine the point at which you will
break even. In other words, it reveals the point at which
you will have sold enough units to cover all of your costs.
BREAK-EVEN ANALYSIS FORMULA
RETURN ON INVESTMENT
Return on investment (ROI) is a performance measure used
to evaluate the efficiency or profitability of an investment
or compare the efficiency of a number of different
investments. ROI tries to directly measure the amount of
return on a particular investment, relative to the
investment’s cost.
RETURN ON INVESTMENT FORMULA
ACCOUNTING RATE OF RETURN

The accounting rate of return (ARR) is a formula that

reflects the percentage rate of return expected on an
investment or asset, compared to the initial investment's
cost.
ACCOUNTING RATE OF RETURN FORMULA
INTERNAL RATE OF RETURN

The internal rate of return (IRR) is a metric used in financial

analysis to estimate the profitability of potential
investments. IRR is a discount rate that makes the net
present value (NPV) of all cash flows equal to zero in a
discounted cash flow analysis.
INTERNAL RATE OF RETURN FORMULA
DEPRECIATION
Is an accounting method of allocating the cost of a
tangible or physical asset over its useful life or life
expectancy. Depreciation represents how much of an
asset’s value has been used up.
DEPRECIATION FORMULA
RAISING
CAPITAL AND
TYPES OF
CAPITAL
59
HOW DO BUSINESS START?

MACHINER
BUILDING
Y
S
INVESTED
MONEY
SOFTWAR
E
VEHICLES COPYRIGH
TS

PATENTS
60

CAPITAL
CAPITAL: a term for financial assets, such
as funds held in deposit accounts and/or
funds obtained from special financing sources.
- Anything that confers value or benefit to its
owner, such as factory and its machinery,
intellectual property like patents, or the financial
assets of a business or an individual
61

TYPES OF
CAPITAL
 Equity Capital - is funds paid into
a business by investors in
Debt Capital - can be exchange for common or preferred
stock. This represents the core
obtained through private
funding of a business, to which
or government sources. debt funding may be added.
Working Capital - ▸ Public Equity Capital
includes a company’s ▸ Private Equity Capital
most liquid capital
assets available for Trading Capital - may
fulfilling daily obligations. be held by individuals
a. Current Assets – or firms who place a
current liabilities. large number of trades
b. Accounts on a daily basis.
Receivable +
inventory – accounts
payable
INCUBATORS &
ACCELARATORS
BY : MACKQUE JUSTINE I. ANCIANO
INCUBATORS
A business incubator is a program that
supports early-stage startup companies to
expedite profitability and success. Incubators
provide startups with valuable resources such as
free office space, equipment, mentorship, a
collaborative community, and networking
opportunities with potential funding sources
 ACCELERAT
ORSA startup accelerator program
expedites the growth of existing companies
that have developed business models and
validated products in the marketplace.
Startup accelerators providevcompanies with
valuable resources such as mentorship, free
coworking spaces, legal services to help
secure intellectual property, a collaborative
work ecosystem, and access to industry
influencers and potential investors.
 BUSINESS
INCUBATOR VS.
STARTUP
STAGE
ACCELERATOR: PROGR
SEED
KEY DIFFERENCES
OF AM
FUNDI
VENTU TIMELI
NGDo not
Incubators: Incubators: Develop
RE
Incubators: Early-phase
typically invest capital
NE
ventures in slower
startups
Accelerators: Speeding Accelerators: Invest timeline
up the growth capital to provide Accelerators: Have set
ventures time frame
 SHOULD YOU
APPLY TO AN
ACCELERATOR OR
INCUBATOR?
DETERMI
IDENTI
NE THE
ASSESS FY
TIMELIN
THE STATE YOUR
E OF
OF YOUR FUNDI
YOUR
PRODUCT NG
BUSINES
NEEDS
S
 EXAMPLES

IDEASPACE
This incubator and QBO
accelerator has invested in 74 Holistic incubator in the
tech startups since it was Philippines that guides
founded in 2012. startups from entry to exit.

AIM-DADO BANATAO ANGEL

A high-net-worth
INVESTOR
INCUBATOR
Helps grow progressive and individual who provides
out-of-the-box startups. financial backing for small
startups or
entrepreneurs.
INNOVATIVE START UP ACT
ENACTED IN APRIL OF 2019, THE REPUBLIC ACT
NO. 11337, OR THE INNOVATIVE STARTUP ACT,
PROVIDES THE STARTUP COMMUNITY WITH NUMEROUS
BENEFITS.
ETHICS & SOCIAL
RES PONS I BI
LI TY IN
BUSINESS
BY: FORMILLEZA, ALJEN
O.
 ETHI C
S
E t h i c s are more important than ever in the
i nc reasingly complicated and globalized
s o c i e t i e s of today. E t h i c s are a set of moral
pri n c i pl es and values that direct p e o p l e ' s
behavio r and d e c i s i o n - m a k i n g .

E t h i c s t o u c h on a wide range of i s s u e s in the

m o d e rn world, s u c h as b u s i n e s s practices,
social justice, and the u s e of technology.

E t h i c s in b u s i n e s s e s are widely a c k n o w l e d g e d to
be crucial, and m a n y o rganiz atio ns have
c re a t e d c o d e s of e t h i c s and m a d e other s t e p s
to integrate e t h i c s into their operations.
BUS I NES S
ETHI CS
The c o n c e p t of business ethics has a long
h i s t o ry that d a t e s b a c k to ancient civilizations.

B u t th e id e a o f b u s in e s s e th ic s a s w e kn o w i t
to d a y c an be t ra c ed b a c k to the industrial
revolution of the 1800s.

B u s i n e s s e t h i c s refers to the pri n c i pl es and

values that guide the behavio r of individuals
and organizations.

The w a y s an organization r e s p o n d s to r ight and

wrong is a refl ection of i ts b u s i n e s s ethics. In
many ways, b u s i n e s s e t h i c s go h a n d - i n - h a n d
with social responsibility.
 BUS I NES S
B u s in e s s
ETHI CS
p ra c tic e s
e th ic s re fe rs
re la te d to s u c h
to p o lic ie s
things
and
as:

Corporate g o v e rn a n c e is of
the
p r a c t i c e s and p r o c e s s essy sbtye m which a c o m ruple
ansy
, is
di rec t ed and controlled.
Briber y refers to receiving of any i tem of value
as a
m e a n s of infl uencing the a c t i o n s of an individual
holding a public or legal d u t y
Di s cr i mi nat i o n o c c u r s when y o u are treated
less
favorably than another p e r s o n in a similar
situation and this treatment c a n n o t be
objectively and re a s o n a b l y justifi ed
Fiduciar y re s p o n s i b i l i t y is an obligation
that
 PRINCIPLES OF
ETHICAL
Th e 1 1 BUSINESSES
p rin c ip le s o f b u s in e s s
e th ic s in c lu d e : Integrity
Honesty
F a irn e s
s
C o m p a s s io n
Le a d e r s h i p
Re s p e c t
Lo y a l t y
Tr a n s p a re n c y
E n v iro n m e n ta lly
c o n s c io u s L a w - a b i d i n g
Re s p o n s i b i l i t y
 IMPORTANCE OF
BUSI
•s t a n d a rd s helps c o m p a n i e s
NESS comply
with laws and regulations,
Reis
p ut le g a l Apdehnearin
k aotfion
ETHI CS
re d u c in g the r
g sto a n d la w s u its .
ltie Legal compliance: Ad h e r i n g to
:s t a n d a r d e th ic a l h e lp s c o m p a n ie s
ethical
po •Social
s sitive responsibility:
breputation,
u ild a B u s
whichi n e s s e
iss have
important for attracting c u s t o m e r s ,
employ ees , and investors.
Em p loy e e m ora le : A c o m p a n y
thpaetr a t e s ethically c re a t e s a p o s itiv a re s p o n s i b i l i t y to o per at e
o
th in
at a smanner
o c ie t and
w o rk e n v iro n m e n t, w h ic h e
b e n e fits y th e
ca
e mnp l o y e e morale and im
repd ro
u cve
turnover. environment.
s t a n d a r d s helAd ps h ecr o g p ato
i nm n i e s fulfill
e
this responsibility, co nt r i but e th iic
nga l to a
Cu st o mer trust: C o m p a n i e s that have better and more s u s t a i n a b l e future
a s t ro n g c o m m i t m e n t to e t h i c s are
more l ike ly to w in th e tru s t
of th e ir c u s t o m e r s .
 SOCIAL
RESPONSIBILITY
Albeit
category
b
falling under
usin ess of eth ic s,
the
m or
While business ethics and social
responsibility go hand-in-hand,
it foc uses e there’s often confusion about the
intently
resp on sibon a
ilities. In soc i s
regard distinction between the two,
responsibility, to soc ial
company's al
businesses especially
there are nobecause
widely accepted
should consider the obligation defi
for nitions
both terms. Corporate social
they owe to "society at large" responsibility, in particular, is used
or feel b o u n d to support those in many diff erent ways by many
who are not directly diff erent groups.
associated with their
operations.Focuses on Requires
ethical accountability
concerns that to the
aff ect Aff ects organization,
societies society as stakeholders
and the
a whole
public
BEING SOCIALLY RESPONSIBLE AND
FOLLOWING BASIC BUSINESS ETHICS HAVE
THE FOLLOWING BENEFITS:
Gaining more customers: Consumers are more likely
to continually support businesses that care about
the im p act they make.
Recruiting from a wider candidate group: Professionals
are
increasingly searching for careers with companies
that are ethically an d socially responsible.
Getting an advantage over similar businesses:
Companies
that promote social responsibility often acquire more
customers than businesses in the same industry.
Creating a positive work culture: W h e n employees
agree
with a company's code of ethics and social
WHY SOCIAL RESPONSIBILITY IN
BUSINESS MATTERS
Social responsibility empowers employees to leverage the
corporate resources at their disposal to d o good.

Being a socially responsible company can bolster a

company's image and build its brand.

Social responsibility programs can boost employee morale

in the workplace and lead to greater productivity, which
has an impact on h o w profi table the company can be.

Businesses that i mpl e me n t social responsibility initiatives

can increase customer retention and loyalty.

Socially responsible companies have the opportunity to

stand out from the competition because they cultivate
superior and positive brand recognition.
 DISTINCTION
OF B. E. AND
B u s in e s e t h i c s re fe r C.
th S. R.
S o c ia l re s p o n s ib ility , o n th e
s principle e
o th e r h a n d , re fe rs to
u s in e s sse s in
ethical
b to
th e ir g u id
th
a cetio n sv th
o lu ant ta
a ry
b u s in e s s ta ke s
d e c is io n making. that e
tod d re s s s o c ia l is s u e s . Th is
a
M a i n l y aff ect the
e c a n in c lu d e in itia tiv e s l
smtapkel ohyoeld
e se,rs , s h a re h o ld e rs ,
ike
e n v iro n m e n ta l
a n d c o n s u moerrs
s u s ta in a b ility programs or
ao m p any ,
c c lie n ts s o c ia
community o u t re a c h
b ut o ff
l a f eccots
r p o r a tth
ee
p ro g rcaom
The n cs .e p t that a c o m p a n y
re s p o n s i b i l i t w h o le
s h o u l d be s o c i a l l y a c c o u n t a b l e
y
M oofra l p rin c ip le s th a t a c t a s
to i ts e lf, i ts s ta ke h o ld e rs , a s
so ciety.
a fra m e w o rk fo r th e w a y a
w e ll a s the public.
co
o rm bp ua sn
inye s s c o n d u c ts i ts e lf
a n d i ts transactions.
GLO BA LIZ A TIO
N IN
BUSINESS
JUAN MIGUEL
ROSIT
BSCE-3F
WHAT IS
GLOBALIZATI
ON?
Globalization is the increase in the
fl ow of goods, services, capital,
people, and ideas across
international boundaries.
 “WE LIVE IN AN AGE OF
GLOBALIZATION, THAT IS, NATIONAL
ECONOMIES ARE EVER MORE
TIGHTLY CONNECTED WITH ONE
ANOTHER THAN EVER BEFORE.”
-Harvard Business School Professor Forest
Reinhardt
 AN INTERNATIONAL BUSINESS IS ANY
COMPANY THAT OPERATES AND
PRODUCES OR SELLS GOODS
BETWEEN TWO OR MORE COUNTRIES.
WHAT DOES THERE ARE THREE WAYS A
MEAN
IT TO BE BUSINESS CAN BE CONSIDERED
INTERNA
AN TIO N 1.It produces goods domestically
INTERNATIONAL:
AL and sells domestically and
BUSINESS? internationally.
2. It produces goods in a different
country but sells domestically.
3.It produces goods in a different
country and sells domestically and
internationally.
 IF YOUR BUSINESS FALLS INTO ONE OF THESE CATEGORIES,
THERE ARE TWO TYPES OF INTERNATIONAL BUSINESS MODELS
TO CONSIDER: TRANSITIONAL AND MULTINATIONAL.
Transitiona
l
C orp ora tio
ns
have offices in multiple countries,
each responsible for a different facet
of the organization. For instance,
marketing may be based in London,
research and development in Bogota,
and software development in New
York.
N ES TL
É
AN OF A
EXAMPLE
CORPORATION SUCCESSFUL TRANSNATIONAL
OPERATIONS FORIS NESTLÉ,
EACH OF ITS WHICH
BRANDS BY REGION. THERE
SPLITS
ARE OVER 100 NESTLÉ BUSINESS
OFFICES WORLDWIDE WITH DISTINCT
RESPONSIBILITIES. FOR INSTANCE, THE NESTLÉ RESEARCH
CENTER IS LOCATED IN SWITZERLAND, WHICH ACTS AS THE
HUB THAT OVERSEES EACH BRAND-SPECIFIC RESEARCH AND
DEVELOPMENT CENTER, OF WHICH THERE ARE 23. ALL
NESTLÉ OFFICES OPERATE UNDER THE COMPANY’S
HEADQUARTERS IN SWITZERLAND.
MULTINATIO
NAL
C ORPORA TI
also have offices in multiple countries, but

ONS
unlike transnational corporations, each is a
microcosm of the larger organization. This
means each office has, for example, its
own leadership, marketing, sales, research
and development, technology, and human
resources teams.
PEPSIC
O
AN EXAMPLE OF A MULTINATIONAL
CORPORATION IS PEPSICO, WHICH HAS 32
OFFICES ACROSS 24 COUNTRIES.
M ULTINA TIO
NA L VS
TRANSITION
AL
FACETS Politics a n d
Laws
G LO BA
OF Environme

BLUS I N E nt
Macroeconom
SS T ics

CON O S ID
Hum a n
Rights

ER Cultural Diff erences a n d L a n g u a g e

Barrier
POLITICS A N D L A W S

International politics can color

relationships between nations and
regulate what products are allowed in
and out of their borders.
Keeping up with current events can
help you prepare for the business
impacts of shifts in policy and foreign
affairs.
ENVIRONMENT

There’s no global issue more pressing

than climate change. Unfortunately,
globalization can contribute signifi cantly
to its negative eff ects due to increased
transportation of materials and
products, business travel, and the
number of factories. If you’re engaging in
global business, keep sustainability in
mind to avoid contributing to climate
change.
M AC R O E C O N O M I C S
Principles of macroeconomics can allow you
to compare countries’ fi nancial health on a
one-to-one basis and draw connections
between trends. Some metrics to know
include:
Gross domestic product
(GDP) Unemployment rate
Inflation rate
Degree of income
inequality Currency
exchange rate
H U M A N RIGHTS
•Because laws dictating human rights
(including labor laws) differ from country to
country, operating as a global business
requires research and critical thought to
ensure you’re not exploiting people for labor,
even if it’s technically legal. Ethics are
required for making decisions that may cost
your business money at the expense of
protecting human rights.
 THYNK
UNLIMITED

CULTURAL
DIFFERENCES
AND
L A N G U AG E
Operating a global business requires knowing and

BARRIERS
respecting other cultures. Without
understanding the areas you do business in, you
could unintentionally off end someone and harm
your working relationships. In the case of
language barriers, this may require you to hire
translators and multilingual employees to bridge
the gap.