BUSINESS STUDIES

REVIEW

UNIT 11 - ADVERTISING

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 Definition: Advertising is a means of communication with the users of a product or service. Advertisements are
messages paid for by those who send them and are intended to inform or influence people who receive them, as
defined by the Advertising Association of the UK.
Description: Advertising is always present, though people may not be aware of it. In today's world, advertising uses
every possible media to get its message through. It does this via television, print (newspapers, magazines, journals
etc), radio, press, internet, direct selling, hoardings, mailers, contests, sponsorships, posters, clothes, events,
colours, sounds, visuals and even people (endorsements).
Advertising establishes a one-way channel of communication, where companies can broadcast non-personal
messaging to a general audience. Unlike other types of marketing or even public relations, companies have total
control over advertising. When a company pays to place an ad, it has complete control over how the content
involved is promoted.
There are countless benefits to a successful advertising campaign. In common practice, businesses can leverage
advertising to:
• Educate customers on the nature of products or services
• Convince customers that products or services are superior
• Improve customer perception of brand or culture
• Generate customer need or want for products or services
• Exhibit new applications for products or services
• Publicize new products or services to potential customers
• Attract new customers to purchase products or services
• Retain the existing customer base
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The Purpose of Advertising

Advertising has three primary objectives: to inform, to persuade, and to remind.
• Informative Advertising creates awareness of brands, products, services, and ideas. It
announces new products and programs and can educate people about the attributes and
benefits of new or established products.
• Persuasive Advertising tries to convince customers that a company’s services or products are
the best, and it works to alter perceptions and enhance the image of a company or product.
Its goal is to influence consumers to take action and switch brands, try a new product, or
remain loyal to a current brand.
• Reminder Advertising reminds people about the need for a product or service, or the
features and benefits it will provide when they purchase promptly.

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 Terms Definition

Advertising A time-limited set of ads - campaigns may run across different media, and for one month or ten years,
campaign but can be categorized together as they are the execution of a central idea
Product Placement The practice of paying for a branded product to be used by a character in a movie – e.g James Bond
driving a BMW Z3

Product Positioning Establishing the market niche of a product - which may not be as the brand leader - and advertising to
the appropriate segment of the audience

loss leader a popular product sold with no profit, in order to attract customers to a store

redeemable coupon a certificate offering consumers a price reduction on a particular product

purchasing cycle the average length of time between a consumer's repeat purchases of the same product

industrial buyer someone who purchases goods or services that will be used in the production or supply of other goods
or services
Individual in a business, government agency, or association who makes purchase decisions regarding
services, raw materials, product components, or finished goods; also called organisational buyer.
Industrial buyers are more, but not solely, motivated in their buying decisions by profit objectives than
by personal objectives and require different marketing strategies than consumer buyers.
point-of-sale Advertising is done at the place where a product is sold .
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advertising

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 Advantages of advertising Disdvantages of advertising
1 Market Expansion 1 Never Guarantees Sale
The main objective that a manufacturer or a company achieves through Advertising is a way of promoting new products and services in the market, but it
advertising is market expansion. With advertising, a manufacturer or does not guarantee an increase in sales or the creation of a new customer base.
company sustains its position in existing markets and expands its business in Maximum advertising can create hype around a specific product, but it cannot do
new ones. Advertising is one of the best mediums to create a new customer wonders until the product or service is beneficial and of good quality.
base and keep the old ones engaged. 2 Can Lead to Negative Publicity
2 Increases Revenue Creating new products with new, coming-of-age technology is necessary for
One of the significant positive characteristics of advertising is that it can today’s competitive environment. Companies work very hard to stay ahead of their
lead to an increase in sales and revenue. Furthermore, advertising can help competitors. Advertising can make a negative impact on consumers. If a product
businesses reach new markets, which in turn can help to boost their existing ends up looking similar in design or specifications to rival products, this only adds
sales. In fact, advertising is a powerful tool for attracting new prospective confusion in the minds of consumers, which hurts both companies and the
customers, thereby helping to increase a company’s sales product.
3 Increases Competition 3 Increases the Cost of Marketing
In today’s world of cut-throat competition, advertising is a well-tested Companies and manufacturers invest much of their revenues and profits in
method of staying ahead of competitors. Correct product positioning and advertising. There are times when the campaign produces a favorable result, thus
advertising campaigns are bound to produce favorable results for the bringing good cash flow, and at the same time, if the results are not so favorable, it
business. They bring in new customers and help increase the company’s can end up increasing the marketing cost for the company.
revenues. 4 Creates Monopoly
4 Builds Consumer Trust Advertising also creates a monopolistic situation. Companies with considerable
When any manufacturer or company advertises their product, cause, or brand value and unlimited resources spend billions and billions of dollars on
service, they ask customers to impose their faith in the company. Constant advertising, while companies with limited and restrictive resources end up with
advertising pushes the company to build better-quality products and helps losses. Big companies tend to create their monopoly over markets, thus affecting
establish goodwill among the company’s customers. consumers and other small players.
5 Build Salesmanship 5 Distortion of Facts
Advertising is one of the best methods to promote and build salesmanship. Not everything that glitters is gold. However, advertising today tells a very different
When a prospective customer is attracted to any product or service, the story. Companies often sell their products and services by misrepresenting and
onus of convincing the customer to buy that specific product or service lies distorting the facts. They create successful advertising campaigns and portray their
with the salesman. Correct product campaigning adds value to the words of products as superior. This attracts consumers, and they end up buying a mediocre
the salesman. product with mediocre specifications. This provides enormous revenues for the
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companies, but consumers feel cheated.

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UNIT 12 - BANKING

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 A short history of banking
• The earliest-known money-lending activities have been identified in historical civilizations and
societies including Assyria, Babylon, ancient Greece, and the Roman Empire.
• Amsterdam became a leading financial and banking center at the height of the Dutch Republic
during the 17th century; succeeded by London during the 18th century.
• The first shareholder-owned bank in England was the Bank of England, founded in 1694 primarily
to act as a vehicle for government borrowing to finance war with France.
• The first attempt to establish a government bank in the United States, the Bank of North
America (1782). It was succeeded by the First Bank of the United States (1791–1811) and the
Second Bank of the United States (1816–36).

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Banking business has experienced substantial change over the last 30 years or so as banks have
transformed their operations from relatively narrow activities to full service financial firms. Traditionally, banks’
main business consisted of taking deposits and making loans and the majority of their income was derived
from lending business. Net interest margins (the difference between interest revenues from lending minus the
interest cost on deposits) was the main driver of bank profitability. In such an environment banks sought to
maximise interest margins and control operating costs (staff and other costs) in order to boost profits. Banks
strategically focused on lending and deposit gathering as their main objectives.
The nature of banking business has changed from being relatively restricted and uncompetitive to a much
more dynamic activity. Banks are now regarded as full service financial firms – and many banks have even
dropped the word ‘bank’ from their name in their promotional material, such as ‘Barclays’ in Britain and JP
Morgan Chase in the United States. The transformation of banks into full service financial institutions has
been motivated by the strategic objective of banks to be able to meet as broad a range of customer financial
service demands as possible. The increase in products and services that can be sold to customers helps
strengthen client relationships and (so long as customers value the services being provided) should boost
returns to the bank over the longer term.
In an increasingly competitive environment banks have sought to diversify their earnings – complementing
interest revenues from lending activity with fee and commission income from selling non-traditional banking
products such as insurance. The greater emphasis on building client relationships means that banks have
had to become much more demand-oriented, focusing on meeting the needs of a more diverse and financially
sophisticated client base. 49

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A bank is a financial intermediary whose core activity is to provide loans to borrowers and to
collect deposits from savers. In other words they act as intermediaries between borrowers and
savers, as illustrated in the below figure. By carrying out the intermediation function banks collect
surplus funds from savers and allocate them to those (both people and companies) with a deficit of
funds (borrowers). In doing so, they channel funds from savers to borrowers thereby increasing
economic efficiency by promoting a better allocation of resources.

The intermediation function

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 Retail or personal banking relates to financial services provided to consumers and is usually small-scale in
nature. Typically, all large banks offer a broad range of personal banking services including payments
services (current account with cheque facilities, credit transfers, standing orders, direct debits and plastic
cards), savings, loans, mortgages, insurance, pensions and other services. A variety of different types of
banks offer personal banking services. These include:
• Commercial banks;
• Savings banks;
• Co-operative banks;
• Building societies;
• Credit unions; and
• Finance houses
Commercial banks are the major financial intermediary in any economy. They are the main providers of
credit to the household and corporate sector and operate the payments mechanism. Commercial banks
are typically joint stock companies and may be either publicly listed on the stock exchange or privately
owned. Commercial banks deal with both retail and corporate customers, have well diversified deposit
and lending books and generally offer a full range of financial services. The largest banks in most
countries are commercial banks and they include household names such as Citibank, HSBC, Deutsche
Bank and Barclays. While commercial banking refers to institutions whose main business is deposit taking
and lending it should always be remembered that the largest commercial banks also engage in
investment banking, insurance and other financial services areas. They are also the key operators in most 52
countries’ retail banking markets.
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Investment banks mainly deal with companies and other large institutions and they typically do not
deal with retail customers.
The main role of investment banks is to help companies and governments raise funds in the capital
market either through the issue of stock (otherwise referred to as equity or shares) or debt (bonds).
Their main business relates to issuing new debt and equity that they arrange on behalf of clients as
well as providing corporate advisory services on mergers and acquisitions (M&As) and other types of
corporate restructuring. Typically, their activities cover the following areas:
● financial advisory (M&A advice);
● underwriting of securities issues (guaranteeing a price that the new equity or bond issue will sell
for);
● trading and investing in securities on behalf of the bank or for clients. This activity can include
trading and investments in a wide range of financial instruments including bonds, equities and
derivatives products;
● Asset management – managing wholesale investments (such as pension funds for corporate clients)
as well as providing investment advisory services to wealthy individuals (private banking) and
institutions;
● Other securities services – brokerage, financing services and securities lending. 53

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 The main difference between commercial banking and investment banking is that the former refers
to deposit and lending business while the latter relates to securities underwriting and other security-
related business. Banks such as HSBC or Deutsche Bank are referred to as commercial banks because
their main business is deposit- and lending-related – although they both have substantial investment
banking operations. Goldman Sachs and Morgan Stanley are known as investment banks because
securities-related activity constitutes the bulk of their banking operations even though they also take
wholesale deposits and lend.
In terms of services offered to large companies, commercial banks typically provide cash
management, payments and credit facilities whereas investment banks arrange other types of
financing through the issue of equity and debt to finance company expansion. They also offer an
extensive array of other securities-related services including risk management products (such as
interest rate and foreign exchange derivatives) and also advice on company M&A activity as well as
other company restructuring. In recent years, however, these distinctions have become blurred as
large commercial banks have either acquired or expanded their investment banking services to meet
the increasing demands of corporate clients. Also the growth in global stock market activity has
encouraged many commercial banks to develop asset management and private banking operations to
deal with the growing demand for securities-related services from both institutional investors and
wealthy private clients.
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Term Definition Translation

Deposit to place money in a bank; or money placed in a bank Tiền gửi
liquidity available cash, and how easily other assets can be turned into cash Thanh khoản
collateral anything that acts as a security or guarantee for a loan Tài sản cầm cố
a mortgage a type of loan used to purchase or maintain a home, land, or other types of real Tài sản thế
estate. The borrower agrees to pay the lender over time, typically in a series of chấp
regular payments that are divided into principal and interest. The property then
serves as collateral to secure the loan.
overdraft Something that occurs when you make a purchase with your debit card or write a Thấu chi
check for an amount that exceeds your checking account’s available balance. Many
bank accounts offer overdraft protection to help avoid overdraft fees. Some banks
don’t charge overdraft fees at all.
a current an account at a bank against which checks can be drawn by the account depositor; a Tài khoản vãng
account checking account lai
a savings a deposit account that generally earns higher interest than an interest-bearing Tài khoản tiết
account checking account. Savings accounts limit the number of certain types of transfers or kiệm
withdrawals you can make from the account each monthly statement cycle.
a deposit a bank account maintained by a financial institution in which a customer can deposit Tài khoản tiền
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account and withdraw money. (Time Deposit Account/ Demand Deposit Account) gửi

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 Term Definition Translation
solvency When banks have enough money to cover potential losses. Banks are Khả năng
expected to maintain a sufficient level of capital to remain solvent and avoid thanh toán
failure. The FDIC and other federal regulators work with banks to maintain dài hạn
standards for solvency.
maturity date This is the date of expiration for the contractual obligation of a financial Ngày đáo hạn
instrument. For example, certificates of deposit have a maturity date that
depends on the length of the CD term. When the CD matures, you have the
option to withdraw the money. Some banks and credit unions also allow you
to roll it into a new CD or enable the CD to renew automatically.
financial an institution that specializes in bringing lenders and borrowers together. Trung gian tài
intermediary chính
clearing a set of arrangements in which debts between banks are settled by adding up hệ thống
system all the transactions in a given period and paying only the net amounts needed thanh toán bù
to balance inter–bank accounts. trừ

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In accounting, liquidity refers to the ability of a business to pay its liabilities on time. Current assets
and a large amount of cash are evidence of high liquidity levels. It also refers to how easily an asset
can be converted into cash on short notice and at a minimal discount. Assets such as stocks and bonds
are liquid since they have an active market with many buyers and sellers. Companies that lack liquidity
can be forced into bankruptcy even if it’s solvent.
Solvency refers to the business’ long-term financial position. A solvent business is one that has
positive net worth – the total assets are more than the total liabilities. Solvency is assessed
using solvency ratios. These ratios measure the ability of the business to pay off its long-term debts
and interest on debts.
Deposit account is a form of payment account created and deposited by customers at banks. And the
amount deposited into the account will be charged interest. A deposit account can be a savings
account, a current account or any other bank account that allows customers to deposit money and
withdraw if there is a need. However, depending on the type of account, there will be a time to
withdraw money or not.

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 UNIT 13
ACCOUNTING AND FINANCIAL
STATEMENTS

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Question Why this is important

Did the business make a profit or Profit or loss is a measure of business performance, and managers,
loss last year? shareholders and government (for tax purposes) need to know this.

How much do we owe our Suppliers need to be paid on time or they may refuse to send further
suppliers? deliveries.
How much do our customers owe If customers do not pay on time and the business has no record of
the business? whether they have paid, then a cash flow crisis could result.
Is the business able to repay the Banks loans have to be repaid by a certain date. Failure to do
bank loan? this will make further loan finance difficult to obtain.
Did the business pay wages to the Not paying workers on time, and not knowing whether they have been
workers last week? paid, could badly damage relations between managers and workers.
Is the business able to finance a Shareholders may sell shares in the company if dividends are not paid
dividend payment to shareholders? because the business is unsure whether it has sufficient finance.

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 The main financial statements of limited companies

Financial statement What it shows

Statement of profit The gross profit and profit from operations of the company. It includes
or loss details of how the profit from operations is split up between dividends
to shareholders and retained earnings (profit).

Statement of The net worth or equity of the company. This is the difference between
financial position the value of what a company owns (assets) and what it owes
(liabilities).

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Statement of profit or loss (Income statement)

• An income statement (statement of profit or loss ) is a document that records the income of a business
and all costs incurred to earn that income over a period of time (for example one year).
• The statement of profit or loss can also be referred to as either an income statement or a profit or loss
account.
• A detailed statement of profit or loss is produced for internal use because managers need as much
financial information as possible. It should be produced as frequently as managers need the information,
perhaps once a month.
• A less detailed summary statement of profit or loss is included in the published accounts of companies for
external users. It is produced less frequently, but at least once a year. The content of this is laid down by
each country’s legislation on companies and provides a minimum of information. This is because
published accounts are also available to competitors. Detailed data could give competitors a real insight
into their rivals’ strengths and weaknesses.
• The information contained in these statements can be used in a number of ways:
o It can be used to measure and compare the performance of a business over time or with other firms, and ratios can be
used to help with this form of analysis.
o The actual profit data can be compared with the budgeted profit levels of the business.
o Bankers and creditors of the business will need the information to help decide whether to lend money to the business.
o Prospective investors will use the profit performance of the business as a guide to whether to buy shares in it or not.
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 The contents of a statement profit or loss

A statement of profit or loss has three sections: trading account, profit or loss section, and
appropriation account. Each one gives a different profit figure.

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Statement of financial position (Balance sheet)

• The statement of financial position records the net wealth or shareholders’ equity of a business at
one moment in time. In a company this net wealth belongs to the shareholders. The aim of most
businesses is to increase the shareholders’ equity by raising the value of the assets owned by the
business by more than any increase in the value of liabilities.

• The balance sheet (statement of financial position) shows the value of a business’s assets and
liabilities at a particular time.

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Term Definition Translation

trading shows how gross profit (or loss) has been made from the trading TK kinh doanh
account activities of the business.
Profit or loss calculates three profit figures: profit from operations (or operating Lãi hoặc lỗ trong kỳ
account profit); profit before tax; profit for the year trước khi trừ chi phí
thuế
Appropriation shows how the profit for the year is distributed between the owners, TK phân bổ lợi nhuận
account in the form of dividends to company shareholders and as retained sau thuế
earnings.
Revenue Revenue is the amount a company receives from selling goods and/or Doanh thu
providing services to its customers and clients. A company's revenue,
which is reported on the first line of its income statement, is often
described as sales or service revenues. Revenue is the amount earned
from customers and clients before subtracting the company's
expenses.

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 Term Definition Translation
Gross profit Gross profit is net sales minus the cost of goods sold. It reveals the Lợi nhuận (lãi) gộp
amount that a business earns from the sale of its goods and
services before the application of selling and administrative
expenses.
Net profit the profit made by a business after all costs have been deducted Lợi nhuận (lãi) ròng
from sales revenue. It is calculated by subtracting overhead costs
from gross profits
Overheads/ex Overhead costs are expenses of the business that are not directly chi phí hoạt động chung/chi
penses related to the number of items made or sold. These can include phí gián tiếp) góp phần vào
rent and business rates, management salaries, marketing costs and quá trình tạo ra sản phẩm,
depreciation. dịch vụ nhưng không trực
tiếp tạo nên sản phẩm, dịch
vụ đó.

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Term Definition Translation

Operating also referred to as operating income or income from operations, is the total lợi nhuận thuần
profit income of a company for a given period after paying all related operating từ hoạt động
expenses and before taking into account interest, taxes, and other non- kinh doanh
operating items. It is calculated by taking a company’s revenue and
subtracting the cost of goods sold (COGS) and operating expenses.
Operating also referred to as operating profit or Earnings Before Interest & Taxes
income (EBIT), is the amount of revenue left after deducting the operational direct
and indirect costs from sales revenue.
Operating are the ongoing costs of running the business and may include items such as chi phí hoạt động
expenses rent, employee payroll, depreciation, inventory costs, and marketing
expenses.
Retained RE are the accumulated portion of a business’s profits that are not Lợi nhuận giữ lại
earnings distributed as dividends to shareholders but instead are reserved for
reinvestment back into the business. Normally, these funds are used for
working capital and fixed asset purchases (capital expenditures) or allotted
for paying off debt obligations.
COGS Cost of goods sold is the cost of producing or buying in the goods actually Giá vốn hàng bán
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sold by the business during a time period.

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 Term Definition
Depreciati the fall in the value of a fixed asset over time. This is included as an anual Khấu hao tài sản cố
on expense of the business. For example, a new truck bought by a building định hữu hình
firm will fall in value with age and use. Each year, this fall in value or
depreciation is recorded as an expense on the income statement.
Amortizati Amortization is the process of incrementally charging the cost of an Khấu hao tài sản cố
on intangible asset to expense over its expected period of use, which shifts the định vô hình
asset from the balance sheet to the income statement. It essentially
reflects the consumption of an intangible asset over its useful life.
Accrued An accrued expense, also known as accrued liabilities, is an accounting term Chi phí dồn tích (chi
expense that refers to an expense that is recognized on the books before it has been phí chờ thanh toán)
paid. The expense is recorded in the accounting period in which it is
incurred. Accruals are recognition of events that have already happened
but cash has not yet settled, while prepayments are recognition of events
that have not yet happened but cash has settled.
Prepaid Prepaid expenses represent goods or services paid for upfront where the Chi phí trả trước
expense company expects to use the benefit within 12 months. It is a future
expense that a company has paid for in advance. A prepaid expense is only
recognized in the income statement when the company consumes the 68
product or service.
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Term Definition Translation

Assets Assets are those items of value which are owned by the business,; they Tài sản
may be fixed (non-current) or short-term current assets.
Non- Land, buildings, equipment and vehicles are non-current assets and Tài sản dài hạn
current owned by the business for more than one year.
assets
Current Cash, inventories (stocks) and accounts receivables (debtor customers Tài sản ngắn hạn
assets who owe money to the business) are only held for short periods of time
and are called current assets. They are owned by a business and used
within one year.
Liabilities Liabilities are debts owned by the business. Khoản nợ
Non- are long-term debts owned by the business which do not have to be Nợ dài hạn
current repaid within one year.
liabilities
Current are short-term debts owned by the business which must be repaid Nợ ngắn hạn
liabilites within one year, for example overdraft and accounts payable
(suppliers/creditors owned money by the business) 69

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