Business Economics - Handbook

Content 1. Trade...............................................................................................................................5 1.2. Factors influencing terms of trade in developing countries ......................................................... 7 2. The Production Theor......................................................................................................11 2.1. Production in the Short Run ...........................................................................................14 2.1.1. Factor‐Product Relationship ‐The Three Stages of Production ........................................... 16 2.1.2 Product‐product relationship. ............................................................................................. 20 2.1.3. Factor – Factor Relationship ................................................................................................ 23 3. The Enterprise ..............................................................................................................28 3.1. Business life cycle ...................................................................................................... 33 4. Financial structure of a company .........................................................................................39 4.1. Assets of a company ....................................................................................................41 4.2. Liabilities and equity ................................................................................................. 43 4.3. Depreciation ......................................................................................................... 46 5. Capital structure of thecompany........................................................................................................ 58 5.1. Forms of business financing .................................................................................................... 61 5.2. The relationship between the assets and the sources of its coverage ................................... 65 5.3. The total working capital need ................................................................................................ 68 6. The optimal capital structure..........................................................................................73 6.1. Cost of Capital........................................................................................................74 6.1.1. Cost of Debt‐ rd .....................................................................................................74 6.1.2. Cost of equity‐re.....................................................................................................76 7. Capital structure theories .............................................................................................. 80 8. The theory of costs .................................................................................................. 92 8.1. Economic versus accounting cost concept .................................................................................. 94 8.2. Type breakdown of costs ..................................................................................................95 8.3. Production costs in the short‐run ..........................................................................................98 8.4. Development of costs according to volume .............................................................................. 101 9. Profit and the Break – Even Analysis ..........................................................................................107 9.1. Profit .........................................................................................................................107 9.2. Revenue .................................................................................................................... 109 9.3. Economic vs. accounting profit ..........................................................................................110 9.4. Break even analysis .......................................................................................................111 10. Cash flow analysis ..........................................................................................................118 10.1. Statement of Cash Flows ................................................................................................119 10.2. Cash Flow Patterns and the Financial Health of a Company ................................................. 125 10.3. Global Cash Flow Analysis ...........................................................................................126 11. Circular economy........................................................................................................................... 135 11.1. Linear vs. Circular economy............................................................................................138 12. Business performance and return on investments ....................................................................... 142 12.1. Investment definitions.....................................................................................................144 12.2. Investment efficiency method evaluation ............................................................................ 147 13. Business objectives and theories of the firm ................................................................................ 159 13.1. Neoclassical economic theory ............................................................................................... 160 13.2. Managerial theories of firm................................................................................................... 163 13.3. Behavioural models ........................................................................................................168