Fundamentals of Business Management Essay

21386 Words May 2nd, 2012 86 Pages
ESWEB

BUSINESS & ECONOMICS MODULE

FUNDAMENTALS OF BUSINESS MANAGEMENT

Prepared by:

Prof.Dr.Gazmend Luboteni

UNIVERSITY OF PRISHTINA KOSOVO

PRISHTINA, 2006

FUNDAMENTALS OF BUSINESS MANAGEMENT

I. BUSINESS AND INVESTMENT

A business is one or more individuals selling products or services for profit. Products such as athletic apparel (NIKE, Reebok, Converse), computers (Packard –Bell, Hewlett-Packard, Apple) and clothing (Levis, REI, GAP) are part of our lives. Services like information communication (America Online, CompuServe, and Microsoft), dining
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Return and Risk

Profit is often linked to return. The term return derives from the idea of getting some- thing back from an investment, or return on investment. Return on investment is often stated in ratio form as profit divided by amount invested. For example, banks or savings and loans often report our return from a savings account in the form of an interest rate of return on investment. For example, we might have a 4% savings account or invest our college money in an 8% money market fund.

We can invest our money in many ways. If we invest it in a savings account or in
U.S. government treasury bills, we get a return of around 3% to 7%. We could also invest in a company's stock, or even start our own business. How do we decide among these investment options? Our answer rests on the trade-off between return and risk.

Risk is the amount of uncertainty about the return we expect to earn. All business decisions involve risk. But some decisions involve more risk than others. The lower the risk of an investment, the lower is our expected return. The reason why savings accounts pay such a low return is the low risk of our not being repaid with interest. The government guarantees most savings accounts from default. Also, U.S. government bonds pay a low return because of the low risk of the U.S. government's defaulting on its payments. But if we buy a share of NIKE or any

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