Business Structures, Financial Metrics and Management Essentials

Posted on Feb 24, 2026 in Accounting and Finance

Sole Proprietorship

Sole proprietorship: unlimited liability, very easy to create, owner 18+, low taxes, easy to dissolve, hard to expand.

Partnerships

General partnership: minimum 2 owners, unlimited liability, difficult to transfer ownership.

Limited partnership: shared responsibilities, more resources available.

Corporations

S-Corporation

S-Corp: maximum 100 shareholders, avoids double taxation; has shareholders’ meetings and a board of directors.

C-Corporation

C-Corp: double taxation — corporation pays tax on profits and shareholders pay tax on dividends. Shareholders’ Board ordinary meeting: within the first 6 months of the fiscal year. Universal Board = 100% participation. Meetings announced at least 15 days in advance. The Board of Directors executes the decisions of the Shareholders’ Board.

Limited Liability Company (LLC)

LLC: flexible, no board of directors, limited liability, less financing available.

Factors of Production

9 factors:

  • Raw materials
  • Energy
  • Labour
  • Consumer market
  • Land
  • Capital
  • Taxation
  • Supply
  • Waste recycling

Control

Control = means, not an end. Must be transparent and shared. Know the 4 steps perfectly: set → measure → compare → correct. Understand the difference between strategic, tactical, and operational control. Tactical control includes 4 types: financial, budgets, supervisory, and HR.

Cost, Break‑Even and Margin Formulas

Contribution margin (CM): CM = p − VC*

Break‑even (BeP) units: BeP units = FC / CM

BeP sales: BeP sales = FC × p / CM

Profit: Profit = (CM × Q) − FC

Margin of Safety (MoS) units: MoS units = Q − BeP units

MoS sales: MoS sales = (Q × p) − BeP sales

Margin of Safety: Current Output − Break‑Even Output

Benefit: (p − VC*) × Q − FC

Income Statement Flow

Net Sales (Revenue)

COGS (Cost of Goods Sold)

Gross Profit = Net Sales − COGS

Operating Expenses

EBIT = Gross Profit − Operating Expenses

Earnings Before Taxes = EBIT − Interest

Net Income = Earnings Before Taxes − Taxes

Key Financial Ratios

Liquidity ratios:

  • Current ratio = Current Assets ÷ Current Liabilities
  • Quick ratio = (Current Assets − Inventory) ÷ Current Liabilities

Efficiency ratios:

  • Inventory turnover = COGS ÷ Inventory
  • Asset turnover = Net Sales ÷ Total Assets

Debt ratios:

  • Debt‑to‑Equity = Long‑Term Debt ÷ Owners’ Equity
  • Times Interest Earned = EBIT ÷ Interest Expense

Profitability ratios:

  • ROS = Net Income ÷ Net Sales
  • ROA = Net Income ÷ Total Assets
  • ROE = Net Income ÷ Owners’ Equity

Benchmarks: <10% → acceptable; 10–20% → significant; 20–50% → very great; >50% → extreme difference.

Time Value of Money & Valuation

Future Value: FV = PV (1 + i)n

Present Value: PV = FV (1 + i)−n

NPV: NPV = sum Q / (1 + i)n

Capital cost approximation (K): K = i + g + (i * g)

Organization and Management

Organization: sistema dissenyat per assolir objectius.

Administration / Management: aconseguir objectius a través de persones.

Functions of Management

Planning → estratègia a llarg termini i tàctiques a curt.

Organizing → repartir recursos i definir estructura.

Leading → motivació, comunicació, lideratge.

Controlling → mesurar resultats i corregir desviacions.

Managerial Roles

Interpersonal Roles

  1. Figurehead: Represents the organization in symbolic and ceremonial duties.
  2. Leader: Motivates, trains, supervises, and guides employees.
  3. Liaison: Builds and maintains networks inside and outside the organization.

Informational Roles

  1. Monitor: Collects information from inside and outside the organization.
  2. Disseminator: Shares information with employees; ensures the team receives necessary data — not gossip; clear communication.
  3. Spokesperson: Represents the company to outsiders; communicates with media, government, or external stakeholders.

Decisional Roles

  1. Entrepreneur: Creates and initiates change or improvements.
  2. Disturbance Handler: Deals with unexpected problems or conflicts; manages crises and resolves disruptions.
  3. Resource Allocator: Distributes resources: money, staff, time, equipment.
  4. Negotiator: Represents the organization in negotiations; works with suppliers, unions, clients, etc.

Skills and Project Estimates

Technical Skills / Human (Interpersonal) Skills / Conceptual Skills / Decision‑Making Skills

Mean (expected time): μ = (o + 4m + p) / 6

Variance: σ² = ((p − o) / 6)²

Z = 0 → 50% chance of finishing on time; Z > 0 → more than 50% chance (safer, maybe too many resources); Z < 0 → less than 50% chance (risky).

Slack: LF − EF

Departmentalization

Functional departmentalization: Based on job functions (HR, marketing, finance). Pros: Efficient specialization. Cons: Departments may focus too much on their own goals.

Product departmentalization: Based on product lines. Pros: Clear product focus and accountability. Cons: Duplication of functions between product divisions.

Geographical: Based on regions/territory. Pros: Adapts products/services to local needs. Cons: Higher cost and more complex coordination.

Process: Based on stages of product or customer flow. Pros: Efficient workflow / smooth operations. Cons: Only suitable for certain industries.

Customer: Based on customer types and needs. Pros: Meets customer needs with specialists. Cons: Duplication of functions and limited overall organizational vision.