On Management

The traditional form of organisation is not very suitable for project work because it has no means of integrating different departments at levels below the top management and it does not facilitate effective communication,coordination and control. Project Organisations may take one of the following three forms: Line and  Staff Organisation Divisional Organisation Matrix Organisation Line and  Staff  Organisation A Person is appointed with the primary responsibility of coordinating the work of the people in the functional departments. Divisional  Organisation A separate division headed by the project manager is set up to implement the project. Matrix Organisation The personnel working on the project have a responsibility to their functional superior as well as to the project manager. The line and functional form of organisation is conducive to an efficient use of resources but is not suitable for an effective realization of project o...

Working Capital which is defined as all the short term assets used in daily operations. Net Working Capital may be defined as the difference between current assets and current liabilities. working capital management is the functional area of finance that covers all the current accounts of the firm. Working Capital comprises of two components: Permanent Working Capital Variable Working Capital    Goals of Working Capital Policies Adequate Liquidity Minimization of Risk Contribute to Maximizing Firm's Value Factors affecting the Need for Working Capital Sales Volume Seasonal and Cyclical Factors Changes to Technology Policies of the firm  Managing Working Capital It involves two processes: Forecasting Needed Funds Acquiring Funds Managing Working Capital requires the following actions: Monitoring Levels of Cash, Receivables and Inventory Knowing percentage of funds in Current Accounts Recording time spent managing Current Acco...

In a globalised  business environment ,the top down analysis of the prospects of a firm must begin with the global economy. The government employs two broad classes of macroeconomic policies viz. demand -side policies and supply side policies. The former are meant to influence the demand for goods and services and the latter the supply for goods and services. Fiscal policy is concerned with the spending and tax initiatives of the government. Monetary Policy is concerned with the manipulation of money supply in the economy. To determine the intrinsic value of an equity stock the security analyst must forecast the earnings and dividends expected from the stock and choose a discount rate which reflects the riskiness of the stock. The earnings potential and riskiness of a firm are linked to the prospects of the industry to which it belongs. The prospects of various industries, in turn , are largely influenced by the development in the macroeconomic environment. The macroecono...

Investment decisions are a trade off between Risk and Return. Risk refers to the possibility that the actual outcome of an investment will differ from its expected outcome. Most investors are concerned about the actual outcome being less than the expected outcome. The wider the range of possible outcomes,the greater the risk. SOURCES OF RISK The three major sources of risk are: Business Risk Interest Rate Risk Market Risk   Business Risk As a holder of corporate securities (equity shares and debentures) you are exposed to risk of poor business performance. This may be caused by a variety of factors like heightened competition, emergence of new technologies, development of substitute products , shifts in consumer preferences, inadequate supply of essential inputs,changes in governmental policies and so on. The principal reason might be inept and incompetent management. Interest Rate Risk The changes in interest rate have a bearing  on the welfare of investo...

Accounting is based on the following concepts: Entity Concept Money measurement Concept Going concern Concept Cost Concept Conservatism Concept Dual Aspect Concept Accounting Period concept Accrual Concept Realisation concept Matching concept Materiality Concept Entity Concept For purposes of Accounting the business firm is regarded as a separate entity.Accounts are maintained for this entity as distinct from the persons who are connected with it. Money Measurement Concept Accounting is concerned with only those facts which are expressible in monetary terms. Going Concern concept Accounting is normally based on the premise that the business entity will remain a going concern for an indefinitely long period and not concern which is likely to be wound up in near future. Cost Concept Assets acquired by a business are generally recorded at their cost. Conservatism Concept Anticipate no profit but provide for all possible losses. Dual Aspect C...

FORMS OF BUSINESS COMBINATIONS MERGERS A merger is a combination of two or more businesses in which only one of the corporations survives. The other corporation ceases  to exist and its assets and debt are taken over by the surviving corporation. Thus in a merger of Companies X and Y , company X may continue while Y ceases to exist. The merger may occur in four ways: Purchase of assets Purchase of Common Stock Exchange of Stock for Assets Exchange of Stock for Stock Consolidations A consolidation is a combination of two or more businesses into a third entirely new corporation. The legal and financial characteristics of a consolidation are basically the same as those for a merger. KINDS OF MERGERS Horizontal Merger : This is the joining of two firms in the same areas of business. Examples  would be the combining of two book publishers or two manufacturers of toys. Vertical Merger : This is the joining of two firms involved in different stages of the prod...

There are different aspects of control concepts for measurement of effectiveness and efficiency at three different levels of management. Similarly  there are different control concepts for measuring the effectiveness of various units/divisions of firm. One of the important ways of measuring performance of sub-functions,divisions and units is to treat them as separate responsibility centers. A Responsibility Center is an activity center of the corporation entrusted  with a special task. In modern budgeting and control, financial executives tend to develop responsibility centers for purposes of control. They can be classified into three categories: Cost Centers Profit Centers Investment Centers  COST CENTER In the cost center approach , efficiency is measured on the basis of costs incurred in relation to the standard or budgeted costs. Cost center is effective in case of operations such as production,maintenance and certain service departments, as it is n...

Profitability projections are essential to judge the financial desirability of a project. Profitability analysis focuses on: Cost of Production Working Results Break even level   The major components of cost of production are: Material Cost Utilities Cost Labour cost Factory Overhead Cost The most single element of cost,material cost consists of price paid to suppliers, freight expenses and insurance charges. Utilities costs consists of cost of power,water and fuel. Labour costs includes the cost of manpower employed in the factory. Factory overhead cost represents expenses on repairs and maintenance ,light ,rent and taxes, insurance and miscellaneous factory expenses. The statement of working results may reflect the following: Cost of Production Total Administrative Expenses Total Sales Expenses royalty and know-how payable Total Cost of Production Expected Sales Gross Profit before Interest Total financial expenses Depreciation Operating Profit ...

Appraisal   Criteria for Projects There are two broad categories of appraisal criteria: non-discounting criteria and discounting criteria.  The important non-discounting criteria are : Urgency, Payback period Accounting rate of return Debt service coverage ratio The important discounting criteria are: Net Present Value Benefit Cost Ratio Internal Rate of Return Annual Capital Charge   According to urgency criterion projects which are deemed to be more urgent get priority over projects which are regarded as less urgent. The problem with this criterion is: How can the degree of urgency be determined? The payback period is the length of time required to recover  the initial cash outlay on the project. According to this criterion, a project is acceptable if its payback period is less than certain specified payback period. The Accounting Rate of Return also referred to as the average rate of return, is  a measure of profitabilit...

The randomness of stock prices was the result of an efficient market. The key links in the argument are as follows: Information is freely and instantaneously available to all the market participants Keen competition among market participants more or less ensures that market prices will reflect intrinsic values. This means that they will fully impound all available information. Prices change in response to new information that by definition is unrelated to previous information otherwise it will not be new information. Since new information cannot be predicted in advance, price changes too cannot be forecast .Hence prices behave like a random walk. What is an Efficient Market? An efficient market is one in which the market price of a security is an unbiased estimate of its intrinsic value.Market efficiency is defined in relation to information that is reflected in security prices. Eugene Fama suggested that it is useful to distinguish three levels of market efficiency: ...

The following books were read from cover to cover as revision of financial concepts *Introduction to Accounting  by ICFAI *Managers Guide to Finance and Accounting by Prasanna Chandra *Financial Decision Making  by  John Hampton *Projects Preparation---Implementation  by Prasanna Chandra I am also reading Investment Analysis and Portfolio Management by Prasanna Chandra....