Bihar Board 12th Entrepreneurship Important Questions Long Answer Type Part 3 are the best resource for students which helps in revision.
Bihar Board 12th Entrepreneurship Important Questions Long Answer Type Part 3
What is meant by marketing? Distinguish between marketing and selling.
Or, State difference between marketing and selling.
Marketing: Marketing is no longer a new term, however it is the most popular and prevalent yet unclear. It is a great irony that the most of the people who remain involved in the act of marketing are not well conversant with the term. Even a sales personnel or a sales manager believes marketing to be a selling.
‘Marketing’ this word has become so endearing and popular that even an unlettered farmer does not feel unconcerned or unfamiliar with it. If domestic women in questioned, “What is marketing”? She will promptly react that when she buys food, vegetables, clothing, etc., for her family that shopping itself is marketing. Thus, to a salesman, marketing means selling. To a farmer, selling of his produce in the market is marketing itself.
Several scholars in this context opine that in practical life, the term ‘Marketing’ is used atmost by everybody as per his status, ability need and environment as a new minimal word. All therefore mentioned ideas are the various aspects of marketing.
In fact, marketing not only being restricted to sales, purchase product planning, advertising is a vast term with a multifarious meaning that refers to the entire operation which starts before the production of merchandise or services and their prior activities into their sales, distribution and services after sales, etc. All such activities are included into this term.
Distinction between Marketing and Selling: To a layman, there is hardly any distinction between marketing and selling rather they are synonymous. The objective of both is same i.e., to enhance sales and earn profit but the reality is that there is a lot of difference. The area of marketing is much wider than that of selling even selling is incorporated in marketing. The distinction whatsoever between these two becomes evident from the chart given below:
Explain the meaning of marketing mix. What elements are indued in it?
Or, What is marketing mix?
Meaning of Marketing Mix: This concept was basically conceived by a professor of ‘Harvard Business School’, Mr. Neil Bordon, which refers to all kinds of marketing decisions that help encourage and foster the sales, can be termed as ‘Marketing Mix’. It is very crucial in every area of trade, be it an area of price, distribution or production. For instance, let us consider the ‘Price Area’.
Some of the manufactures or producers happen to determine the price of a merchandise in conformity with the price leader, and in the event of any variation from it that depends on the kind of ‘marketing strategy’ being followed by a businessman. Such factors have led to the emergence of the concept of ‘Marketing Mix’.
Sometimes the case may be so that the price which is to be determined may be relatively higher because the spending on advertising and marketing is more, then is it justifiable and profitable for the organisation, or if the price is to be reasonably restricted, in this case, not much is to be spent on advertising or other marketing pursuits leaving these circumstances to two options-either to determine the price at a higher level by spending more on advertising and operational costs, or to determine the price at a lower level by spending meagre on other related activities.
In such circumstances, an entrepreneur is supposed to exploit the marketing mix which would be more useful for the trade. It is worth mentioning that the marketing mix ought to be customer-oriented.
Definitions of Marketing Mix: Following are the important definitions of marketing mix:
- “The strategies to be exploited by the producers for ensuring success in market constitute the marketing-mix.” -R. S. Davar
- “Marketing mix is a sum of the controlling variables which are exploited by a firm to impress upon its commitment to customers.” -Philip Kotler
- “Marketing mix is the term used to describe the combination of the four inputs which constitute the core of a company’s marketing system, the product, the price structure, the promotional activities and the distribution system.” -William J. Stanton
Elements or Components of Marketing Mix: What are the various elements which together constitute the marketing mix, various scholars have been at variance and not unanimous in their approach to the issue.
E. J. Mccarthy in his book ‘Basic Marketing’ has described about the four elements of marketing mix-(i) Product, (ii) Price, (iii) Place, (iv) Promotion, which are known as four P’s. In each of the elements, decision in respect of its sub-elements or constituents, need be taken.
What is meant by advertising? Explain in brief the characteristics of advertising.
Or, What are the objective of advertisement?
Meaning of advertising: By decoding the word ‘advertising’ we come to understand that it means a specific information. In fact, advertising is synonym of the Latin word ‘Adverto’, where ‘ad’ means towards and ‘verto’ means to turn. Therefore, in business world, advertising implies to turn the consumers’ attention towards merchandise and services.
Presently, advertising is not restricted to ‘sharing information’ rather it is regarded as an agent of mass communication by means of which a new clientele is generated and the existing clientele is retained. Under the auspices of advertising, by disseminating information regarding product and services to the consumers in order to create a sense of credibility so as by stimulating the consumers to buy their merchandise with the result, the sales are promoted to the hilt. In short, advertising refers to the information given to consumers with regard to product/services and to encourage them to buy them.
Definitions of Advertising: Following are the cardinal definitions of advertising:
- According to Bayand O. Wheeler, “Advertising is a form of paid non-personal presentation of ideas, goods or services for the purpose of inducing people to buy.”
- According to Dr. Jones, “Advertising is a sort of machine-made mass production method of selling which supplements the voice and personality of the individual salesman.”
- According to Sheldon, “Advertising is a business force, which through the printed words, sells or helps sell, builds reputation and fosters goodwill.”
- According to American Marketing Association, Advertisement is, “any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor.”
Characteristics of Advertising:
- Advertising is impersonal that means no individual does this task fact to face
- It is through advertising that the message is publically transmitted to the masses
- The advertiser has to pay for it
- The advertising message may be in the form of written, verbal or visual
- Advertising is done through various mediums
- The purpose of advertising is to induce the people for buying the advertised commodity
- Advertising should be repeated.
Objectives of Advertising: With the spectacle of a common man, the sole objective of advertising is to increase sales but from the commercial point of view, the objective is not restricted to this only. A product is advertised with several purposes.
As per S. R. Davar, “The purpose of advertising is to benefit the producer, to educate consumer, to assist the seller or salesman, to attract the traders by suppressing the competition and above all this to establish rapport between the producer and the consumer.” As such advertising has various objectives which are follows:
1. To Introduce New Products or Services: It is through advertising that the people are to be informed about any newly launched product and induce them to buy it.
2. To Increase Sales: Another aim of advertising is to promote sales. A trader always strives to increase sales and with this purpose is mind, he does advertising.
3. To Create and Develop New Markets: One objective of advertising is to explore and develop new vistas or markets, which is easier to do so by means of advertising.
4. To Sustain the Existing Demand: The objective here is not only to increase demand rather to exploit the current or existing demand, which requires a repeated advertising.
5. To Educate the Consumer: Advertising always directs the prospective buyers to the sellers by inspiring and educating them about the product and facilitates the efforts of the producers, this is what the advertising does.
6. To Combat and Accomplish Success in Competition: This is also an objective of advertising to combat competition success. The products which need to be advertised should be better advertised than that of the competitive products.
7. To Increase the Goodwill of the Advertiser: It is also an aim of advertising to increase the goodwill of the advertiser. Through a consistently regular and frequent advertising in a most suitable medium and manner, the faith of the consumer can be reinforced towards the advertised commodity. In our country in the popularity of Tata, Hindustan Lever and Reliance and many more, advertising has a considerable contribution.
8. To Remove Doubts and Confusion: One more important task of advertising is to dispel doubts or confusion in the way of product sales and for popularising such product, advertising is the need of the hour.
9. To Make Cautious: The last but not the least task of advertising is to warn the consumers against the fictitious products, the warning is also intended for the traders, too.
What is Packaging? Describe its characteristics.
Meaning and Definitions of Packaging: In the modern age the importance of packaging is gradually increasing day-by-day. On the one hand, packaging provides safety and security to the product and on the other hand, it enhances its attraction. In a common term, packaging refers to a thing that contains a product inside or wrapped around, with its brand or name printed on the package. The definition of packaging has been explained differently by different scholars. Some of the prominent definitions are shown as underneath:
1. According to William J. Stanton, “Packaging may be defined as the general group of activities in product planning which involves designing and producing the container or wrapper for a product.”
2. According to R. S. Davar, “Packaging may be defined as the art and or science concerned with the development and use of materials, methods and equipment for applying a product to a container or vice designed to protect the product throughout the various stages of distribution.”
Infercnce: A close study of the above given definitions, it can be summed up as “packaging is an art of a science concerned with the development and use of materials for applying a product to a container or a wrapper to ensure the safety and attractive look of a product.”
Characteristics of Packaging: The chief characteristics of packaging are as following:
- Packaging is both an art and a science as well.
- Packaging is a group of those activities which are concerned with the packing material, containers or wrappers, designing and the packing of the articles.
- There is a difference between packaging and packing. Packing refers to enclosing the products inside the containers or wrappers, whereas in packaging, the production and use of containers or wrappers is done.
- Packaging involves the activities of labelling or branding, because label is stuck on package and brand on label.
- The main objective of packaging is to ensure safety of the product at various stages and opportunities or facilities to customers for using it by giving them an assurance of safety and preservation.
Characteristics or Qualities of a Good Packaging: It has already been said that packaging serves various objectives but it deserves mentioning that it would be adequate to serve the desired objectives provided it comprises some of the important features as mentioned hereunder:
1. Attention-arresting package should be such that captures the people’s attention. In the modem competitive era, it is the package and its characteristics which are very important. A customer does not initially look at the product but gets impressed by the package and makes his mind to buy the product or expresses his willingness to buy it only because of its captivating package.
2. Identity: A package must be easily identifiable that means that just looking at it once, customer easily makes it out.
3. Interest evoking: The package must be like that it evokes an immediate interest towards the product and sustains that interest.
4. Creating desire: Package must be so attractive as it creates a passionate cjSsire in the onlooker’s mind to possess it.
5. Compulsive Buying: Package must evoke a compulsive buying instinct in the customers heart.
6. Safety: Package must ensure the safety of the product so as to keep it inteact.
7. Product Image: Package must enhance the product’s image.
8. Utility: Even after the use of product, package must prove to be useful, such as the container of the Dalda or the Rath ghee which can be used later for preserving other articles.
9. A Constant Reminder: Package is supposed to remind the customer of its value and entices him to buy another package containing the product.
10. Conveniently Portable: Package must be convenient in handling or carrying to it to the destination.
What are the long term and short term sources of business finance?
Sources of Business Finance: For conducting the operation of any business, the short term, mid term and long term finances. In order to meet the financial requirements, as such, from time to time, the organisation obtains finance from different sources, which are explained as underneath:
(A) Short term Source of Finance:
Meaning of Short term Finance: Short term finance refers to those loans which are procured by a commercial organisation for meeting its short term financial requirements for a period of one year or less. It is utilised for daily expenses or current assets, such as Wages to labour, Salaries, Purchase of Raw Material, Godown Rent etc.
In business finance the short term sources of finance are divided into two categories-
(i) Bank Sources, (ii) Non-Bank Sources.
(B) Medium term Sources of Finance:
Meaning of Medium term Finance: Such loans are meant for a period of three to seven years and this kind of loan can be obtained through the following mediums:
- Public Deposits
- Public Fixed Deposit
- From Financial Institutions
- Finance on Conditional or Contractual basis
- Against Partly Fixed Depsoit
- On the Basis of Altered Conditions
- From Banks
- From Commercial Banks under Revival Provision
- Within the Company
- Against Surety and Guarantee or Mortgage.
(C) Long term Sources of Finance:
Meaning of Long term Finance: Long term finance or permanent one refers to the one, when a company seeks loan for purchasing land, building, machine, etc., on a long term basis and for which the company needs to arrange finance. Such kinds of finances are procured for a period of seven to twenty years, either from banks or other sources, the finance is sought on a long term basis for meeting the financial requirement.
Sources of Long term Finance: A trader seeks finance for meeting his long term based financial needs from the following sources:
- Issue of Shares
- Issue of Debentures
- Loan from Nationalised Bank
- Loan from specific Financial Institutions
- Ploughing-back of Earned Profits
- Depreciation Fund of Company;
- Seed Capital Scheme
- Loan from Directors of Company
- Financial Assistance by the Govt.
- Foreign Capital Investments
- Public Deposits.
Name the various elements included in total cost.
Following elements is included in total cost:
1. Prime Cost: The production of any commodity mainly involves two types of expenditures – Raw material and labour. The total sum of these constituents is known as Prime Cost.
(i) Raw Material: In the production process of anything, its raw material is converted into a finished one and there is a change in its outer form. The raw material is also of two types:
- Direct: Direct raw material is the one which is directly used in the production of only that particular product, such as wood for furniture, cotton for cloth, sugarcane for sugar only, etc.
- Indirect: it is that material which is not completely used in the production of this commodity rather some part of it is used therein, as nails in furniture, polish or fevicol, etc.
(ii) Labour: For the conversion of raw material into a finished state, labour is required which is also of two kinds:
- Direct: It is the labour which is directly involved in the production, such as a carpenter engaged in making furniture is termed as direct labour
- Indirect: There are some types of labours which are not directly engaged in the production of anything but a part of it is engaged, such as supervisor, manager are indirect labour.
2. Works Cost: The raw material when to be converted into a finished product with the help of labour has to undergo various processes. At this stage or in factory, whatever the cost is incurred is known as ‘work overhead’ and when added to the prime cost, it comes to be known as ‘work cost’, which again is of two types:
- Fixed: The expenditure to be incurred in case of production or no production, can be called as fixed cost, i.e. factory rent, electricity, maintenance etc,
- Variable: It is that expenditure which increases or decreases according to the production, is known as variable works cost, such as fuel and power, etc.
3. Cost of Production: When office overhead is added to the work cost, the resultant comes to be known as the production cost. Right from the level of production till the maturity and saleability of the finished product, the total cost thus is the production cost. This is also divided into two kinds:
- Fixed: It is the cost which remains unaffected with the office either closed or open is known as fixed cost of production.
- Variable: With the change in production, the office cost also undergoes a change is known as ‘Variable Production Cost’.
4. Cost of Goods Sold: After the production of the goods, comes the preparedness of its sales. The process of selling also involves cost, such as advertisement, wages of sales force, commission, godown, rent, packing, insurance, etc., which is known as ‘Selling and, Distribution Overhead’. When this cost is added to the production cost, it comes to be termed as ‘Total Cost of Goods Sold’. It is again dividend into two categories:
- Fixed: Such cost remains static as salary of sales people, the rent of godown, etc.
- Variable: These are variable costs that varies in accordance with the volume of sales, such as Commission of Salesmen, Packing Cost, etc.
By defining development and growth point out its objectives.
Meaning of Development and Growth: Development is the law of nature, In the business world, a business in its first stage takes birth that starts growing gradually. This growth is called as the development in business and when it acquires maturity, the stage is the virtual growth. At this stage, the project of an entrepreneur becomes so strong as to be capable of braving even the adverse weather in the business environment, at the same time, it continues to assert its identity in the market.
Objectives of Growth: Every business aspires to attain the greater heights in terms of its growth but it is not everybody’s cup of tea. It is because the inception of the enterprise feels the impact of the social, economic, political conditions prevailing at the time of its birth.
Since these conditions never remain the same and the aim, thereby, of any entrepreneur to adapt himself to the everchanging environment to ensure a perpetual growth and development. The main objectives of growth in business can be summed up as underneath:
- Accepting newly changing conditions
- To combat the onslaught of the changing conditions
- To retain one’s identity in the market
- To earn profit of large scale
- To aspire for achieving new heights.
On the road to progress and prosperity every entrepreneur wants to tread upon and tries to associate himself with this process. He ought to take care of the fact that the weaker and smaller enterprises like the tender plants which remain vulnerable to even slight current of wind and fall or sometime get uprooted, whereas the stronger and studier ones cannot be, thus, shaken. As such, to provide that strength to a business enterprise. The growth and development is the only parameter for ensuring its survival.
Briefly discuss the various stages of growth.
Various Stages of Growth: Growth does not come suddenly but come after passing various stages of development. There is a need of awareness of entrepreneur at every stage of growth.
The life cycle of an enterprise constitutes the following stages:
1. Start-up Stage: First of all in the commercial world the birth of an enterprise takes place and it starts its initial journey at a very limited area and at a smaller scale.
2. Development Stage: Now the enterprise starts moving ahead and
gets familiar, more or less in the market. Its production level and the market territory start expanding.
3. Stage of Expansion: At this stage, the entrepreneur holds an opinion that his footing is firm and stable in the market and feels for taking his project a little farther by opening new branches, new unit and new product and in this way he aims at capturing the major part of the market with an intent to bring about expansion of his business domain.
4. Growth/Maturity Stage: By means of expansion in business, the entrepreneur gains his dominance over the market as a result of which his sales shoot up and thus, the enterprise reaches its age of maturity.
5. Decline Stage: The age of maturity is not the basis of stability of any enterprise in the market since the competitors grow jealous of this enterprise as thriving one, come out with new products and with added zeal in the market and then the other existing rivals try to bring about some innovative strategies to destroy the progress of that enterprise, as a result, its stability stands vulnerable to the competitive threat which is enough for weakening it.
Therefore, a decline starts penetrating in business and finally comes to face extinction, and immediately the entrepreneur makes a comeback with a bang with new ideology, new strategies and new product to restore the prestine glory to his enterprise.
This trend and rate of growth keeps on varying in different types of business. The time gap may be a factor here but the basics for growth remain the same.
Describe the main factors affecting growth.
Elements Affecting Growth: In entrepreneur is expected to cross the threshold of growth if he wants to sustain himself in the market. As such, he is supposed to be considerate to such elements that affect the growth. Some of the important elements are as follows:
1. Competition: In the contemporary throttling competition in the market, there are scores of producers who remain engrossed in the sales of their merchandise. The matter of monopoly tends to be a matter of conjecture. Every competitor tries to complete with his rivals by bringing a better merchandise in the market. Under the circumstances, the growth of any enterprise gets substantially influenced by the competitive menace, because to survive amidst competition, one ought to be exceptionally stronger than others.
2. Changes in Technology: The day-to-day technological innovation has caused a ripple almost in every orbit of life. Any novel merchandise becomes outdated when replaced by any other innovative product and the consumers instantly switch over to the latest one by leaving the existing product. Therefore, it is the job of an entrepreneur to keep an eye on such technological changes so as to remain in all preparedness. Thus, the technological innovation does influence the growth a lot. Any one who overlooks this consideration, one is bound to lag behind despite growth.
3. Consumer Trends: The nature of consumers, their preferences, interests, fashion, etc., are the considerations that decides the fate of the product/services of an entrepreneur. The demand fluctuates in the market on the basis of these factors, the sales increase, so does the profit of the entrepreneur who marches ahead on the way to growth and progress. As such, it is the consumer who is the ‘King’ of the market, whose every move determines the success or failure of business. The entrepreneur who feels the consumer’s pulse and gives satisfaction to the consumer, certainly makes the mark.
4. Creativity: Creativity here refers to the introduction of such a product/ services, the benefit of which is reaped by the consumer with some novelty in it. The entrepreneur who is well-versed in this art, his venture will certainly be moving towards progress and prosperity.
5. Innovation: If an old wine is sealed into a new bottle, the act will soon expose the trick, as such, this strategy cannot lead to growth. Thus, a successful entrepreneur brings about some radical changes in the product/services which was not existing before and the consumers were not much benefited with the pre-existing product. It is the innovation that can guarantee growth.
Describe the responsibilities of the society towards an entrepreneur.
Responsibility of the Society towards Entrepreneurs: Clapping always involves both the hands or since when the society has a lot of expectations from an entrepreneur, the society must reciprocate him in the same vein by being sensitive to the aspirations of an entrepreneur by means of extending its wholeheartedly support to him in the development of his venture.
Both the sides being conscious to their mutual responsibilities must work in tandem and reap the benefits. We have just seen that an entrepreneur has to fulfil his responsibilities in every sphere, similarly the society, too, owes some responsibilities to the entrepreneur by taking into consideration the following factors:
(i) An employee of an organisation ought to work in a manner that the organisational interest be safeguarded. One must be careful and concerned with not only his benefit rather of the company, too. He must refrain from unnecessary obstinacy, gherao, stop work, etc. The employees ought to perform their duties with a sense of devotion and dedication by observing their code of conduct. They must extend all the cooperation in every area of their organisational operation with a sense of responsibility.
(ii) It is also true that the customer is the ruler of the market and an entrepreneur has a lot of responsibilities towards him but the ruling customer rather than being a deterrent and contradictory to the prestige, social status and certain compulsions, should adopt a cooperative stand towards the entrepreneur. The customer must keep the entrepreneur informed about his need, choice and preferences.
In the event of purchase on credit, the customer should make the payment within the agreed time. He should not think that the entrepreneur does not only sell his merchandise and take money but the customer must understand it that how a shopkeeper meets his requirement at the threshold of his house by arranging the product from far and wide.
(iii) It is the responsibilities of the suppliers to ensure the timely supply of raw materials, products, equipments, etc., in genuine quantity, at right price, and well in time. If some item is found defective, they must be ready to take it back. According to the entrepreneurs need, they should also be prepared to accord credit to him.
(iv) It is the responsibilities of the financial agencies or other financers to provide him finance at the minimum rate of interest and the finance should also be provided sufficiently to contribute generously for the development of his business. If the entrepreneur fails to repay the finance in time as agreed upon, the creditors ought to realize his compulsion and try to adopt a compromising attitude towards the entrepreneur.
(v) The Government should also see to it that no policy, as such, should prove to be determinantal in the development of the entrepreneur’s business because it is the entrepreneur who is an angel of development. At every step, he needs to be encouraged in terms of development. He must be provided with all the facilities and convenience in generating finance. Industrial or business policy should be supportive and strong. The process of obtaining licence, registration, tax paying etc., should be simple and comprehensive.
(vi) Even the local people of the project ought to adopt a co-operative attitude towards the entrepreneur. They should also understand that if any project is set up in their area, it will yield them a long-term benefit.
Thus, we can see that even the society owes responsibilities towards the entrepreneur. If some entrepreneur is found lacking somehow, it is not only because of his personal shortcoming rather society, itself, is more or less responsible. An entrepreneur who lags behind can become a social burden. Therefore, the society should see to it that a group of new and radical entrepreneurs should join hands and rather than being the burden should prove themselves as a social asset.
What is discipline? What is need of discipline of an entrepreneur?
A soldier by serving in army does not merely earn his living rather protects his nation and his countrymen even at the expense of his life. If this soldier is a guard of the nation’s safety, on the other side, an entrepreneur encourages the social and economic growth of his nation.
The mentor and the ambassador of the social and economic growth like a disciplined soldier, ought to be considerate about professional and social discipline and similarly, he is supposed to discharge his responsibilities towards the society with utmost care and dedication. Why is it essential and how to take care of it? What is entrepreneur’s responsibility to whom and what is the responsibility of society towards the entrepreneurs? We shall discuss about it in the following way:
Discipline is the first and prime recipe of success, which is applicable almost in every sphere of human life. If we do not regard it, it can harm us, even the society and law punish us for violating the norms of discipline. Therefore, in all conditions we ought to stay disciplined. An entrepreneur, being a part of the society, has more responsibility because he remains throughout a cynosure or a centre of attraction or of concern in. the society, who also remains flanked by various social categories.
As such, it is evident from the above mentioned figure that an entrepreneur’s status in society is ‘two-way’, as he takes something from one class and returns something to the other one and thus, remains connected to the various social classes. Under the circumstances, he is supposed to stay disciplined everywhere. This sort of discipline comes only when an entrepreneur realises the sense of responsibility towards each category of the community and would do his business by living within the well-defined restrictions.
Need for Discipline: It is the duty of every entrepreneur to abide by the moral-social values within the bounds of business ethics and if he tends to violate these ethical restraints, such as adulteration in the product, sales of spurious goods, overcharging, flawed measuring or under-measurement, labour exploitation, tax-evasion and environmental pollution, etc., that would amount to the violation of discipline. As such, it is significant to take care of discipline in every orbit of life, because of the following:
- The career of an entrepreneur can be endangered.
- Long-term profit can be an uncertainty or an improbability.
- The image of the company can be tarnished.
- Face the ‘consumers’ protest and outburst.
- Face the disregard of the society.
- Govt, and society award punitive measures.
In order to protect from these curses, an entrepreneur is supposed to be considerate in terms of discipline by maintaining his clean profile and status in the society by adhering to the norms and codes of social and business ethics.
What factors affect the physical resources?
Or, What factors should be considered by an entrepreneur while selecting an enterprise?
The following elements have their maximum impact on physical resources:
- Location of land, the bize and its cost.
- The transport facility to access to the land, ambience of location, machines, instruments and equipments, their availability, their quality, cost, technique and time spem for supply are important for consideration.
- The conditions for installing machinery and its repairs etc.
- Short and long-term costs and replacement facility.
- Basis amenities, viz., water electricity, transport etc.
- The need of trained and experienced work force for operating the machines.
- Effect on environment.
- Availability of raw material, the quality, cost supplier, time taken in supply and terms of purchase etc.
Explain the limitations of fund flow statement.
Limitations of fund flow statement: Although the cash fund flow analysis is the hands of the financial manager is a useful tool on the basis of which he happens to plan various analytical process. This analysis provides every possible help to the manager in resolving various financial difficulties yet while using them he has to take care of certain limitations which are described as under:
(i) Lack of basic information: A cash flow funds analysis is unsuccessful in providing the basic informations. It fails to provide basic measures in the changing financial conditions.
(ii) Analysis of past data: This analysis is related to what has already happened in the past. However it can give some guidelines in analysing the fund flow process for future yet it can not do the needful with perfect accuracy.
(iii) It ignores non-fund items: It does not take care of the non-fund items and is inadequate in comparision of statement of income and balance sheet.
(iv) Supplement: It is not alternative to profit and loss account and balance sheet but a supplement which only provides the additional informations.
(v) Misleading: The result of the fund flow analysis often are misleading. An excessive amount of working capital does not mean that the business earns a large profits. Similarly, the paucity of the heavy loss to the organisation.
(vi) Limited scope: The area of fund flow analysis is very restricted which does not provide the informations in relation to change in cash flow which is more significant as compared to the working capital.
What is project appraisal? Describe in brief the different aspects of project evaluation.
Project appraisal is an analysis of cost and profit of any proposed project. Its main objective to select the best of the available alternatives so at the projected goals could be conveniently realised. In a large context, a detailed evalution of the project to determine the technical feasibility, economic necessity, financial viability of the project and managerial competence required for it successful operations.
The major objectives of project appraisal are as under:
- To identify the probable costs and anticipated profit from the project underway.
- To finally realise the ultimate goals of the project.
- To collect various relevant information on the basis of which the success of failure of project be ascertained.
- To establish a parameter or a standard against which the rate of success and failure be ganged.
- To evaluate the project feasibility from the technical aspect.
The different aspects of project appraisal are as under:
1. Technical evaluation: It is the technical evaluation which is the most important one is the context of project appraisal. This task is perfomed by expert and experienced professional.
Technical appraised is done on the basis of the underlined factors:
- Location of site.
- Size and capacity of the plant.
- Technology and equipment project mix.
- Project mix.
- Sources of raw materials and consumables.
- Building and layout.
- Man power.
- Water and steam gas.
- Fuel and electricity.
- Foreign collaboration.
- Infrastructural and development facilities etc.
2. Managerial evaluation: it is the efficienty of managerial level which is attributive to the success of the proposed project. The evaluation their understanding is to be done by project viability marketing activities and other details of the finances alloted to them are the basis of the manages.
Apart from the above, in the managerial evaluation, their intellectual strength on the basis of their previous performances, their educations and traning, credibility, character and capacity are the basis of their purpose.
3. Financial evaluation: For the financial investment, financial evaluation is an important task; it requires both the long term and short term finances. The basic objective of financial evaluation is to see that the proposed project is quite profitable so that the entrepreneur will be able to repay the interest regularly and the loan amount within the given time.
4. Commericial evaluation: For commericial evaluation the following points should be considered:
- Market demand of the product.
- Selection of market.
- Size and the developmental aspects of the market.
- Nature of competition.
- Pricing policy.
- Marketing strategy, sales strategy and the ability of the sales force.
- Possibilities of exports.
- Status of import and price if the product is import substitute.
5. Economic-social evaluation: It can be done in terms of its contribution to country on the following basis:
- Employment aspect.
- Contribution towards the nations economic progress.
- Contribution of the profit.
- Earning of foreign currency and savings.
- Development of backward areas.
- Development of rural and small scale industries.
- Contribution towards the fundamental facilities in the industrial set up.
- Priority to the project evaluating the national set up.
- Contribution to the cause of social upliftment.
6. Operational evaluation: It is very helpful in evaluating the potential and validity of the proposed project. It must have a capacity to meet the requirement of the product mix.
7. Environment evaluation: The industrial projects cause environment pollution in the form of a bonus. Due to this an environmental free certificate from the state governments is very essential.
Discuss the function of stock exchange.
Functions of Stock Exchange:
(i) Economic barometer: A stock exchange is a reliable barometer to measure the economic condition of a country. Every major change in country and economy is reflected in the prices of shares. The rise or fall in the share prices indicates the boom or recession cycle of the economy. Stock exchange is also known as a pulse of economy or economic mirror which reflects the economic conditions of a country.
(ii) Pricing of securities: The stock market helps to value the securities on the basis of demand and supply factors. The securities of profitable and growth oriented companies are valued higher as there is more demand for such securities. The valuation of securities is useful for investors, government and creditors. The investors can know the value of their investment, the creditors can value the creditworthiness and government can impose taxes on value of securities.
(iii) Safety of transactions: In stock market only the listed securities are traded and stock exchange authorities include the companies names in the trade list only after verifying the soundness of company. The companies which are listed they also have to operate within the strict rules and regulations. This ensures safety to dealing through stock exchange.
Discuss the main characteristics of management.
The basic characteristics of management are as follows:
(i) Management is a goal oriented process: An organisation has a set of basic goals which are the basic reason for its existence. These should be simple and clearly stated. Different organisations have different goals.
(ii) Management is all pervasive: The activities involved in managing an enterprise are common to all organisations whether economic social or political. In other countries, they do it may be quite different. This difference is due to the differences in culture, tradition and history.
(iii) Management is multidimensional: Management is a complex activity that has three main dimensions. These are:
- Management of work
- Management of people
- Management of operations.
(iv) Management is a continuous process: The process of management is a series of continuous, composite, but separate functions (planning, organising, directing, staffing and controlling). These functions are simultaneously performed by all the time.
(v) Management is a group activity: An organisation is a collection of diverse individuals with different needs. Every member of the group has a different purpose for joining the organisation but as members of the organisation they work towards fulfilling the common organisational goal.
(vi) Management is a dynamic function: Management is a dynamic function and has to adapt itself to the changing environment. An organisation interacts with its external environment which consists of various social economic and political factors.
(vii) Management is an intangible force: Management is an intangible force that cannot be seen but its presence can be felt in the way the organisation functions. The effect of management is noticeable in an organisation where targets are met according to plans employees are happy and satisfied.
What are the steps taking by management in planning process?
Planning as well as know is deciding in advance what to do and how to do. The steps are taking by management in planning process are as follows:
(i) Setting objectives: The first and foremost step is setting objectives. Every organisation must have certain objecitves. Objectives may be set for the entire organisation and each department or unit within the organisation.
(ii) Developing premises: planning is concerned with the future which is uncertain and every planner is using conjecture about what happen in future.
Therefore, the manager is required to make certain assumptions about the future. These assumptions are premises.
(iii) Identifying alternative courses of action: Once objectives are set, assumptions are made. Then the next step would be to get upon them. There may be many ways to act and active objectives.
(iv) Evaluating alternative courses: The next step is to weight the pros and cons at each alternative. Each course will have many variable which have to be weighted against each other. The positive and negative aspects of each proposal need to be evaluated.
(v) Selecting an alternative: This is the real point of decision making. The best plan has to be adopted and implemented. The ideal plan, of course would be the most feasible, profitable and with least negative consequences.
(vi) Implementing the plan: This is the step where other managerial functions also come into the picture. The step is concerned with putting the plan into action i.e., doing what is required.
(vii) Follow up action: Plans are being implemented and activities are performed according to schedule is also part of planning process.