Business Studies

1 What is Marketing

Marketing refers to things to do a business enterprise undertakes to promote the shopping for or promoting of a product or service.

Marketing consists of advertising, selling, and turning in merchandise to buyers or different businesses.

Some advertising and marketing are accomplished via associates on behalf of a company.

Professionals who work in a corporation’s advertising and marketing and advertising departments are looking for to get the interest of key viable audiences thru advertising.

Promotions are centered to positive audiences and may additionally contain celeb endorsements, catchy phrases or slogans, memorable packaging or image designs and usual media publicity

2 Importance Of Marketing

A. Marketing Is an Effective Way of Engaging Customers

 It’s vital for your enterprise to interact its customers. Marketing is a device to maintain the dialog going.

Engaging clients is exclusive from pushing your offers. Engaging entails furnishing your clients with applicable statistics about your merchandise and your enterprise as well.

It’s all about growing sparkling content. Tell your clients what they don’t know.

Let it be fascinating and well worth their time. Social media is one of the exceptional structures the place you can have interaction your customers.

Some groups use quick movies and different humor-laden hints to interact their client base.

By attractive your customers, advertising offers them an experience of belonging.

B. Marketing Helps to Build and Maintain the Company’s Reputation

The boom and lifestyles span of your commercial enterprise is positively correlated to your business’s reputation.

Hence, it’s truthful to say your popularity determines your company equity.

A majority of advertising things to do are geared in the direction of constructing the company fairness of the company.

Your business’s popularity is constructed when it successfully meets the expectations of its customers.

Such an enterprise is viewed an accountable member of the community.

The clients emerge as proud to be related with your products.

 Marketers use nice communication, branding, PR and CSR techniques to make certain that a business’s recognition is maintained.

C. Marketing Helps to Build a Relationship Between a Business and Its Customers

Businesses want to construct a relationship of believe and grasp with their customers.

How does advertising and marketing set up this relationship?

Marketing lookup segments must be based totally on demographics, psychographics, and patron behavior.

Segmentation helps the commercial enterprise meet the desires of its clients as a result gaining their trust.

The product group ensures the commercial enterprise grants what’s promised at the proper time.

This makes the clients company loyal. Loyal clients will have the self-belief to purchase extra merchandise from you.

The have faith and grasp between the enterprise and its clients make your industrial things to do extra fruitful.

D. Marketing Is a Communication Channel Used to Inform Customers

Marketing informs your clients about the merchandise or offerings you’re imparting them.

Through marketing, the clients get to comprehend about the cost of the products, their utilization and extra data that would possibly be useful to the customers.

It creates company consciousness and makes the enterprise stand out.

There’s stiff opposition in the market and you want to be a steady voice to persuade the customers.

Inform your clients of reductions and different aggressive hints you intend to use.

Through communication, advertising and marketing helps your enterprise come to be a market leader.

This publish explains extra about how to achieve an aggressive advantage.

E. Marketing Helps to Boosts Sales:

 Marketing makes use of unique approaches to promote your merchandise or services.

Once a product has been advertised, it’s already on the radar and this will increase your possibilities of promoting it.

Might also desire to strive yourmerchandise or offerings and this will set off a buy decision.

When clients are completely happy about your merchandise or services, they end up your manufacturer ambassadors barring your knowledge.

They will unfold the phrase and your income will begin to increase.

Ensure you provide super merchandise and offerings to complement your advertising and marketing efforts.

F. Marketing Aids in Providing Insights About Your Business

Every marketer is aware they want for focused on the proper audience.

 However, you should have the proper content material to share with such an audience.

Your advertising and marketing techniques can assist you set up what commercial enterprise messaging will persuade the goal audience.

At this point, you have to take a look at extraordinary messages and see what works.

Once you have examined one-of-a-kind units of messaging on the goal audience, you will discover a potential baseline for your advertising and marketing efforts.

It acts as a metric and gives the perception wished to make you keep away from guesswork.

G. Marketing Helps Your Business to Maintain Relevance

Every marketer is familiar with the want for disrupting an attainable consumer’s opinion about different products.

But don’t make a mistake of taking this danger for granted.

Most corporations count on that they will continually stay the client’s favorite company due to the fact up to now the consumer has by no means complained.

This is the incorrect mindset. You want to locate approaches to continue to be at the pinnacle of the client’s mind.

Every relationship wishes to be maintained. Marketing helps your commercial enterprise to hold a precise relationship with clients by way of making you continue to be relevant.

Don’t focal point on gaining new clients earlier than addressing the want to hold the current ones.

H. Marketing Creates Revenue Options

During the startup phase, your selections are sparse in view that you’re mainly cash-strapped.

This limits your options. As your advertising techniques generate greater clients and income opportunities, you’ll commence having options.

Having picks is related to having a quality battle chest. Having alternatives will supply you the braveness you want to penetrate new markets.

You will have the freedom to begin letting go of clients who are too traumatic to your sanity and well-being.

Without marketing, you will be pressured to precede working with purchasers who you have outgrown and are paying you peanuts.

I. Marketing Helps the Management Team to Make Informed Decisions

Every enterprise is confronted with issues such as to what, when, for whom and how a lot to produce.

A complicated and tedious method decide your business’s survival. As a result, companies closely remember on advertising mechanisms to make these decisions.

Why need to you remember on advertising and marketing mechanisms?

These mechanisms serve as a dependable hyperlink between your enterprise and society.

They domesticate people’s mind, teach the public and persuade them to buy.

3 Process Of Marketing

A. Choosing a goal market

B. Getting, maintaining as nicely as developing the customer

• that is, make certain that the goal clients buy the firm ‘s product, make sure that they hold their clients comfy with the merchandise and appeal to new clients so that the company can grow.

C. Create, improve and talk most reliable values to the clients

4 Functions Of Marketing

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A Promotion

 When humans map out their advertising goals, advertising is commonly at or close to the pinnacle of that list.

Getting your title in the front of potential customers, constructing company cognizance and elevating your company’s profile are principal priorities for each and every advertising department.

Promotional techniques regularly overlap with different commercial enterprise gadgets and awareness-building activities, such as advertising and marketing and public relations.

From an advertising and marketing perspective, promoting can encompass the entirety from content material advertising and marketing and electronic mail advertising and marketing to social media and influencer marketing.

We don’t want to inform you how essential these efforts are to inbound advertising and producing certified leads.

It’s no marvel advertising has lengthy been regarded a quintessential factor of the advertising mix.

B Selling

 We’ve frequently recommended readers about the risks of coming on too sturdy and salesy with your advertising content.

Your danger alienating your goal target audience by using persistently handing over overt income pitches in your content material and making it appear like your solely intention is to get humans to purchase something from you.

The reality is phase of each and every marketer’s job is to promote their merchandise to clients — ideally, though, it’s carried out with greater nuance.

Every advertising decision, from your manufacturer messaging to your marketing campaign themes, ought to help the last intention of growing sales.

Once you’ve grabbed the interest of a conceivable customer, whether or not that’s a customer or B2B prospect, entrepreneurs want to go to work nurturing that lead and guiding them via the income funnel so they’re primed to make a buy when they subsequently make contact with your income team.

That capability consistently making the case for your company and regularly incorporating greater product-centric speak me factors in your advertising communications.

By the time they’re prepared to talk with an income associate, potentialities need to understand how your items or offerings stack up towards competing products.

C Product management

 Designing a new product that higher meets patron wants and fills a hole in the market doesn’t show up by way of twist of fate or sheer luck.

It takes a lot of thorough market lookup to determine out what human beings favor and how to supply the exceptional product possible.

Marketing groups may additionally become aware of new increase possibilities when:

• Speaking with prospects.
• Running competitor analysis.
• Incorporating comments gleaned from patron guide offerings into advertising strategies.
• In these cases, advertising and marketing lookup is the furnace that fuels product development. Who higher is familiar with your goal market than your advertising team?

D. Marketing records management

Strategic advertising is pushed by way of data. Every correct marketer is aware of that the greater statistics you can acquire about your goal customer, enterprise rivals and market trends, the greater profitable your advertising efforts will be.

All of that juicy data is as exact as gold, so there’s no motive to preserve it locked away in some silo.

One of the cores (yet once in a while overlooked) features of advertising is to gather this precious data, distill it down to motion gadgets and beneficial takeaways and share it with different departments that may discover it useful.

Sales teams, for instance, can continually use greater in-depth advertising insights to assist them refine their pitches to:

Address the cutting-edge enterprise trends.

Respond to competitor messaging.

Speak without delay to the urgent client concerns.

E Pricing

 Marketing lookup can additionally inform how manufacturers set the fee of a product.

Effective pricing is as a lot artwork as it is science, and manufacturers want to discover that candy spot that balances how clients cost your items or offerings with the fee of manufacturing and transport as nicely as accounting for the present-day rate of competing products.

The perceived cost of your manufacturer without delay affects your pricing approach — simply appear at the fee distinction between a luxurious trend manufacturer like Hermès and extra budget-conscious outlets like Old Navy.

The countless thousand greenback charge tag disparity for a single purse can’t be chalked up to manufacturing fees and satisfactory manage alone.

Hermes clients are paying as a great deal for the manufacturer as they are the product itself.

Marketing lookup sheds mild on your brand’s popularity and helps you higher apprehend how a whole lot your goal target market values your brand.

That’s on pinnacle of all the competitor evaluation and enterprise lookup essential to placing an honest asking charge for your wares.

F Financing

 Now we’re digging into some of the less-discussed features of marketing, though they’re nevertheless very essential to overarching commercial enterprise objectives.

Financing might also no longer at first appear like a pinnacle difficulty for your advertising group to fear about,

however suppose about it this way: If your branch can’t impervious area in the price range to completely aid your subsequent advertising campaign, how are you going to meet your goals?

When humans suppose about financing, they regularly center of attention on the up-front fees of getting a new enterprise off the ground.

But, in reality, financing is an ongoing subject for commercial enterprise proprietors and business enterprise leaders, who want to make tough budgeting choices yrs. after 12 months and quarter after quarter.

By supporting generate extra revenue, extend into new markets and attain extra practicable customers, advertising groups can show their cost to the corporation at large. And that makes it less difficult to impervious the financing they want on a departmental level.

Effective advertising administration is key in that regard. An advertising software that receives the most cost out of handy sources and applies the proper techniques to have interaction and nurture certified leads can exhibit simple ROI.

Successful advertising endeavor additionally helps corporations impenetrable funding from 0.33 events — say getting a mortgage from a financial institution or a funding from a challenge capital firm.

Any organization, whether or not it’s an unbiased company or an economic institution, desires to see that agencies have a complete advertising and marketing sketch that will assist construct the brand, faucet into markets and produce healthful income over the lengthy run.

G Distribution

 “Distribution?” you might also be asking yourself, “isn’t that furnish chain management’s problem?”

Yes, however the place you promote your merchandise or offerings and how you get them into your customer’s fingers is additionally an advertising problem, whether or not you’re speaking about digital or bodily distribution.

Choosing the proper distribution channels comes down to appreciation who your goal client is, how they view your manufacturer and the place they anticipate to discover you — all marketing-centric issues.

You would by no means assume to locate a Rolex watch for sale at the Dollar Store, after all. Those manufacturers signify two very one-of-a-kind market demographics.

Marketing managers and their grant chain counterparts want to be aligned on every occasion a new product, advertising or marketing campaign is launched so corporations can have all of their distribution geese in a row.

If entrepreneurs do their job well, they will generate a ton of buzz main up to that product launch or promotional event, pushing consumer demand to the limit.

That advertising win can rapidly flip into a PR nightmare if the furnish chain isn’t organized to meet demand.

5 Meaning and Concept of Marketing and Selling

Marketing is an extensive term. It refers to a massive set of things to do of which promoting is simply one part.

A marketer earlier than making the sale does a lot of different things to do such as planning the type, sketch of the product, the fee and deciding on the distribution stores at which the identical would be available.

• Selling: refers to the sale of items or provider via publicity, promoting and salesmanship. The title of the product is transferred from vendor to buyer. The whole center of attention in promoting is to covert the product into cash.

6 Difference between Selling & Marketing

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7 Marketing Mix

The advertising combine refers to the set of actions, or tactics, that an employer makes use of to promote its company or product in the market.

The 4Ps make up a traditional advertising and marketing combine – Price, Product, Promotion and Place. However, nowadays, the advertising combine more and more consists of countless different Ps like Packaging, Positioning, People and even Politics as crucial combine factors

8 Elements of Marketing Mix

A Price

refers to the cost that is put for a product. It relies upon on charges of production, section targeted, capacity of the market to pay, grant – demand and a host of different direct and oblique factors.

There can be various kinds of pricing strategies, every tied in with a normal commercial enterprise plan.

Pricing can additionally be used a demarcation, to differentiate and beautify the photograph of a product.

B  Product

refers to the object clearly being sold. The product ought to supply a minimal degree of performance;

in any other case even the fine work on the different factors of the advertising combine might not do any good.

C Place

refers to the factor of sale. In each industry, catching the eye of the purchaser and making it handy for her to purchase it is the fundamental purpose of a suitable distribution or ‘place’ strategy.

 Retailers pay a top class for the proper location. In fact, the mantra of a profitable retail commercial enterprise is ‘location, location, location’.

D Promotion

This refers to all the things to do undertaken to make the product or provider acknowledged to the consumer and trade.

This can encompass advertising, phrase of mouth, press reports, incentives, commissions and awards to the trade.

It can additionally encompass patron schemes, direct marketing, contests and prizes.

9 Branding

Branding, via definition, is an advertising exercise in which a business enterprise creates a name, image or plan that is without problems identifiable as belonging to the company.

This helps to pick out a product and distinguish it from different merchandise and services.

Branding is essential because no longer solely is it what makes a memorable influence on shoppers however it permits your clients and consumers to comprehend what to anticipate from your company.

It is a way of distinguishing yourself from the opponents and clarifying what it is you provide that makes you the higher choice. Your manufacturer is constructed to be an actual illustration of who you are as a business, and how you want to be perceived.

There are many areas that are used to enhance a company which includes advertising, client service, promotional merchandise, reputation, and logo.

All of these factors work collectively to create one special and (hopefully) attention-grabbing expert profile

SHORT ANSWER TYPE QUESTIONS

1. Why is advertising referred to as a social process?

Ans: Marketing is considered as a social process, whereby human beings’ alternate items and offerings for cash or something of price to them.

2 Distinguish between promoting thinking and advertising thinking of marketing

Ans: (i) Selling notion Firms trust that aggressive promoting and promotional efforts will persuade a patron to purchase a product.

(ii) Marketing thought Customers’ wants and customers’ pride is the key to success of an enterprises.

3. What is intended by using promoting idea of marketing?

Ans: Firms consider that aggressive promoting and promotional efforts will persuade a client to purchase a product.

4.Identify and give an explanation for the advertising and marketing administration philosophy which implies that merchandise and offerings are offered no longer purely due to the fact of their fantastic or manufacturer name, however due to the fact they fulfill a unique want of a customer.

Ans: The advertising administration philosophy referred right here is ‘Marketing concept’. This thought emphasis that in the long-run, income can be maximized by using figuring out and enjoyable the wishes of existing and manageable customers. Therefore, patron delight will become the focal factor of all commercial enterprise decisions.

5. Nisha, a college bag manufacturer, determined to enhance the product for earnings maximization and thus, brought a water bottle holder to the present design.

(i)Identify the advertising and marketing administration philosophy adopted by using Nisha.

(ii)Explain this philosophy on the groundwork of (a) Main focal point and (b) Means and ends

Ans: (i) Product idea or philosophy Firms which observe the product concept, advocate that the way to recognize commercial enterprise dreams is by using making excessive excellent products. These companies manufacture the merchandise of highest quality. Nisha is attempting to convey enhancement in quality, with the aid of corporation a new feature, i.e., including a water bottle holder in the bag.

(ii)

 (a) Main center of attention the essential center of attention of this thinking is to enhance the fantastic of products. The entrepreneurs now believed that practicable alternate would be realized when the merchandise is of excessive quality. Thus, the company now centered on making top of the line merchandise and enhancing them overtime.

(b) Means Product improvement.

Ends Profit thru enhancement in product quality.

6. Mansi, a shoe producer for faculty students, determined to maximize her income by way of producing and distributing at giant scale and thereby decreasing the Average Cost of production.

(i)Identify the advertising administration philosophy adopted by means of Mansi.

(ii) Explain this philosophy or notion on the groundwork of

(a) Main center of attention          

 (b) Means and ends

Ans: (i) Production thinking or philosophy.

(ii) (a) Main focal point Main center of attention of this idea is to maximize the extent of product.

(b) Means Availability and affordability of product.

Ends Earning income via giant scale manufacturing and distribution.

7. Explain market planning, product designing and improvement as features of marketing.

or

Explain any three features of marketing

or

Explain any two features of marketing.  

or

Explain the following features of marketing.

(i)Marketing planning (ii)Product designing and improvement

or

Explain the following features of marketing

(i)Gathering and analyzing market information

(ii) Customer help services. 

Ans:  The major features of advertising are as follows:

(i) Gathering and analyzing market facts A marketer has to acquire data about the market. Gathering and analyzing market facts helps in figuring out the desires of the customers. It types the foundation for product development. It additionally helps in figuring out the opportunities, threats, strengths and weaknesses of the organisation.

(ii) Market planning the marketer develops fabulous advertising plans to seize or decorate the current market share. It offers the pointers to obtain the advertising and marketing objectives, e.g., a marketer of color TVs, having 2% of modern-day market share in the country, ambitions at improving his market share *0 20% in the subsequent three years.

(iii) Product designing and improvement Product designing and improvement is worried with watching for customers’ needs, creating new merchandise and enhancing the present merchandise so as to meet the expectations of customers, e.g., when we sketch to purchase any product say a motorbike, we now not solely see its points like cost, mileage, and so on however additionally the design, shape, style, etc.

(iv) Customer guide offerings Customer is the king of modern-day market. So, purchaser pride is the fundamental motto of each and every commercial enterprise firm. Hence, a very essential feature of advertising administration relates to growing client help offerings such as after sale services, dealing with client complaints, buying credit score services, upkeep services, technical services, and client information, etc. All these offerings purpose at imparting most pleasure to the clients which is the key to success in cutting-edge days.

8. Explain the position of advertising in a firm.

Ans: By advertising orientation, the company tries to focal point on desires and desires of the customers. Every association desire to stay longer and develop. If this happens, the motive of setting up the association is fulfilled. Marketing helps in survival and increase of the firm.

9. What is intended by means of manufacturing notion of marketing?

Ans: Production notion is based totally on the faith that earnings may want to be maximized through producing at massive scale, thereby decreasing the Average Cost of production. A massive wide variety of companies accept as true with that it is effortless to change the merchandise if they have been extensively on hand at a cheap price. Thus, availability and affordability have been regarded the key to success.

10. What is intended through promoting notion of marketing?

Ans: Firms accept as true with that aggressive promoting and promotional efforts will persuade a client to purchase a product. It used to be assumed that the clients will no longer purchase enough, except they are safely satisfied and prompted to do so.

Therefore, aggressive promoting and promotional efforts are made to persuade the customers. The use of promotional strategies such as advertising, private promoting and income advertising have been viewed necessary for promoting of products.

11. What is intended by way of product idea of marketing?

Ans: Consumers pick merchandise with ideal quality, overall performance and features.

The groups who accept as true with in the philosophy of product thinking are of the opinion that if the high-quality of items or offerings is of correct standard, the clients can effortlessly be attracted toward it.

The foundation of this wondering is that the clients get attracted toward the merchandise of precise quality.

On the foundation of this philosophy, agencies direct their advertising and marketing efforts to make bigger the fantastic and points of their product.

LONG ANSWER TYPE QUESTIONS:

1.Define advertising and marketing and nation any three features of marketing.

or

What is intended by using marketing? State any three functions of marketing.

Ans:  Marketing is the sum complete of all these things to do which go items and offerings from the producers to the consumers.

According to Philip Kotler, ‘Marketing is that social system via which man or woman and companies achieve what they want and choose thru developing choices and freely changing merchandise and offerings of fee with others.

The three essential features of advertising and marketing are:

(i) Marketing planning the marketer develops gorgeous advertising plans to seize or beautify the current market share.

It gives the recommendations to obtain the advertising objectives, e.g., a marketer of coloration TVs, having 2% of modern market share in the country, objectives at bettering his market share *0 20% in the subsequent three years.

(ii) Production designing and improvement Product designing and improvement is involved with looking forward to customers’ needs, creating new merchandise and enhancing the current merchandise so as to meet the expectations of customers,

e.g., when we design to purchase any product say a motorbike, we no longer only see its elements like cost, mileage, and many others however additionally the design, shape, style, etc.

(iii) Pricing of merchandise It refers to the quantity of cash which the clients have to pay to gain a product.

Price is a necessary aspect affecting the success or failure of a product in the market.

The demand for a product or carrier is associated to its price. Generally, decrease the price, greater would be the demand for the product and vice-versa.

2. Define advertising and marketing management. State any three targets of marketingmanagement.

Ans: According to Philip Kotler, ‘Marketing administration is an artwork and science of selecting goal markets and getting, maintaining and developing clients via creating, turning in and speaking most excellent client values of management’.

It refers to planning, organizing, directing and manipulate of the things to do which facilitate alternate of items and offerings between producers and buyers of merchandise and services.

The three foremost targets of advertising and marketing administration are as follows:

(i) Creation of demand the advertising supervisor continually tries to create the demand no longer by means of unfair potential however via analyzing the wants and desires of the clients and then producing the products, which satisfies the customer’s need.

(ii) Market share Every commercial enterprise company wishes to seize a large share of the market.

Therefore, advertising methods adopted by using advertising supervisor assist to get a large share in the market.

(iii) Goodwill and popularity Marketing administration helps a company in constructing the picture for its merchandise via advertising and marketing excessive quality, caring for purchaser satisfaction, after sale service, easy supply, etc.

3. Explain the following features of marketing

(i)Gathering and analyzing market information

(ii)Product designing and development

(iii)Market planning

(iv) Customer help services

Ans: The principal features of advertising and marketing are as follows:

(i) Gathering and analyzing market statistics A marketer has to acquire statistics about the market.

Gathering and analyzing market statistics helps in figuring out the wishes of the customers.

It types the groundwork for product development. It additionally helps in figuring out the opportunities, threats, strengths and weaknesses of the organization.

(ii) Market planning the marketer develops excellent advertising and marketing plans to seize or decorate the present market share.

It presents the pointers to attain the advertising and marketing objectives,

e.g., a marketer of color TVs, having 2% of contemporary market share in the country, pursuits at bettering his market share *0 20% in the subsequent three years.

(iii) Product designing and improvement Product designing and improvement is involved with looking forward to customers’ needs, creating new merchandise and enhancing the present merchandise so as to meet the expectations of customers,

e.g., when we format to purchase any product say a motorbike, we now not solely see its points like cost, mileage, and so on but additionally the design, shape, style, etc.

(iv) Customer assist offerings Customer is the king of cutting-edge market. So, consumer delight is the foremost motto of each and every commercial enterprise firm.

Hence, a very essential feature of advertising administration relates to creating consumer guide offerings such as after sale services, managing consumer complaints, deciding to buy savings services, preservation services, technical services, and client information, etc.

All these offerings goal at supplying most delight to the clients which is the key to success in present day days.

• As an end result of this, buyers may also be uncovered to dangers due to risky products- that is, he may also be cheated, might also have to pay a greater rate etc.

• Thus; there is a want to supply sufficient safety to buyers towards such practices

1 Importance of Consumer Protection

(from Consumer’s factor of view)

Consumers Ignorance: Majority of buyers are now not conscious of their rights and reliefs reachable to them as an end result of which they are exploited.

In order to store buyers from exploitation, patron safety is needed.

 Unorganized Consumers: In India buyers are nonetheless unorganized and there is lack of purchaser corporations also, accordingly purchaser safety is required.

 Widespread Exploitation of Consumers: Consumers are exploited on massive scale by way of capability of a range of unfair exchange practices and purchaser safety is required to defend them from exploitation.

(From the factor of Business)

Long time period Business Interest: It is constantly in the pastime of the commercial enterprise to maintain its patron satisfied.

Global opposition may want to be received solely after enjoyable customers.

Satisfied clients lead to repeat income and assist in growing purchaser base of business.

 Moral Justification: It is the ethical obligation of any commercial enterprise to take care of customer hobby & keep away from any structure of their exploitation & unfair change practices like faulty & hazardous products, adulteration, false and deceptive advertising, hoardings, black advertising etc.

 Business makes use of Resources of Society: Every commercial enterprise makes use of the sources of the society and as a result it is their accountability to work in the hobby of the society.

 Social Responsibility: A commercial enterprise has social obligations in the direction of a range of organizations like owners, workers, government, clients etc.

Thus, clients ought to be furnished qualitative items at lifelike prices.

 Government Intervention: If a commercial enterprise engages in any shape of unfair exchange practices then authorities takes motion towards it, which adversely impacts its goodwill.

2 CONSUMER PROTECTION ACT, 1986 (CPA, 1986)

A. Set up to shield and promote patron hobbies through a rapid and less expensive redressal of grievances.

B. Recognizes patron rightsRedressal agencies– set up a three-tier business enterprise to tackle purchaser grievances.

3 Meaning of Consumer

A. Any character who buys any items for a consideration. It consists of any consumer of such items with the approval of the buyer.

But it does now not encompass an individual who obtains items for resale or any industrial purpose.

B. Any individual who avails any offerings for a consideration. It consists of any beneficiary of such offerings however it does now not encompass a man or woman who avails such provider for any business purpose.

4 Rights of a Consumer

Consumer Protection Act, 1986 has furnished six rights to the consumers, which are as follows:

• Right to Safety: Consumer has the proper to be included towards products, offerings which are hazardous to fitness  existence (should use ISI marked digital device).
•  Right to be Informed: Consumer has proper to have entire records about the product earlier than shopping for it.
•  Right to choose: Consumer has a proper to pick any product out of the accessible merchandise as per his personal selection
•  Right to be heard: Consumer has the proper to file a criticism to be heard in case of dissatisfaction with items or offerings (use of complaint cell)
•  Right to Seek Redressal: Consumer has the proper to get comfort in case the product or provider falls quick of his expectations or is dangerous. He can also be furnished with replacement/removal of defect or compensation for any loss. Various redressal boards are set up through the Govt. at National and State level.
•  Right to patron education: Consumer has the proper to accumulate expertise and to be properly knowledgeable during life. He has to be made conscious of his rights and reliefs on hand to him in case of the product or carrier falls quick of his exceptions. The Govt. of India has covered customer training in the faculty curriculum & is making use of media to make buyers conscious of their rights.

5 Responsibilities/Duties of a Consumer

A. Consumer Responsibilities:

a. Ask for a money memo: On buy of items or services. This would serve as a proof of the buy made.

b. Be aware: About quite a number items and offerings accessible in the market so that a shrewd and sensible desire can be made

c. Buy solely standardized goods: As they furnish fine assurance. Thus, seem for ISI mark on electrical goods, FPO mark on meals products, Hallmark on earrings etc.

d. Follow manufacturer ‘s instructions: Learn about the dangers related with merchandise and services, and use the merchandise safely.

e. Read labels carefully: So as to have statistics about prices, internet weight, manufacturing and expiry dates, etc.

f. Assert yourself: To make sure that you get an honest deal.

g. Be trustworthy in your dealings: Choose solely from prison items and offerings and discourage unscrupulous practices like black-marketing, hoarding etc.

h. File a grievance in a gorgeous patron forum: In case of a shortcoming in the fine of items bought or offerings availed. Do now not fail to take a motion even when the quantity worried is small.

i. Form purchaser societies: Which would play a lively section in instructing buyers and safeguarding their interests.

j. Respect the environment: Avoid waste, littering and contributing to pollution.

6  The salient features and provisions of consumer protection act,1986

Who Can File A Complaint Under CPA, 1986?

A criticism earlier than the excellent client discussion board can be made by:

a. Any consumer.

b. Any registered customer association.

c. The central or nation government.

d. One or extra buyers on behalf of severa shoppers having equal interest.

e. A prison inheritor or consultant of a deceased consumer.

• Complaints can be filed and compensation claimed w.r.t:

• Fraudulent practices by way of merchants and manufacturers

• Defective goods

• Deficiency in offerings in connection with 9 offerings such as banking, transportation, insurance, grant of electrical energy and gas, residence construction, clinical service

7 Redressal agencies under consumer protect act, 1986

For the redressal of patron grievances, the act gives a three–tier equipment as:

A. District forum

District discussion board are set up in each district with the aid of the nation concerned. The essential points are:

(a) It consists of a President and two members, one of whom have to be a woman, duly appointed by way of State Govt.

(b) It can get hold of purchaser complaints of now not greater than Rs. 20 lakhs value.

(c) On receiving the complaint, the district discussion board shall refer the grievance to the contrary birthday celebration worried and ship the pattern of items for checking out in a laboratory.

(d) The district discussion board after being at ease that items are faulty or there is some unfair change exercise can problem an order to contrary celebration directing him to both exchange or return the rate or pay compensation. In case the aggrieved birthday party is now not comfy with the order of district forum. He can enchantment earlier than kingdom discussion board inside 30 days of passing an order.

B. State commission

It is set up in every country by using the govt. concerned. The salient elements are:

(a) Each fee consists of a president and it least two contributors appointed by way of kingdom Govt.

(b) Complaints of at least Rs. 20 lakhs however no longer extra than 1 crore can be filed with kingdom commission.

(c) On receiving the complaint, the country fee can additionally refer the criticism to contrary birthday celebration and ship the items for trying out in laboratory.

(d) The nation fee after being blissful can order to contrary birthday celebration to both substitute or repay or pay compensation. In case the aggrieved celebration is now not satisfied, they can attraction earlier than country wide fee inside 30 days of passing an order.

C. National commission

It is setup with the aid of Central Govt. The provisions of act are:

a) It consists of a President and at least four individuals appointed by using Central Govt.

(b) All complaints are pertaining to items and offerings of fee greater than Rs. 1 crore can be filed with country wide commission.

(c) On receiving the complaint, the country wide fee can additionally refer it to contrary birthday celebration and ship items for testing.

(d) The National Commission has the energy to problem orders for change mentor elimination and to pay the compensation for loss.

9 Remedies available to consumers

• Remove defect in items and deficiency in services.

• Replace faulty items with one with no defects

• Refund rate paid

• Pay a real looking quantity of compensation for any loss or damage suffered.

• Pay punitive damages in fantastic circumstances.

• Discontinue unfair/restrictive exchange practice

• Not to provide hazardous items and offerings for sale

• Withdraw hazardous items from sale

• Cease manufacturing hazardous goods

• Pay a quantity to patron welfare fund/ individual (not much less than 5%) to be utilized in the prescribed manner

• Issue corrective commercial to neutralize the impact of deceptive ads.

• Pay sufficient prices to parties.

10 Consumer awareness

Some essential patron corporation and NGO’s engaged in defending client pursuits are:

A. Consumer coordination council, Delhi.

B. Voluntary company in Interest of Consumer Education, Delhi.

C. Mumbai Grahak Panchayat, Mumbai.

D. Consumer Association, Kolkata.

E. Consumer Unity and Trust Society Jaipur.

11 Role of Consumer companies and NGO’s

A. Educating the customary public about purchaser rights by way of organizing coaching programmed, seminars and workshops.

B. Publishing periodical & different publications to instruct consumers.

C. Providing prison help to buyers with the aid of imparting prison recommendation etc.

D. Producing motion pictures or cassettes on meals adulteration, misuse of tablets etc.

E. Filing complaints in fabulous client courts on behalf of consumers.

F. Encouraging customers to take on motion towards unfair change practices.

G. Taking an initiative in submitting instances in customer courts on behalf of consumers.

12 Ways and Means of Consumer Protection

A. Self-Regulation through Business:

• It is in the long-term activity of companies to serve the clients well.

• Socially accountable companies comply with moral requirements and practices in dealing with their customers.

• Many companies have set up their purchaser provider and criticism cells to redress the troubles and grievances of their consumers.

B. Business Associations:

• Examples of associations of trade, commerce and commercial enterprise – Federation of Indian Chambers of Commerce of India (FICCI) and Confederation of Indian Industries (CII)

• They have laid down their code of habits which lay down for their participants the recommendations in their dealings with the customers.

C. Consumer Awareness:

• A consumer, who is nicely knowledgeable about his rights and the reliefs on hand to him, would be in a function to increase his voice in opposition to any unfair exchange practices or unscrupulous exploitation.

 • This permits them to apprehend their duties and to protect their interests.

D. Consumer Organizations’:

• Force enterprise companies to keep away from malpractices and exploitation of consumers.

E. Government:

• The most necessary of these policies is the Consumer Protection Act, 1986. The Act presents for three-tier equipment at the district, country and country wide ranges for redressal of client grievances.

SHORT ANSWER TYPE QUESTIONS

1. Besides a ‘consumer’, identify any two events who can file a. complaint earlier than the

appropriate patron forum.

or

Who can file a criticism underneath the Consumer Protection Act, 1986?

Ans: A grievance underneath Consumer Protection Act, 1986 can be made by: (Any two)

(i) Any consumer.

(ii) Any registered consumers’ association.

(iii) The Central Government or any State Government.

(iv) One or greater consumers, on behalf of severa customers having the identical interest.

(v)A prison inheritor or consultant of a deceased consumer.

2. How many contributors are required to represent ‘District patron dispute redressal forum’?

Ans: The District Forum consists of a President and two different members, one of whom ought to be a woman:

3. How can Business Associations act as a capability of customer protection?

Ans: Business Associations act as an ability of patron safety as they lay down suggestions for their individuals in dealings with the customers.

4. Give any one comfort handy to a customer who suffers due to consumption of an expired date medicine. 

Ans: Relief reachable to consumer:

(i) To refund the rate paid for the medicine.

(ii) To pay a lifelike quantity of compensation for any loss or damage suffered with the aid of the consumer.

(iii) To withdraw the faulty precise from sale.

5.State how self-rules by means of commercial enterprise acts as an ability of purchaser protection.

Ans: Self-law by using enterprise acts as a ability of customer safety by

• Establishing moral requirements and practices in dealing with their consumers.

(ii) Setting up their patron carrier and complaint cells to redress the troubles and grievances of their consumers.

6. When can a patron get greater than one comfort for a complaint?

Ans: If the Consumer Court is comfortable about the genuineness of the complaint, a customer can get greater than one alleviation for a complaint.

7. Which type of instances can be filed in the State Commission below the Consumer Protection Act, 1986?    

Ans: Those instances can be filed in the State Commission beneath the Consumer Protection Act, 1986 in which compensation claimed exceeds Rs 20 lakh however does no longer exceed Rs1crore.

8.Which instances can be filed in the National Commission below Consumer Protection Act, 1986.    

Ans: Those instances can be filed in the National Commission below Consumer Protection Act, 1986 in which the fee of the items or offerings in question, alongside with the compensation claimed, exceed? 1 crore.

9. Which claims can be appealable become the Supreme Court below Consumer Act?  

Ans: An order exceeded via the National Commission in a remember of its authentic jurisdiction is appealable earlier than the Supreme Court. Its capability solely these appeals the place the price of items and offerings in question, alongside with the compensation claimed exceed? 1 crore and the place the aggrieved birthday celebration used to be no longer at ease with the order of the National Commission can be taken to the Supreme Court.

10. Who can file a grievance on behalf of a deceased consumer?

Ans: A criminal inheritor or consultant of a deceased consumer.

11. Is self-legislation by means of commercial enterprise critical for customer protection? How?

Ans: Yes, self-law through commercial enterprise is indispensable for customer safety due to the fact it is in their long-term pastime to serve the clients well.

12. Mohit filed a case towards Domestic Collings Ltd in the District Forum, however he was not cozy with the orders of the district forum. Where can he enchantment similarly in opposition to the selections of district forum? 

Ans:  Mohit can similarly enchantment at the State Commission towards the choice of the District Forum.

13.Amrit filed a case in opposition to Volvo Ltd in the State Commission however he used to be no longer comfy with the orders of the State Commission. Name the authority to which he can enchantment towards the choices of State Commission.  

Ans:  Amrit can strategy National Commission to attraction in opposition to the selection of the State Commission.

14.How does a commercial enterprise use self-guideline for patron protection?

Ans: Enlightened commercial enterprise companies recognize that it is in their long-term hobby to serve the clients well.

 Socially accountable companies observe moral requirements and practices in dealing with their customers.

Many companies have set up their consumer provider centers and complaint cells to redress the issues and grievances of their customers.

LONG ANSWER TYPE QUESTIONS

1. How are customer grievances redressed by way of the three-tier equipment below CPA,1986? Explain.

Ans: The three-tier-machinery underneath CPA, 1986 consist of District Forum, State Commission and the National Commission.

 A customer can file a case in District Forum if the value of items and offerings along with the compensation claimed, does now not exceed Rs 20 lakh, in the State Commission if the price of items and offerings along with the compensation claimed is over Rs 20 lakh however much less than Rs 1 crore, and in the National commission, if the fee of items and offerings along with the compensation claimed is above Rs 1 crore

On receiving the complaint, the District Forum/State Commission/National Commission shall refer the criticism to the celebration towards whom the criticism is filed.

If required, the items or a sample, thereof, shall be despatched for trying out in a laboratory.

The court docket shall ignore an order after thinking about the take a look at file and listening to the birthday party in opposition to whom the grievance is filed.

2. Give the definition of ‘Consumer’ as per CPA, 1986.

Ans: Under the Consumer Protection Act, 1986, the time period ‘consumer’ has been described as any individual who buys items or hires or avail any carrier for a consideration which has been paid or promised or partly paid and partly promised or beneath any machine of deferred payment.

It additionally consists of any person of such items with the approval of the customer or any beneficiary of offerings when such items or offerings are availed of with the approval of the character worried however does now not consist of a man or woman who avails such offerings for any industrial purpose.

3.State any eight reliefs accessible to a purchaser below the provision of CPA, 1986.

Ans: The reliefs handy to a customer underneath the CPA, 1986 are:

(i) To eliminate the defects in items or deficiency in services.

(ii) To exchange the faulty product with a new one, free from any defect.

(iii)To refund the charge paid for the product.

(iv) To pay a realistic quantity of compensation for any loss suffered.

(v)To pay punitive damages in fabulous circumstances.

(vi)Not to provide hazardous items for sale.

(vii)To withdraw the hazardous items from sale.

(viii) To quit the manufacture of hazardous goods.

4.Anita purchased a e book from Satish e book stores. While studying the book, she located that ten pages have been missing. She approached the e book vendor and complained about the lacking pages. The vendor promised that if the writer was once equipped to alternate the book, he would trade the same. After one week, the vendor knowledgeable Anita that the writer had refused to trade the book.

Where can Anita file a criticism in opposition to the vendor of the book? Give purpose in help of your answer. Also, provide an explanation for who is a customer as per Consumer Protection Act, 1986. 

Ans. Anita can file a grievance in opposition to the vendor of the e book in the District Forum.

District Forum is set up by way of the State Government in every district.

In District Forum, solely such complaints can be filed in which the price of items or offerings and the compensation claimed is now not extra than Rs 20 lakhs.

Consumer as per CPA, 1986   Under the Consumer Protection Act, 1986, the time period ‘consumer’ has been described as any individual who buys items or hires or avail any carrier for a consideration which has been paid or promised or partly paid and partly promised or below any device of deferred payment.

 It additionally consists of any consumer of such items with the approval of the purchaser or any beneficiary of offerings when such items or offerings are availed of with the approval of the individual worried however does now not encompass an individual who avails such offerings for any industrial purpose.

5.Harish bought a medicinal drug from Bhatia Medical Stores for his son, who had excessive fever. Even after giving the medicinal drug his son’s situation did no longer enhance and he had to be hospitalized. Doctor knowledgeable Harish that medicinal drug given to his son was once spurious. Harish complained about this to Bhatia Medical Stores. As-a result, Bhatia Medical Stores determined to file a criticism in opposition to the producer in the client court. Can Bhatia Medical Stores do this? Give motive in help of your answer. Also, provide an explanation for who is a client as per Consumer Protection Act, 1986.

Ans: ‘Bhatia Medical Stores’ can’t file a criticism in opposition to the producer in the customer courtroom due to the fact Bhatia Medical Stores is now not a client in this case. He is now not a consumer however has bought medicinal drug for resale purpose/commercial purpose.

Meaning of Consumer as per Consumer Protection Act, 1986   Anita can file a criticism towards the vendor of the e book in the District Forum. District Forum is mounted by means of the State Government in every district. In District Forum, solely such complaints can be filed in which the price of items or offerings and the compensation claimed is no longer greater than Rs 20 lakhs.

Consumer as per CPA, 1986   Under the Consumer Protection Act, 1986, the time period ‘consumer’ has been described as any individual who buys items or hires or avail any carrier for a consideration which has been paid or promised or partly paid and partly promised or beneath any gadget of deferred payment. It additionally consists of any consumer of such items with the approval of the consumer or any beneficiary of offerings when such items or offerings are availed of with the approval of the character worried however does no longer consist of a character who avails such offerings for any industrial purpose.

6. Explain the following as approaches and ability of customer protection

(i)Consumer awareness

(ii)Government

Ans: (i) Consumer focus A nicely knowledgeable client will shield himself from unfair alternate practices. A customer needs to be properly knowledgeable about his rights, obligations and reliefs handy to him. Only then, he would be in a function to elevate his voice in opposition to unfair alternate practices and shield his interests. In addition to this, a perception of his duties would additionally allow a customer to protect his interest.

(ii) Government The authorities can defend the hobby of the buyers by way of enacting a number legislation. CPA is one of them which presents 3-tier device of redressal to the aggrieved consumers. The felony framework in India encompasses a variety of legislations which furnish safety to consumers.

1 Introduction

Business Finance = Money or cash accessible for an enterprise for its operations (that is, for some unique purpose) is known as finance.

It is integral for survival and increase of business, for manufacturing and distribution of items and assembly day to day prices etc.

It entails obtaining money to purchase Fixed property (tangible and intangible) and Raw substances and keep working capital.

Financial Management consists of these enterprise things to do that are involved with acquisition and conservation of capital cash in assembly the monetary wants and standard goals of a commercial enterprise.

2 Aims of Financial Management

The pursuits of monetary administration need to be beneficial to the firm’s proprietors, managers, personnel and consumers.

For this reason, the solely way is maximization of firm’s value.

The following elements have region in maximizing firm’s value:

A. Rise in profits: If the company needs to maximize its value, it should’ enlarge its income and revenues.

For this motive amplify of income extent or different things to do can be taken up. It is the prevalent characteristic of any association to extend income via acceptable utilization of all possibilities and plans.

Theoretically, company receives most earnings if it is below equilibrium. At that stage the common fee is minimal and the marginal fee and the marginal revenues are equal.

Here, we can’t say the income due to the fact there ought to be appropriate market for the elevated sales.

Further, the above charges need to additionally be controlled.

B. Reduction in cost: Capital and fairness dollars are utilized for production.

So, all kinds of steps need to be taken to decrease firm’s price of capital.

C. Sources of funds: It must be determined by way of maintaining in view the cost of the association to gather money thru problem of shares or debentures.

D. Reduce risks: There won’t be earnings besides risk.

But for this motive if greater danger is taken, it may also grow to be hazard to the existence of the firm.

Hence hazard ought to be decreased to minimal level.

E. Long run value: It has to be the function of economic administration to extend the long-run cost of the firm.

To earn greater income in quick time, some corporations may additionally do the things to do like releasing of low best goods, neglecting the hobbies of customers and employees.

These trials might also provide true consequences in the quick run.

But for growing the cost of the company in the lengthy run, avoiding; such things to do are extra essential.

3 Objectives of Financial Management

The goals of monetary administration are given below:

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A. Profit maximization: Main intention of any form of monetary exercise is incomes profit.

A commercial enterprise challenge is additionally functioning in the main for the reason of incomes profit.

Profit is the measuring strategies to recognize the commercial enterprise effectivity of the concern.

The finance supervisor tries to earn most income for the corporation in the momentary and the long-term.

He can’t assurance earnings in the lengthy time period due to the fact of enterprise uncertainties.

However, a employer can earn most income even in the long-term, if:

The Finance supervisor takes suitable monetary decisions

He makes use of the finance of the organisation properly

B. Wealth maximization: Wealth maximization (shareholders’ cost maximization) is additionally a principal goal of monetary management.

Wealth maximization capacity to earn most wealth for the shareholders.

So, the finance supervisor tries to supply a most dividend to the shareholders.

He additionally tries to enlarge the market fee of the shares. The market price of the shares is immediately associated to the overall performance of the company.

Better the performance, greater is the market fee of shares and vice-versa.

So, the finance supervisor should attempt to maximize shareholder’s value

C. Proper estimation of whole economic requirements: Proper estimation of complete economic necessities is a very necessary goal of economic management.

The finance supervisor should estimate the complete monetary necessities of the company.

He needs to discover out how lots finance is required to begin and run the company.

He should discover out the constant capital and working capital necessities of the company.

His estimation ought to be correct. If not, there will be scarcity or surplus of finance. Estimating the economic necessities is a very challenging job.

The finance supervisor needs to reflect on consideration on many factors, such as the kind of technological know-how used with the aid of company, quantity of personnel employed, scale of operations, criminal requirements, etc.

D. Proper mobilization: Mobilization (collection) of finance is a vital goal of economic management.

After estimating the monetary requirements, the finance supervisor ought to figure out about the sources of finance. He can gather finance from many sources such as shares, debentures, financial institution loans, etc.

There ought to be a acceptable stability between owned finance and borrowed finance.

The corporation should borrow cash at a low fee of interest.

E. Proper utilization of finance: Proper utilization of finance is a vital goal of monetary management.

The finance supervisor should make most effective utilization of finance.

He should use the finance profitable. He has to now not waste the finance of the company.

He should no longer make investments the company’s finance in unprofitable projects.

He ought to now not block the company’s finance in inventories. He needs to have a brief deposit period.

F. Maintaining appropriate money flow: Maintaining acceptable money drift is a momentary goal of economic management.

The corporation need to have a suited money drift to pay the everyday prices such as buy of uncooked materials, fee of wages and salaries, rent, electrical energy bills, etc.

If the agency has an accurate money flow, it can take benefit of many possibilities such as getting money reductions on purchases, large-scale purchasing, giving savings to customers, etc.

A healthful money waft improves the probabilities of survival and success of the company.

G. Survival of company: Survival is the most necessary goal of economic management.

The business enterprise ought to live to tell the tale in this aggressive enterprise world.

The finance supervisor needs to be very cautious whilst making economic decisions.

One incorrect choice can make the employer sick, and it will shut down.

H. Creating reserves: One of the goals of monetary administration is to create reserves.

The agency needs to now not distribute the full income as a dividend to the shareholders.

It has to maintain a section of its income as reserves. Reserves can be used for future boom and expansion.

It can additionally be used to face contingencies in the future.

I. Proper coordination: Financial administration should attempt to have ideal coordination between the finance branch and different departments of the company.

J. Create goodwill: Financial administration ought to attempt to create goodwill for the company.

It has to enhance the photo and recognition of the company.

Goodwill helps the business enterprise to live to tell the tale in the momentary and be triumphant in the long-term.

It additionally helps the corporation for the duration of terrible times.

K. Increase efficiency: Financial administration additionally tries to expand the effectivity of all the departments of the company.

Proper distribution of finance to all the departments will extend the effectivity of the complete company.

L. Financial discipline: Financial administration additionally tries to create an economic discipline.

Financial self-discipline means to make investments finance solely in productive areas.

This will deliver excessive returns (profits) to the company.

To keep away from wastage and misuse of finance.

M. Reduce price of capital: Financial administration tries to limit the value of capital.

That is, it tries to borrow cash at a low fee of interest. The finance supervisor needs to graph the capital shape in such a way that the fee of capital it minimized.

N. Reduce running risks: Financial administration additionally tries to limit the running risks.

There are many dangers and uncertainties in a business.

The finance supervisor should take steps to limit these risks.

He should keep away from high-risk projects. He ought to additionally take ideal insurance.

O. Prepare capital structure: Financial administration additionally prepares the capital structure.

It decides the ratio between borrowed finance and owned finance. It brings a suitable stability between the exclusive sources of capital.

This stability is quintessential for liquidity, economy, flexibility and stability.

4 Every organization is required to take three important monetary selections

A. Investment Decision: Resources are scarce and can be put to alternate use.

An association have to pick out the place to make investments so as to earn the absolute best feasible profits.

Investment choice relates to selections about how the firm ‘s cash are invested in exceptional belongings that is, one of a kind funding proposal

# It has two components:

• Working Capital Decisions – Short Term funding decisions.

• Capital Budgeting choices – Long Term investment decisions

Factors affecting Investment Decisions/Capital Budgeting decisions

a) Cash flows of the project: The collection of money receipts and repayments over the existence of a funding thought need to be regarded and analyzed for choosing the excellent proposal.

b) Rate of Return: The anticipated returns from every thought and threat worried in them must be taken into account to choose the satisfactory proposal.

c) Investment Criteria Involved: A variety of funding proposals are evaluated on the foundation of capital budgeting techniques.

These contain calculation involving funding amount, hobby rate, money flows, charge of return etc.

B. Financing Decision

• These are selections w.r.t quantum of finance or composition of dollars from more than a few long-term sources.

(short time period = working capital Financial Management)

• Financing selections involve: a) Decision whether or not or now not to use an aggregate of possession and borrowed funds. b) Determining their specific ratio.

• Firm desires a sensible combine of debt and fairness as:

• Debt entails ‘Financial Risk ‘= hazard of default on charge of hobby on borrowed cash and the compensation of the precept quantity whereas

• Shareholders ‘money contain no constant dedication w.r.t charge of returns or reimbursement of capital.

• Ownership fund vs. Debt fund: They can be in contrast on the groundwork of elements such as examples, interest/dividend payout and compensation of principle, tax deductibility, and hazard and floatation costs.

Factors Affecting Financing Decision

A. Cost: The value of elevating dollars from specific sources are different.

The most inexpensive supply has to be selected.

B. Risk: The chance related with distinct sources is different.

More threat is related with borrowed dollars as in contrast to owner’s fund as activity is paid on it and it is repaid also, after a constant duration of time or on expiry of its; tenure.

C. Flotation Cost: The expenses concerned in issuing securities such as brokers commission, underwriters’ fees, charges on prospectus etc. are referred to as flotation costs.

Higher the flotation cost, much less captivating is the supply of finance.

D. Cash go with the flow function of the business: In case the money float function of an enterprise is suitable adequate then it can without problems use borrowed cash and pay pastime on time.

E. Control Considerations: In case the present shareholders choose to keep the whole manage of commercial enterprise then finance can be raised via borrowed money however when they are equipped for dilution of manipulate over business, fairness can be used for elevating finance.

F. State of Capital Markets: During boom, finance can without problems be raised through issuing shares however all through melancholy period, elevating finance by way of skill of debt is easy.

G. Period of Finance: For everlasting capital requirement, Equity shares ought to be issued as they are now not to be paid lower back and for lengthy and medium time period requirement, choice shares or debentures can be issued.

C. Dividend Decision

• Dividend is that element of divisible income that is dispensed to the proprietors i.e. the shareholders. Its outcomes in modern-day earnings for the shareholders.

• Retained earnings= share of income stored in, that is, reinvested in the enterprise for the business.

• Dividend decision= whether to distribute salary to shareholder as dividends or hold salary to finance long-term income of the firm. Must be executed maintaining in idea the corporation’s standard goal of maximizing the shareholders wealth.

Factors affecting Dividend Decision

A. Earnings: Companies having excessive and secure incomes should declare excessive price of dividends as dividends are paid out of contemporary and paste earnings.

B. Stability of Dividends: Companies usually comply with the coverage of steady dividend.

The dividend per share is no longer altered and modified in case salary trade by way of small percentage or extend in profits is transient in nature.

C. Growth Prospects: In case there are boom potentialities for the organization in the close to future them it will keep its incomes and thus, no or much less dividend will be declared.

D. Cash Flow Positions: Dividends contain an outflow of money and thus, availability of sufficient money is for most requirement for assertion of dividends.

E. Preference of Shareholders: While finding out about dividend the desire of shareholders is additionally taken into account.

In case shareholders wish for dividend then organization may additionally go for declaring the same.

F. Taxation Policy: A enterprise is required to pay tax on dividend declared via it.

If tax on dividend is higher, organization will decide upon to pay much less by way of way of dividends whereas if tax prices are decrease then extra dividends can be declared via the company.

G. Issue of bonus shares: Companies with massive reserves can also additionally distribute bonus shares to extend their capital base as it signifies increase of the organization and enhances its recognition also.

H. Legal constraints: Under provisions of Companies Act, all profits can’t be dispensed and the organization has to furnish for a number reserve. This limits the ability of agency to declare dividend.

5 Financial Planning

It includes practice of a monetary blueprint of an organization.

It is the technique of estimating the fund requirement of a commercial enterprise and deciding the feasible sources from which it can be raised.

6 Objectives of Financial Planning

Financial planning is accomplished to gain the following two objectives:

A. To make certain availability of money every time these are required: The principal goal of monetary planning is that adequate fund ought to be accessible in the business enterprise for exclusive functions such as for buy of lengthy time period assets, to meet day-to- day expenses, etc.

It ensures well timed availability of finance. Along with availability economic planning additionally tries to specify the sources of finance.

B. To see that association does no longer elevate assets unnecessarily: Excess funding is as awful as insufficient or scarcity of funds.

If there is surplus money, monetary planning should make investments it in the first-rate feasible manner as preserving monetary assets idle is an incredible loss for an organization.

Financial Planning consists of each quick time period as nicely as the lengthy time period planning.

Long time period planning focuses on capital expenditure layout whereas quick time period economic plans are known as budgets.

Budgets consist of designated graph of motion for a duration of one years or less.

7 Importance of Financial Planning

Sound monetary planning is quintessential for success of any enterprise.

It’s wanted is felt due to the fact of the following reasons:

A. It Facilitates Collection of Optimum Funds:

The economic planning estimates the specific requirement of money which skill to keep away from wastage and over-capitalization situation.

B. Financial planning helps in creating Appropriate Capital Structure:

Funds can be organized from a range of sources and are used for lengthy term, medium time period and brief term.

Financial planning is crucial for tapping terrific sources at fantastic time as lengthy time period money are typically contributed through shareholders and debenture holders, medium time period via economic establishments and quick time period with the aid of industrial banks.

C. Helps in Investing Finance in Right Projects: Financial graph suggests how the cash are to be allotted for a number functions through evaluating a variety of funding proposals.

D. Helps in Operational Activities: The success or failure of manufacturing and distribution feature of enterprise relies upon the monetary selections as proper choice ensures easy float of finance and easy operation of manufacturing and distribution.

E. Base for Financial Control: Financial planning acts as groundwork for checking the monetary things to do through evaluating the authentic income with estimated income and true price with estimated cost.

F. Helps in Proper Utilization of Finance: Finance is the existence blood of business.

So monetary planning is a necessary phase of the company planning of business.

All enterprise plans rely upon the soundness of monetary planning.

G. Helps in Avoiding Business Shocks and Surprises: By looking forward to the monetary necessities monetary planning helps to keep away from shock or surprises which in any other case companies have to face in unsure situations.

H. Link between Investment and Financing Decisions: Financial planning helps in figuring out debt/equity ratio and by way of identifying the place to make investments this fund.

It creates a hyperlink between each the decisions.

I. Helps in Coordination: It helps in coordinating a number enterprise features such as production, income feature etc.

J. It Links Present with Future: Financial planning relates existing monetary requirement with future requirement via awaiting the income and boom plans of the company.

8 Capital Structure

The term ‘structure’ signifies the game plan of the different parts.

So capital structure implies the plan of capital from various sources with the goal that the drawn-out assets required for the business are raised.

In this way, capital structure alludes to the extents or mixes of value share capital, inclination share capital, debentures, long haul credits, held profit and other long-haul wellsprings of assets in the aggregate sum of capital which a firm should raise to maintain its business

9 Factors Affecting Capital Structure

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(A) Cash Flow Position: While making a desire of the capital shape the future money drift role need to be saved in mind.

Debt capital need to be used solely if the money glide function is truly excellent due to the fact a lot of money is wanted in order to make price of activity and refund of capital.

(B) Interest Coverage Ratio-ICR: With the assist of this ratio an effort is made to locate out how many instances the EBIT is accessible to the price of interest.

The capability of the organization to use debt capital will be in direct percentage to this ratio.

It is viable that in spite of higher ICR the money waft function of the enterprise may additionally be weak.

Therefore, this ratio is no longer an appropriate or suitable measure of the ability of the enterprise to pay interest.

It is equally necessary to take into consideration the money glide position.

(C) Debt Service Coverage Ratio-DSCR: This ratio gets rid of the weak spot of ICR.

This suggests the money drift role of the company.

This ratio tells us about the money repayments to be made (e.g., choice dividend, hobby and debt capital repayment) and the quantity of money available.

Better ratio capacity the higher potential of the agency for debt payment. Consequently, extra debt can be utilized in the capital structure.

(D) Return on Investment-ROI: The higher return on funding of an agency will increase its ability to utilize extra debt capital.

(E) Cost of Debt: The capability of an agency to take debt relies upon on the fee of debt.

In case the price of hobby on the debt capital is less, greater debt capital can be utilized and vice versa.

(F) Tax Rate: The fee of tax impacts the value of debt. If the charge of tax is high, the value of debt decreases.

The cause is the deduction of activity on the debt capital from the income thinking about it a section of costs and a saving in taxes.

For example, feel an enterprise takes a mortgage of 0ppp a hundred and the charge of hobby on this debt is 10% and the fee of tax is 30%.

By deducting 10/- from the EBIT a saving of in tax will take region (If 10 on account of hobby are no longer deducted, a tax of @ 30% shall have to be paid).

(G) Cost of Equity Capital: Cost of fairness capital (its capacity the expectations of the fairness shareholders from the company) is affected by way of the use of debt capital.

If the debt capital is utilized more, it will make bigger the fee of the fairness capital.

The easy motive for this is that the increased use of debt capital will increase the hazard of the fairness shareholders.

Therefore, the use of the debt capital can be made solely to a restrained level.

If even after this degree the debt capital is used further, the price of fairness capital begins growing rapidly.

It adversely impacts the market price of the shares. This is now not an excellent situation.

Efforts need to be made to keep away from it.

(H) Floatation Costs: Floatation expenses are these prices which are incurred whilst issuing securities (e.g., fairness shares, desire shares, debentures, etc.).

These encompass fee of underwriters, brokerage, stationery expenses, etc.

Generally, the value of issuing debt capital is much less than the share capital. This attracts the enterprise toward debt capital.

(I) Risk Consideration: There are two kinds of dangers in business:

(i) Operating Risk or Business Risk:

This refers to the chance of lack of ability to discharge everlasting running prices (e.g., lease of the building, price of salary, insurance plan installment, etc.),

(ii) Financial Risk:This refers to the danger of incapacity to pay constant economic repayments (e.g., charge of interest, desire dividend, return of the debt capital, etc.) as promised through the company.

The whole threat of enterprise relies upon on each these sorts of risks.

If the working danger in enterprise is less, the monetary danger can be confronted which ability that extra debt capital can be utilized.

On the contrary, if the working hazard is high, the monetary danger possibly happening after the increased use of debt capital must be avoided.

(J) Flexibility: According to this principle, capital shape needs to be pretty flexible.

Flexibility capability that, if want be, quantity of capital in the commercial enterprise ought to be elevated or diminished easily.

Reducing the quantity of capital in commercial enterprise is feasible solely in case of debt capital or choice share capital.

If at any given time corporation has extra capital than as fundamental then each the above-mentioned capitals can be repaid.

On the different hand, reimbursement of fairness share capital is now not feasible via the business enterprise at some stage in its lifetime.

Thus, from the perspective of flexibility to problem debt capital and desire share capital is the best.

(K) Control: According to this factor, at the time of making ready capital structure, it needs to be ensured that the manipulate of the present shareholders (owners) over the affairs of the organization is no longer adversely affected.

If cash are raised by using issuing fairness shares, then the wide variety of company’s shareholders will enlarge and it immediately influences the manipulate of current shareholders.

In different words, now the quantity of proprietors (shareholders) controlling the agency increases.

This state of affairs will no longer be desirable to the current shareholders.

On the contrary, when dollars are raised via debt capital, there is no impact on the manipulate of the employer due to the fact the debenture holders have no manipulate over the affairs of the company.

Thus, for these who guide this precept debt capital is the best.

(L) Regulatory Framework: Capital shape is additionally influenced by way of authority’s regulations.

For instance, banking corporations can elevate dollars with the aid of issuing share capital alone, now not any different sort of security.

Similarly, it is obligatory for different corporations to preserve a given debt-equity ratio whilst elevating funds.

Different perfect debt-equity ratios such as 2:1; 4:1; 6:1 have been decided for extraordinary industries.

The public trouble of shares and debentures has to be made underneath SEBI guidelines.

(M) Stock Market Conditions: Stock market prerequisites refer to upward or downward developments in capital market.

Both these stipulations have their have an impact on the resolution of sources of finance.

When the market is dull, buyers are commonly afraid of investing in the share capital due to excessive risk.

On the contrary, when prerequisites in the capital market are cheerful, they deal with funding in the share capital as the fantastic preference to reap profits.

Companies should, therefore, make resolution of capital sources retaining in view the prerequisites prevailing in the capital market.

(N) Capital Structure of Other Companies: Capital shape is influenced by using the enterprise to which an organization is related.

All organizations associated to a given enterprise produce nearly comparable products, their charges of manufacturing are similar, they rely on same technology, they have comparable profitability, and for this reason the sample of their capital shape is nearly similar.

Because of this fact, there are exceptional debt- fairness ratios widely wide-spread in one-of-a-kind industries.

Hence, at the time of elevating dollars an agency should take into consideration debt-equity ratio typical in the associated industry.

10 Fixed Capital

Fixed capital refers to funding in long-term assets.

Investment in constant property is for longer period and they ought to be financed via long-term sources of capital.

Decisions bearing on to constant capital contain massive capital money and are now not reversible except incurring heavy losses.

11 Factors Affecting Requirement of Fixed Capital

A. Nature of Business: Manufacturing worries require big funding in constant property & accordingly,

massive constant capital is required for them however buying and selling issues want much less constant capital as they are no longer required to buy plant and equipment etc.

B. Scale of Operations: A corporation working on giant scale requires greater constant capital as in contrast to an enterprise working on small scale.

For Example – A massive scale metal corporation like TISCO requires massive funding as in contrast to a mini metal plant.

C. Choice of Technique: An agency the use of capital-intensive methods requires extra funding in plant & equipment as in contrast to a corporation the use of labor-intensive techniques.

D. Technology upgradation: Organizations the use of belongings which come to be out of date quicker require greater constant capital as in contrast to different organizations.

E. Growth Prospects: Companies having extra boom plans require extra constant capital. In order to increase manufacturing ability greater plant & equipment is required.

F. Diversification: In case an employer goes for diversification then it will require greater constant capital to make investments in constant property like plant and machinery.

G. Distribution Channels: The company which sells its product thru wholesalers and outlets requires much less constant capital.

H. Collaboration: If corporations are underneath collaboration, Joint venture, then they want much less constant capital as they share plant; equipment with their collaborators.

I)Working Capital: Working Capital refers to the capital required for day to day working of an organization.

Apart from the funding in constant property each and every enterprise company desires to make investments in modern assets, which can be transformed into money or money equivalents inside a length of one year.

They furnish liquidity to the business. Working capital is of two sorts – Gross working capital and Net working capital.

Investment in all the modern property is known as Gross Working Capital whereas the extra of contemporary belongings over present day liabilities is known as Net Working Capital.

Following are the elements which have an effect on working capital necessities of an organization:

i. Nature of Business: A buying and selling business enterprise desires a decrease quantity of working capital as in contrast to a manufacturing organization, as buying and selling corporation undertakes no processing work.

ii. Scale of Operations: A business enterprise running on giant scale will require greater stock and thus, its working capital requirement will be extra as in contrast to small organization.

iii. Business Cycle: In the time of increase extra manufacturing will be undertaken and so extra working capital will be required at some stage in that time as in contrast to depression.

iv. Seasonal Factors: During top season demand of a product will be excessive and for this reason excessive working capital will be required as in contrast to lean season.

v. Credit Allowed: If credit score is allowed via a situation to its clients than it will require extra working capital however if items are offered on money foundation than much less working capital is required.

Vi. Credit Availed: If an association is capable to buy uncooked substances on savings from its suppliers than much less working capital will be required.

vii. Inflation: Working capital requirement is additionally decided by way of charge degree changes. For example, all through inflation fees of uncooked material, wages additionally upward jab ensuing in amplify in working capital requirements.

viii. Operating Cycle/Turnover of Working Capital: Turnover skill pace with which the working capital is transformed into money via sale of goods. If it is speedier, the quantity of working capital required will be less.

Short Answer Type

Q1. What is intended by using capital structure?

Ans- Capital shape refers to the mixture of borrowed money and owners’ fund that an association makes use of for financing its fund requirements.

Herein, borrowed money incorporate of loans, public deposits, debentures, etc. and owners’ fund incorporate of choice share capital, fairness share capital, retained incomes etc. Generally, capital shape is sincerely referred as the mixture of debt and fairness that an association makes use of for financing its funds.

It is calculated as the ratio of debt and fairness or the share of debt in the complete capital used through the firm.

or                                                                                                  

The share of the debt and fairness used via the association impacts its economic hazard and profitability.

While on one hand, debt is a more cost-effective source of finance than fairness and lowers the average value of capital however on the different hand, greater use of debt, will increase the monetary hazard for the firm.

Thus, the selection involving the capital shape need to be taken with utmost care.

Capital shape is stated to be most efficient when the share of debt and fairness used is such that the income per share increases.

Q2. Discuss the two goal of Financial Planning.

Ans- Financial Planning entails designing the blueprint of the monetary operations of a firm.

It ensures that simply the proper quantity of dollars is accessible for the organizational operations at the proper time. Thereby, it ensures easy functioning.

Taking into consideration the increase and performance, via economic planning, corporations have a tendency to forecast what quantity of fund would be required at what time.

The following are the two highlighted goals of economic planning.

(i) Ensure Availability of Funds: Ensuring that the proper quantity of cash is accessible at the proper time is one of the fundamental goals of monetary planning.

It includes estimating the proper quantity of money that are required for quite a number enterprise operations in the lengthy time period as properly for day to day operations.

In addition, it additionally entails estimating the time at which the cash would be required.

Thus, monetary planning ensures that proper quantity of cash is on hand at the proper time.

Financial planning additionally factors out the possibly sources of funds.

(ii) Proper Utilization of Funds: Financial Planning goals at full utilization of funds.

It ensures that each insufficient money as nicely as extra cash is avoided. Inadequate money hinders the clean operations and the firm is unable to raise its commitments.

On the different hand, extra dollars add to the price of enterprise and motivate pointless wasteful expenditure.

Thus, economic planning ensures that the dollars are appropriate and optimally utilized.

Q3. What is economic risk? Why does it arise?

Ans- Financial danger refers to a scenario when an employer is now not in a position to meet its constant economic fees such as activity payment, desire dividend and compensation obligations.

In different words, it refers to the chance that the business enterprise would no longer be capable to meet its constant monetary obligations.

It arises when the percentage of debt in the capital shape increases.

This is due to the fact it is compulsory for the employer to pay the hobby fees on debt alongside with the precept amount.

Thus, greater the debt, greater will be its price responsibilities and thereby greater would be the probabilities of default on payment. Hence, greater use of debt leads to greater economic hazard for the company.

Q4. Define a ‘current asset’. Give 4 examples of such assets.

Ans- Current asset of a company refers to these properties which can be transformed into money or money equivalents in a quick length of time, i.e. less than one year.

Such property is used to facilitate the day to day commercial enterprise operations.

As they can be without difficulty transformed into money or money equivalents, these properties furnish liquidity to the company.

Firms gather such property to meet its a number of fee obligations.

However, such property furnishes very little return and are thereby, much less profitable.

Current property can be financed thru non-permanent as nicely as lengthy time period sources.

Some of the examples of contemporary belongings are brief time period investment, debtors, shares and money equivalents.

Q5. Financial administration is primarily based on three vast monetary decisions. What are these?

Ans- Financial administration refers to the environment friendly acquisition, allocation and utilization of dollars of the company.

It offers in three major dimensions of economic selections namely, Investment decisions, Financial selections and Dividend decisions.

a) Investment Decisions: Investment selections refer to the selections related to the place to make investments so as to earn the very best viable returns on investment.

Investment selections can be taken for each lengthy time period as nicely as quick term.

Long time period funding choices additionally recognized as Capital Budgeting selections have an effect on a business’ lengthy time period incomes ability and profitability.

For example, funding in a new machine, buy of a new building, etc. are lengthy time period funding decisions.

Short time period funding choices additionally acknowledged as working capital selections affect a business’ day to day working operations.

For example, choices related to money or consignment receivables are quick time period funding decisions.

b) Financial Decisions: Such selections contain figuring out a range of sources of money and figuring out the first-class aggregate for elevating the funds.

The predominant sources for elevating money are shareholders’ cash (referred as equity) and borrowed money (referred as debt). Based on the fee involved, threat and profitability an employer have to judiciously figure out the aggregate of debt and fairness to be used.

For example, whilst debt is viewed to be the most inexpensive supply of finance, greater debt will increase the economic risk.

Financial choices taken by using a business enterprise impacts its universal value of capital and the monetary risk.

c)Dividend Decisions: The choice includes the choice involving the distribution of earnings or surplus of the company.

An organization can distribute its income to the fairness shareholders in the structure of dividends or maintain it with itself.

Under dividend decision, an organization decides what percentage of the surplus to distribute as dividends and what share to maintain as retained earnings.

It is aimed at maximizing the shareholders’ wealth whilst maintaining in view the requirement of retained profits that are wanted for re-investment.

Q6. What are the principal targets of monetary management? Briefly explain?

Ans- The paramount goal of the economic administration is maximizing the shareholders’ wealth.

That is, the fundamental goal of economic administration for an organization is to choose for these monetary selections that show gainful from the factor of view of the shareholders.

The shareholders are stated to acquire when the market price of their shares rise.

The market fee of shares extends when the advantages from an economic choice exceed the value worried in taking them.

In different words, a monetary selection raises the market cost of share if its outcomes in some cost addition.

Thus, economic choices have to be taken such that some cost addition takes region and subsequently the rate of the fairness share increases.

When an economic choice is capable to fulfil the foremost goal of wealth maximization, different targets such as desirable utilization of funds, upkeep of liquidity etc. are robotically fulfilled.

Q7. How does working capital have an effect on each the liquidity as properly as profitability of a business?

Ans- Working capital of an enterprise refers to the extra of modern property (such as cash in hand, debtors, stock, etc.) over contemporary liabilities.

Working capital influences each the liquidity as properly as profitability of a business.

As the quantity of working capital increases, the liquidity of the commercial enterprise increases.

However, given that contemporary property provides low return, with the make bigger in working capital the profitability of the commercial enterprise falls.

For example, an expand in the stock of the commercial enterprise will increase its liquidity however due to the fact that the inventory is stored idle, the profitability falls.

On the different hand, low working capital, hinders the day to day operations of the business.

Thus, the working capital ought to be such that a stability is maintained between the profitability and liquidity.

Long Answer Type

Q1. What is working capital? How is it calculated? Discuss 5 necessary determinants of working capital requirement.

Ans- Every enterprise wants to take the choice involving the funding in contemporary belongings i.e. the working capital.

Current property refers to the property that are transformed into money or money equivalents in a brief length of time (less than or equal to one year).

There are two wide standards of working capital namely, Gross working capital and Net working capital.

Gross working capital (or, surely working capital) refers to the funding achieved in the present-day assets.

Net working capital, on the different hand, refers to the quantity of modern-day property that is in extra of modern liabilities.

Herein, modern-day liabilities are these compulsory repayments which are due for fee such as payments payable, extremely good expenses, creditors, etc. Net Working Capital is calculated as the distinction of modern belongings over present day liabilities. i.e.

NWC = Current Assets – Current Liabilities

The following are 5 determinants of working capital requirement:

(i) Type of Business: Working capital requirement of a company relies upon on its nature of business.

A business enterprise that offers in offerings or buying and selling will no longer require a whole lot of working capital.

This is due to the fact such enterprises contain small running cycle and there is no processing done.

Herein, the uncooked substances are the equal as the outputs and the income transaction takes vicinity immediately.

In distinction to this, a manufacturing association includes giant working cycle and the uncooked substances want to be transformed into completed items earlier than the ultimate sale transaction takes place.

Thereby, such corporations require massive working capital.

(ii) Scale of Operations: Another aspect figuring out the working capital requirement is the scale of operations in which the association deals.

If a company operates on a massive scale, the requirement of the working capital increases.

This is due to the fact such corporations would want to keep excessive inventory of stock and debtors.

In distinction to this, if the scale of operation is small, the requirement of the working capital will be less.

(iii) Fluctuations in Business Cycle: Different phases of enterprise cycle alter the working capital necessities by means of a firm.

During growth period, the market prospers and thereby, there is greater sale, greater production, greater inventory and debtors.

Thus, at some point of this length the want for working capital increases.

As towards this, in a duration of despair there is low demand, lesser manufacturing and sale, etc.

Thus, the working capital requirement reduces.

(iv) Production Cycle: The time length between the conversion of uncooked substances into completed items is referred as manufacturing cycle.

The span of manufacturing cycle is exceptional for extraordinary companies relying on which the requirement of working capital is determined.

If a company has a longer span of manufacturing cycle, i.e. if there is a lengthy time hole between the receipt of uncooked substances and their conversion into closing completed goods, then there will be an excessive requirement of working capital due to inventories and associated expenses.

On the different hand, if the manufacturing cycle is quick then requirement of working capital will be low.

(v) Growth Prospects: Higher boom and enlargement is associated to greater production, extra sales, extra inputs, etc. Thus, organizations with greater increase possibilities require greater quantity of working capital and vice versa.

Q2.” Do you agree? Why or why not? Capital budgeting selection is good for changing the monetary fortunes of a business”.

Ans- Yes, capital budgeting selection is a very quintessential selection which wishes to be taken carefully. It has the functionality of altering the economic fortunes of a business.

Capital budgeting selection refers to the selections involving the allocation of constant capital to specific projects.

Such selections contain funding selections involving attainment of new assets, expansion, modernization and replacement.

Such lengthy time period investments consist of buying plant and machinery, furniture, land, building, etc.

and additionally expenditure as on launch of a new product, modernization and advertising, etc.

They have lengthy time period implications on the enterprise and are irrevocable besides at a massive cost.

They have an effect on a business’ lengthy time period growth, profitability and risk.

The following are the elements that spotlight the significance of capital budgeting decisions:

(i) Long Term Implications: Investment on capital property (long time period assets) yield return in the future.

Thereby, they have an effect on the future potentialities of a company.

A company’s lengthy time period increase potentialities rely on the capital budgeting selections taken by way of it.

(ii) Huge Amount of Funds: Investing in constant capital includes a giant quantity of funds.

This makes the capital budgeting choices all the extra essential as massive quantity of dollars continues to be blocked for a longer length of time.

These selections as soon as made are challenging to change.

Thus, capital budgeting choices want to be taken cautiously after a distinct find out about of the complete requirement of money and the sources from which they are to be raised.

(iii) High Risk: Fixed belongings contain massive quantity of cash and thereby, contain massive hazard as well.

Such choices are volatile as they have an effect on the lengthy time period existence of the company.

For example, choice about the buy of new equipment includes a chance in phrases of whether or not the return from the equipment would be higher than the value incurred on it.

(iv) Irreversible Decisions: These selections as soon as made are irrevocable.

Reversing a capital budgeting choice entails large cost. This is due to the fact as soon as large funding is made on a project, withdrawing it would imply massive losses.

Q3. Explain the elements affecting the dividend decision.

Ans- Dividend selection of a corporation deals with what element of the income is to be disbursed as dividends between the shareholders and what component is to be saved as retained earnings.

The following are the elements that have an effect on the dividend decision.

(i) Amount of Earning: A company will pay dividend out of its cutting-edge and the previous earnings.

This implies that income play a key function in the dividend decision.

An enterprise having greater salary will be in a role to pay a greater quantity of dividend to its shareholders.

In distinction to this, an agency having low or restrained profits would distribute low dividends.

(ii) Stable Earnings: When an employer has a steady and an easy earning, they are in a role to distribute greater dividend as in contrast to the agencies who have an unstable earning.

In different words, an organization having steady and steady income can distribute greater quantity of dividends.

(iii) Stable Dividends: Companies typically comply with the exercise of stabilizing their dividends.

They strive to avoid normal fluctuations in dividend per share and decide for growing (or decreasing) the cost solely when there is a steady upward thrust (or fall) in the profits of the company.

(iv) Growth Prospects: Companies aiming for a greater boom stage or enlargement of operations keep a greater element of the income with itself for re-investment.

Thus, dividend of such a business enterprise is smaller as in contrast to the businesses with decrease boom opportunities.

(v) Cash Flow Position: Dividend repayments require money outflow.

If a business enterprise is low on money then the dividend will be decrease as in contrast to the business enterprise which has extra liquidity.

Even if an organization has greater profits, it will no longer be in a position to distribute excessive dividends if it does now not have sufficient cash.

(vi) Preference of the Shareholders: A corporation need to maintain in idea the preferences of the shareholders whilst distributing the dividends.

For instance, if the shareholders decide upon at least a sure quantity of dividend, then the employer is probably to declare the same.

(vii) Taxation Policy: Taxation coverage performs a necessary function in determining the dividends.

If the taxation coverage is such that an excessive price of tax is levied on dividend distribution, then the corporations are probable to distribute decrease dividends.

On the other, it may pick to distribute greater dividends if the tax fee is low.

(viii) Stock Market Reactions: The quantity of dividend that an organization distributes influences its inventory market prices.

An expand in dividend with the aid of an organization is seen as an exact signal by way of the traders and the inventory charge of the organization goes up.

On the different hand, a fall in the dividends adversely influences the inventory prices.

Thus, whilst taking the dividend decision, an employer should think about the likely inventory market reactions.

(ix) Contractual Constraints: Sometimes, whilst giving out loans to a company, the lender may additionally impose some restrictions in the structure of agreement.

These restrictions might also be associated to the dividend paid in the future.

In such cases, the enterprise has to hold such agreements in thinking when distributing the dividends.

x) Access to Capital Market:

The organizations that have a larger get right of entry to the capital market have a tendency to pay greater dividends.

This is due to the fact they can remember much less on retained salary and extra on different sources due to the market access.

The smaller organizations who have decrease get admission to capital markets have a tendency to pay decrease dividends.

(xi) Legal Constraints: Companies have to adhere to the policies and insurance policies laid out via the Companies Act.

Thus, any agency wants to take care of such restrictions and insurance policies earlier than declaring the dividends.