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Wazir: in The Name of ALLAH, The Most Merciful and Gracious"
Wazir: in The Name of ALLAH, The Most Merciful and Gracious"
WHAT IS AN MBA?
M.B.A these three letters spell success in business, and for good reason. Now in reality, just having a Master
of Business Administration degree does not make anyone a master of business administration that takes years
of on-the-job experience. But the course of study that leads to an ‘MBA’ prepares you extremely well for a
business career.
First, an ‘MBA’ gives you the key principles of how to manage a business. A business can be manage either
by the ‘Seat of the Pants’ or professionally, and business institutions teaches you the professional way.
Professional management calls for setting goals that motivates people, allocating resources to activities that
move the company towards those goals, monitoring progress and making any necessary adjustments. These
principles & other taught in an ‘MBA’ program, usually leads to success.
Second, an ‘MBA’ gives you exposure (at least classroom exposure) to the department. The function that you
will find in most business. These include management & operations, finance & accounting & sales &
marketing etc.
You learn about the rules these functions play in a business & how to get these areas to work together. All of
this prepares you to deals effectively with the various people working in a company.
Third, an ‘MBA’ programs gives you sophisticated ways of approaching methods, which often involves
simple calculations or diagram, so you can clearly see the parts of the problem, develop potential solutions,
choose the best course of action, and present your case to others in a winning way.
Finally, ‘MBA’ know the language of the business like any profession; business has its own lingo & special
words. If you understand the words, you understand the concept. If you understand the concept you can easily
apply them in your business.
Before going to proceed to the next topic I want to share some words about business & specifically about
accounting & finance. Some people find accounting confusing & finance frustrating, but I’m not sure why. It
can’t be the arithmetic, because if you can add, subtract, multiply, & divide-or can use a calculator-than you
can deal with the numbers in everything from basic budgets to major investments.
Of course, if the number doesn’t give you trouble, and then the words might. If you find terms like
“deprecation”, “present value” & “shareholders’ equity” mysterious, don’t worry. They are just words. And
they have straightforward meanings, once they have been explained.
The upcoming part of these notes explains all these and more, including how these topics are important, and
why we use these words in business & where it can apply etc.
INTRODUCTION TO BUSINESS:
What is business?
The term “Business” means all those legal human activities which are related to the production & distribution
of goods & services with the object of earning profit.
OR
All those economic activities whose aim is to earn profit is called “Business”.
Components of business
BUSINESS
INDUSTRY COMMERCE
Industry
“Industry means that part of business activity, which is concerned with the extraction, production and
fabrication of products”.
It is a place where raw material is converted into finished or semi-finished goods, which have the ability to
satisfy human needs or can be used in another industry as a base material.
Kinds of industry
1. Primary industry
Primary industry is engaged in the production or extraction of raw materials, which are used in the secondary
industry. It has two parts:
(a) Extractive Industry
Extractive industries are those industries, which extract, raise or produce raw material from below or above the
surface of the earth. For example, fishery, extraction of oil, gas and coal etc.
(b) Genetic Industry
Genetic industries are those, which are engaged in reproducing and multiplying certain species of animals and
plants. For example, poultry farm, fishing farm, diary farm, plant nurseries etc.
2. Secondary industry
These industries use raw materials and make useful goods. Raw material of these industries is obtained from
primary industry. Secondary industry can be divided into three parts:
(a) Constructive Industry
All kinds of constructions are included in this industry. For example, buildings, canals, roads, bridges etc.
(b) Manufacturing Industry
In this industry, material is converted into some finished goods or semi-finished goods. For example, textile
mills, sugar mills etc.
(c) Services Industry
These industries include those industries, which are engaged in providing services of professionals such as
lawyers, doctors, teacher etc.
Commerce
The term “commerce” includes all activities, functions and institutions, which are involved in transferring
goods, produced in various industries, from their place of production to ultimate consumers.
In simple words, “trade and aids to trade” is called commerce.
Scope of commerce
The scope of commerce can be explained as:
1. Trade
Trade is the whole procedure of transferring or distributing the goods produced by different persons or
industries to their ultimate consumers. In other words, the system or channel, which helps the exchange of
goods, is called trade.
Types of trade
(a) Home Trade
The purchase and sale of goods inside the country is called home trade. It is also known as ‘domestic’, ‘local’
or ‘internal trade’. It has two types:
(i) Wholesale Trade
It involves selling of goods in large quantities to shopkeepers, in order to resale them to the consumers. A
wholesaler is like a bridge between the producers and retailers.
(ii) Retail Trade
Retailing means selling the goods in small quantities to the ultimate consumers. Retailer is a middleman, who
purchase goods from manufacturers or wholesalers and provide these goods to the consumers near their
houses.
(b) Foreign Trade
Exchange of goods and services between two or more independent countries for their mutual advantages is
called foreign trade. It is also called international trade.
(i) Import Trade
When goods or services are purchased from other country it is called import trade.
(ii) Export Trade
When goods or services are sold to any other country it is called export trade.
2. Aids to trade
Trade means buying and selling of goods, whereas, aids to trade mean all those things which are helpful in
trade.
(a) Banking (b) Transportation (c) Insurance (d) Warehousing (e) Agents
(f) Finance (g) Advertising (h) Communication
Difference between business & profession
Business
A Business is organized to produce goods & services to society in order to earn profit.
Profession
It refers to a vocation after getting specialized training. The professional man provides services of specialized
nature to the community.
Limitations:
Double Taxation:
Corporate earnings may be subject to double taxation – the earnings of the corporation are taxed at corporate
level, and then any earnings paid out as dividends are taxed again as income to the stockholders.
Legal Formalities:
Setting up a corporation, and filing many official documents, is more complex and time consuming than for a
proprietorship or a partnership.
Classification of company
1. Statutory Company:
A company which is incorporated by a special act of legislative or under ordinance is called statutory company
e.g. SBP, NBP & WAPDA etc.
2. Registered Company:
A company which is formed & registered under the companies’ ordinance 1984 is known as a registered
company.
Companies limited by shares:
1. Private limited companies
2. Public limited companies
Private Limited Companies:
Following are the main characteristics of private limited companies:
Number of members in a private limited company ranges from two to fifty (50)
Words and parentheses “(Private) Limited” are added at the end of the name of a private limited
company. Example: ABC (Private) Limited.
Private limited company can not offer its shares to general public at large.
In case a shareholder decides to sell his shares, his shares are first offered to existing shareholders. If
all existing shareholders decide not to purchase these shares, only then, an outsider can buy them.
The shareholders of the private limited company elect two members of the company as Directors.
These directors form a board of directors to run the affairs of the company.
The head of board of directors is called “chief executive”.
Public Limited Company:
Following are the main characteristics of public limited companies:
Minimum number of members in a public limited company is seven (7)
There is no restriction on the maximum number of members in a public limited company.
Word “Limited” is added at the end of the name of a public limited company. Example: ABC Limited.
Public limited company can offer its shares to general public at large.
The shareholders of the public limited company elect seven members of the company as Directors.
These directors form a board of directors to run the affairs of the company.
The head of board of directors is called “chief executive”.
There are two types of public limited company:
1. Listed Company
2. Non Listed Company
Listed Company (quoted company)
Listed company is that company whose shares are quoted on stock exchange i.e. whose shares are traded in
stock exchange. It is also called quoted company.
Non Listed Company
Share capital:
In company, share capital means the amount contributed by the shareholders.
Authorized Capital:
This is maximum amount of capital with which a company is registered or authorized to issue. It is divided
into shares of small value. For example, the authorized capital of the company Rs. 1,000,000 divided into
100,000 shares of Rs. 10 each.
Issued Capital:
It is a part of authorized capital which is offered to the general public for sale.
For example, a company has an authorized capital of Rs. 1,000,000 dividend into 100,000 shares of Rs. 10
each. It offers 20,000 shares of Rs. 10 each to general public. So it means issued capital is Rs. 200,000.
Un-Issued Capital:
It is a part of authorized capital which is not offered to the general public for sale.
For example, a company has an authorized capital of Rs. 1,000,000 divided into 100,000 shares of Rs. 10 each.
It offers 20,000 shares of Rs. 10 each to general public. So it means un-issued capital is Rs. 800,000 consisting
of 80,000 shares of Rs. 10 each.
Subscribed Capital:
That part of issued capital for which applications are sent by the public and which are accepted is called
subscribed capital. For example, out of 20,000 shares offered by the company, the general public takes up only
10,000 shares. So subscribed capital, is Rs. 100,000.
Called up Capital:
A company may require payment of the par value either in installments or in lump sum. So amount of shares
demanded by company is known as “called up capital”. For example, out of 10,000 shares taken by public,
company requires a payment of 6 per share. So “called up” capital of the company is Rs. 60,000 (10,000 share
@ Rs. 6).
Paid up Capital:
It is that part of called up capital which is actually received by the company. If some shareholders could not
pay all the money of called up capital, such money is called as “calls in arrears” or “calls unpaid”.
Reserve Capital:
The capital which is reserved for unexpected events or for future needs is called reserve capital. Company
decides not to call up some part of uncalled up capital until winding up. It is normally kept for the payment of
debts at the time of winding up.
Redeemable Capital:
A company can obtain redeemable capital by issue of:
(a) Participation Term Certificates (b) Musharika Certificate (c) Term Finance Certificate
Entrepreneurship:
Management ability of the people who are running the business
Enterprise Resource Planning (ERP):
Large-scale information system for organizing and managing a firm’s processes across product lines,
departments, and geographic locations
Partnership agreement/ Deed:
Joint Venture:
A business owned jointly by two independent firms who continue to function separately in all other respects
but pool together their resources in a particular line of activity.
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MANAGEMENT
What is an Organization?
“An entity/unit where two or more persons work together to achieve a goal or a common purpose is called
Organization”
Planning
Controlling
Defining goals, Organizing Leading
Monitoring Lead to
establishing Determining what Directing and
motivating all activities to Achieving the
strategy, and needs to be done ensure
how it will be involved parties organization’s
developing sub that they are
done and resolving stated purpose
plans to accomplished as
coordinate and who is to do it conflicts
activities planned
Efficiency refers to getting the most output from the least amount of inputs.
Effectiveness is often described as “doing the right things” – that is, those work activities that will help the
organization reach its goals.
We have learnt that; a manager is someone who works with and through other people by coordinating their
work activities in order to accomplish organizational goals. While performing, the manager has to keep in
mind that he has to deal workers and other people around him in variety of situations.
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ACCOUNTING
“Accounting is the language of the business.”
“Accounting is the art of recording, classifying, summarizing & interpreting result of the business activities
(transaction) for a specific period.”
Recording:
It is the basic function of accounting. Recording means to put the transaction in written form into the books of
accounts. Recording is done in the book which is called “Journal”. It is further sub-divided into various sub
diary books such as “cash-journal“, “purchase-journal“ and “sales-journal“ etc.
Classifying:
Classification is the process of grouping of transaction, or entries of one nature at one place. The work of
classification is done in the book termed as “Ledger“.
Summarizing:
Summarizing involves presenting the classified data in a manner which is understandable & useful to
management & other interested parties. It involves the preparation of financial statements.
Purpose of accounting:
”Accounting provides decision-makers with sufficient, relevant information to make prudent and intelligent
business decisions. This information is provided through accounting reports called financial statements. The
whole process is called “financial reporting”
The purpose of accounting is to organize the financial details of business.
To identify the financial transactions.
To organize the financial data into useful information
To measure the value of these information in terms of money
To analyze, interpret, and communicate the information to persons or groups, both inside or outside
the business.
Event:
Event is the happening of any thing but in accounting we discuss monetary events
Monetary Events:
If the financial position of a business is change due to the happening of event that Event is called Monetary
Event.
Transaction:
In accounting or business terms, any dealing between two persons involving money or a valuable thing is
called transaction.
OR
Any business activity in which money is involved is called transaction.
Voucher:
Voucher is documentary evidence in a specific format that records the details of a transaction. It is
accompanied by the evidence of transaction. Normally three types of vouchers are used:
(a) Receipt voucher is used to record cash or bank receipt.
(b) Payment Voucher is used to record a payment of cash or cheque.
Book keeping:
The art of recording business transactions in books in a regular & systematic manner is called book keeping.
Single entry accounting/Cash accounting.
This system records only cash movement of transactions and that too up to the extent of recording one aspect
of the transactions.
This means that only receipt or payment of cash is recorded and no separate record is maintained (about the
source of receipt and payment) as to from whom the cash was received or to whom it was paid.
Double entry book keeping/Commercial accounting.
Double entry or commercial accounting system records both aspects of transaction i.e. receipt or payment and
source of receipt or payment. It also records credit transactions i.e. recording of Electricity Bill or accruals of
Salary payment etc.
It should be noted that in cash accounting date of receipt / payment of actual cash is important while in
commercial accounting the date on which the expense is caused (whether paid or not) as well as the spreading
of the cost of certain items over their useful life becomes important.
Cash accounting and accrual accounting:
Cash Accounting:
It is the accounting system in which transactions are recorded when actual cash / cheque is received or paid.
Let’s take the example of utility bills like electricity, telephone etc. The bill of January is received on 15th
February and paid on 25th February. If the organization is following cash accounting practice it will record the
expense of electricity / telephone on 25th February because the actual payment is made on that day. The same
principle applies for income and other transactions as well i.e. income is recorded when cash is actually
received instead recording when it is earned & expenses are recorded when paid.
Accrual Accounting:
It is the accounting system in which events are recorded as and when they occur.
This means that income is recorded when it is earned and expense is recorded when incurred i.e. the
organization has obtained the benefit from it. Consider the above example. The electricity is utilized in the
month of January so the expense should be recorded in the month of January. Similarly the company that is
providing the electricity should record the income in the month of January.
Account:
An accounting system keeps separate record of each item like assets, liabilities, etc. For example, a separate
record is kept for cash that shows increase and decrease in it.
This record that summarizes movement in an individual item is called an Account.
Each element/sub-element of the balance sheet is named as “Account”, Technically, these are also called
‘Ledger Accounts’.
Classification of Accounts:
The accounts are classified into following heads it is also called chart of accounts:
Assets
Liabilities
Income
Expenses (further divided into capital and revenue expenses)
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Assets:
Assets are economic resources that are owned by a business and are expected to benefit future operations.
There are two types of assets:
1. Tangible Assets which have physical existence and can be seen or touched. It includes Fixed as well as
Current assets.
Fixed Assets – Are the assets of permanent nature that a business acquires, such as plant, machinery,
building, furniture, vehicles etc. Fixed assets are subject to depreciation.
Long Term Assets –These are the assets of the business that are receivable after twelve months of the
balance sheet date. For example, if business has invested some money for two years in any saving
scheme or has purchased saving certificates for more than one year, it is a long term asset.
Current Assets – Current Assets includes cash in hand & in bank account & the receivables that are
expected to be received within one year of the balance sheet date. Closing stock & all accrued incomes
are the examples of Current Assets because these are expected to be received within one accounting
period from the balance sheet date.
2. Intangible assets which have no physical existence like, trademark, patents/ copyright and goodwill etc.
A Trademark is a legally protected brand name, slogan or design of a product or firm. A registered
trademark cannot be used by another company, because the firm that owns it used its resources to
develop & establish that trademark.
Patents give an exclusive right to a product or process to the holder of the patent. Like a trademark,
this protects the company or person who developed the product or process from having their work
exploited by others.
Goodwill- This is simply the value attached to the good reputation earned through good and clean
conduct of business over a number of years. This good reputation also has a value and becomes part of
investment in business.
Stock:
Stock is the quantity of unsold goods lying with the organization.
Stock is termed as “the value of goods available to the business that are ready for sale”. For accounting
purposes, stock is of two types:
1. In trading concern, Stock consists of goods that are purchased for the purpose of resale, but not sold
in that accounting period. Trading concern is that organization, which purchases items for resale
purposes.
2. In manufacturing concern, (an organization that converts raw material into finished product by
putting it in a process) stock consists of:
Raw material is the basic part of an item, which is processed to make a complete item.
Work in Process: In manufacturing concern, raw material is put into process to convert it into
finished goods. At the end of the year, some part of raw material remains under process. It is neither in
shape of raw material nor in shape of finished goods. Such items are taken in stock as work in process.
Finished goods contain items that are ready for sale, but could not be sold at the end of accounting
period.
Opening stock is the value of goods available for sale in the beginning of an accounting year. Closing Stock
of previous year is the opening stock in present year (current year).
Closing stock is the value of goods unsold at the end of accounting period. For purposes of making financial
statements, it is deducted from cost of goods sold & is shown as a current asset in the Balance Sheet.
As this is the value of goods that are yet to be sold, so it cannot be included in cost of goods sold. That is why
it is deducted from cost of good sold. On the other hand, its benefit will be received in the next accounting
year, so it is shown as an asset in the balance sheet.
Liabilities:
Liabilities are debts and obligations of the business.
Classification of Liabilities:
Long Term Liabilities – These are the liabilities that will become payable after a period of more than one
year of the balance sheet date. For example, if business has taken a loan from bank or any third person and it is
payable after three years, it will be treated as a long term liability for the business.
Current Liabilities – These are the obligations of the business that are payable within twelve months of the
balance sheet date.
Accrued Expenses Payable :( Current Liabilities)
Accrued means recorded but not paid, collected or allocated.
The accrued expenses account sums up all of the other money that the company owes to companies and
individuals it does business with, including employees and independent contractors, attorneys and other
outside professionals, & utilities such as the electric & telephone companies who have not been paid for
services rendered on the date of the balance sheet.
Asset is a right to receive and liability is an obligation to pay, therefore, these are opposite to
each other.
Account Payable:
An amount owed to a supplier for good or services purchased on credit; payment is due within a short time
period, usually 30 days or less.
Notes Payable:
A liability expressed by a written promise to make a future payment at a specific time,
Income, Expenditure, and Profit & Loss
Income/Revenue is the value of goods and services earned from the operation of the business. It
includes both cash & credit. For example, if a business entity deals in garments. What it earns from the
sale of garments, is its income. If somebody is rendering services, what he earned from rendering
services is his income.
Expenses are the cost and the efforts made to earn the income, translated in monetary terms. It
includes both expenses, i.e., paid and to be paid (payable). Consider the above mentioned example, if
any sum is spent in running the garments business effectively or in provision of services, is termed as
expense.
Preliminary Expenses:
All expenses incurred up to the stage of incorporation of the company are called Preliminary Expenses.
All these expenses are incurred by subscribers of the company.
The accounting equation:
Resources in the business = Resources supplied by the owner
In accounting, terms are used to describe things. The amount of resources supplied by the owner is called
Equities. The actual resources which are in the business are called assets. This means that the accounting
equation above, when the owner has supplied all the resources, can be shown as:
Assets = Equities
Usually, people, other than the owner has supplied some of the assets. Liabilities are the name given to the
amounts owing to these people for these assets. The equation has now changed to:
Assets = Owner’s Equity + Liabilities
It can be seen that two sides of the equation will have the same totals. This is because we are dealing with the
same thing with two different points of view. It is:
Resources in the business = Resources: who supplied them
Assets = Owner’s Equity + Liabilities
It is a fact that total of each side will always equal one another, and this will always be true no matter how
many transactions there may be. The actual assets, Owner’s Equity and liabilities may change, but the total of
the assets will always equal to the total of Owner’s Equity and liabilities.
Owner’s Equity:
Owner’s equity means owner’s rights in the business & it includes capital of the owner & his drawing in the
business.
A corporation will always have an account for stock on the balance sheet, although a
proprietorship/partnership will not have accounts for stock but will show the owner’s equity in the form of
capital contributions and retained earnings.
A company may issue several classes of stock, each with different features such as dividend policies and
voting rights.
This simply means that the shareholders own the assets & owe the liabilities. After you subtract what
is owed from what is owned, you have the actual stake the owner’s have in the company, & the actual
value of the company. Owner’s equity is also called “net worth”.
Equity:
Equity is the total of capital, reserves and undistributed profit. That means the amount contributed by share
holders plus accumulated profits of the company. Equity, therefore, represents the total of shareholders fund in
the company.
Capital:
Additional Paid-in-Capital:
When a company issued its stock. The stock has a “par value”, a value assigned to a share of stock by the
organization ($1, or $5, or $10 a share). This value does not determine the selling price (that is market value)
of the stock. The selling price is the price the investor actually pays per share is determined in the market.
The amount paid to the company in excess of the par value of the stock is counted as “additional paid-in-
capital”.
It is capital paid into the company in addition to the stock’s par value.
Additional paid-in-capital is also known as “paid-in-surplus”.
Retained Earnings:
When the organization earns a profit for a period, it can only do one of two things with the money (profit).
Distribute it in the form of dividends or retain it in the organization to finance more assets.
Any income not distributed as dividends goes into retained earnings. It is thus reinvested in the organization &
becomes part of the capital that finances the organization.
Drawing:
Whenever the owner wants to take cash or goods out of the business for personal use. This is known as
drawing.
Any money taken out as drawings will reduce capital.
Sometimes goods are also taken by the owner of the business. These are also known as drawings.
Debit and Credit:
Debit and Credit are two Latin words and as such it is difficult to say what do these mean. But we can develop
an understanding as to what does these terms stand for.
Debit
It signifies the receiving of benefit. In simple words it is the left hand side. DEBIT is a record of an
indebtedness; specifically an entry on the left-hand side of an account constituting an addition to an expense or
asset account or a deduction from a revenue, net worth, or liability account.
Credit
It signifies the providing of a benefit. In simple words it is the right hand side. CREDIT, in accounting, is an
accounting entry system that either decreases assets or increases liabilities or owner’s equity.
Rules of Debit and Credit:
For Debit,
Any account that obtains a benefit is Debit.
OR
Anything that will provide benefit to the business is Debit.
Both these statements may look different but in fact if we consider that whenever an account benefits as a
result of a transaction, it will have to return that benefit to the business then both the statements will look like
different sides of the same picture.
For credit,
Any account that provides a benefit is Credit.
OR
Depreciation account is charged to profit & loss account under the heading of Administrative Expenses.
In the balance sheet, fixed assets are presented at written down value i.e. WDV
WDV = Actual cost of fixed asset – Accumulated Depreciation.
Fixed assets are also called “Depreciable Assets”.
Useful Life:
Useful Life or Economic Life is the time period for machine is expected to operate efficiently.
It is the life for which a machine is estimated to provide more benefit than the cost to run it.
Accumulated Depreciation:
(1)
General
Journal
(8) (2)
Prepare an Posting in
After Closing ledger
Trial Balance
(7)
(3)
Journalize and Accounting
Preparing trial
Post Closing
Entries
Cycle balance
(6)
(4)
Prepare
Making
Financial
adjusting Entries
statements (5)
Prepare an
Adjusted Trial
Balance
Final Account:
The term final accounts means statements which are finally prepared to show the profit earned or loss suffered
by the firm & financial state of affairs of the firms at the end of the period concerned.
1- Income Statements/The profit & loss Account/Statements of operations
2- Balance Sheet/ Position Statements/ State of Financial Condition
Work Sheet:
The work sheet is an analytical device which accumulate data for the adjusting * closing entries & working
paper for the accountant & for analyzing the trial balance in order to prepare the financial statements.
It should be noted that it is not a part of the accounting records.
It is simply a working paper which is prepared by the accountant for his own convenience.
It makes the construction of financial statements easy, convenient and accurate at the end of the year.
It is usually prepared in pencil
Fluctuation:
Fluctuation is the increase & decrease in market value of an asset.
Amortization:
The reduction in the value of an intangible asset taken as an expense written off in each accounting period.
Depletion:
The reduction in the value of a natural resource asset due to “using up” the natural resources.
Example:
Using up (depletion) of gravel deposits petroleum resources, or other natural resources properly/timber trees
etc.
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Reserves:
Reserve means an amount set aside out of profits or other surpluses either for the purpose of retaining profit in
the business as additional working capital or to provide for some anticipated loss/liability.
Capital Reserve and Fixed Asset Replacement Reserve are used for specific purpose. These are not distributed
among share holders. General Reserve and undistributed profit` can be distributed among share holders.
Revaluation Reserve is created when an asset is re-valued from cost to market value.
Revaluation Reserve can not be distributed among the share holders. It can be utilized for:
Setting off any loss on revaluation
At the time of disposal of asset, the reserve relating to that asset is transferred to profit & loss account.
Reserves Fund:
If the amount of reserve is invested outside the business in Govt: papers or in securities, then it is called
reserve funds.
Term Finance Certificate:
Term Finance Certificates are issued for a defined period. These are also issued to obtain loan from public at
large. Both Debentures and Term Finance Certificates are usually issued by Public Companies.
Marketable Securities:
Marketable securities are short-term investments, usually in U.S govt. securities or the commercial paper of
other firms. Securities have short maturities and stable prices, because of their liquidity these securities are
referred to as “Near-Cash-Assets”.
Commercial paper is the name for short-term promissory notes issued by large banks and corporations.
Realization Concept:
This concept emphasizes that profit should be considered only when realized. The question is at what stage
profit should be deemed to have accrued? Whether at the time of receiving the order or at the time of execution
of the order or at the time of receiving the cash? For answering this question the accounting is in conformity
with the law and Recognizes the principle of law i.e., the revenue is earned only when the goods are
transferred. It means that profit is deemed to have accrued when property in goods passes to the buyer, viz.,
when sales are made.
2. Accounting Conventions:
The term "conventions" includes those customs or traditions which guide the accountants while preparing the
accounting statements. The following are the important accounting conventions.
1. Convention of Disclosure
2. Convention of Materiality
3. Convention of Consistency
4. Convention of Conservatism
Convention of Disclosure:
The disclosure of all significant information is one of the important accounting conventions. It implies that
accounts should be prepared in such a way that all material information is clearly disclosed to the reader. The
term disclosure does not imply that all information that any one could desire is to be included in accounting
statements. The term only implies that there is to a sufficient disclosure of information which is of material in
trust to proprietors, present and potential creditors and investors. The idea behind this convention is that any
body who want to study the financial statements should not be mislead. He should be able to make a free
judgment. The disclosures can be in the way of foot notes. Within the body of financial statements, in the
minutes of meeting of directors etc.
Convention of Materiality:
It refers to the relative importance of an item or even. According to this convention only those events or items
should be recorded which have a significant bearing and insignificant things should be ignored. This is
because otherwise accounting will be unnecessarily over burden with minute details. There is no formula in
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making a distinction between material and immaterial events. It is a matter of judgment and it is left to the
accountant for taking a decision. It should be noted that an item material for one concern may be immaterial
for another. Similarly, an item material in one year may not be material in the next year.
Convention of Consistency:
This convention means that accounting practices should remain unchanged from one period to another. For
example, if stock is valued at cost or market price whichever is less; this principle should be followed year
after year. Similarly, if depreciation is charged on fixed assets according to diminishing balance method, it
should be done year after year. This is necessary for the purpose of comparison. However, consistency does
not mean inflexibility. It does not forbid introduction of improved accounting techniques. If a change becomes
necessary, the change and its effect should be stated clearly.
Convention of Conservatism:
This convention means a caution approach or policy of "play safe". This convention ensures that uncertainties
and risks inherent in business transactions should be given a proper consideration. If there is a possibility of
loss, it should be taken into account at the earliest. On the other hand, a prospect of profit should be ignored up
to the time it does not materialise. On account of this reason, the accountants follow the rule 'anticipate no
profit but provide for all possible losses'. On account of this convention, the inventory is valued 'at cost or
market price whichever is less.' The effect of the above is that in case market prices has gone down then
provide for the 'anticipated loss' but if the market price has gone up then ignore the 'anticipated profits.'
Similarly a provision is made for possible bad and doubtful debt out of current year's profits.
Critics point out that conservatism to an excess degree will result in the creation of secrets reserves. This will
be quite contrary to the doctrine of disclosure.
Letter of credit
L/C is a binding document that a buyer can request from his bank in order to guarantee that the payment for
goods will be transferred to the seller. Basically, a letter of credit gives the seller reassurance that he will
receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the
necessary shipping documents confirming the shipment of goods within a given time frame. It is often used in
international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political
instability.
Bill of exchange
An unconditional order issued by a person or business which directs the recipient to pay a fixed sum of money
to a third party at a future date. The future date may be either fixed or negotiable. A bill of exchange must be
in writing and signed and dated. It is also called draft.
HIDAYAT ULLAH KHAN WAZIR
MBA FINANCE
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FM is the procedure of managing financial resources as well as how to find and use best way of investments
and financing opportunities in an ever-changing and increasingly complex environment.
OR
Financial Management is concerned with the acquisition, financing, and management of assets with some
overall goal in mind.
Finance:
Finance is the art & science of managing financial resources in an optimal pattern i.e. the best use of available
financial sources
Financing:
The way in which a proposed purchaser intends to make up the difference between cash on hand and the
purchase price.
Financial Services:
The part of finance concerned with design & delivery of advice & financial products to individuals, business &
government.
Why should we study FM?
First of all, financial management is a core life skill; almost every one needs to understand some concepts of
finance to manage his business & personal finances.
It is generally and quite rightfully said, “Money makes the world go round”. Finance is like a life-blood for a
company. Even the best of the companies and CEOs go out of the business because of poor financial
management policies.
Working capital
Working capital of the business is the net value of current assets & current liabilities.
Working Capital = Current Assets – Current Liabilities
(a) Liquidity ratios
Liquidity Ratios are used to measure a firm’s ability to meet short-term obligations.
They compare short-term obligations to short-term (or current) resources available to meet these obligations.
I. Current Ratio:
Current ratio is a ratio between current assets and liabilities, which tells that for every rupee in current
liabilities, how many current assets do the company possess.
Generally, the higher the ratio, the better it is considered, but too high a ratio may imply less productive use of
current assets. A ratio of two to one (2:1) is considered ideal.
= Current Assets / Current Liabilities
Current assets should be twice the current liabilities. It should however be noted that too high ratio may
indicate that capital is not being used productively and efficiently. Such a situation calls for financial
reorganization.
II. Quick ratio:
This is also called acid-test ratio. In this, inventories and pre-paid expenses are excluded from current assets.
Only cash, marketable securities and Receivables (called Quick Assets) are considered. For Quick Ratio, the
normal ratio is 1:1 i.e. quick assets should be equal to current liabilities. It should be noted that current ratio
measures “general liquidity”, whereas quick ratio measures “immediate liquidity”.
= (Current Assets – Inventory- pre-paid expenses)/ Current Liabilities
IV. Cash Ratio
= Cash Equivalents + Marketable Securities/ Current Liabilities
The cash ratio indicates the most immediate liquidity of the firm. A high cash ratio indicates that the firm is
not using its cash to its best advantages; cash should be put to work in the operations of the company.
(b) Profitability ratios:
Profitability ratios measures the company’s earning power & management’s effectiveness in running
operations.
The profitability ratios show the combine effects of liquidity, asset management, and debt management on
operating result.
I. Gross Profit Margin (on sales):
One of the most commonly used ratios is G.profit margin on sales. This ratio tells the percentage of profit for
every dollar of revenue earned. This ratio is usually expressed in terms of percentage and the general rule is,
the higher the ratio, the better it is.
= [Net Profit / Sales] X 100
First of all, we can see the initial investment represented by the downward arrow. We have also forecasted the
sales one year from now that is Rs.200, 000. This is a cash inflow for the business and is represented by an
upward arrow; similarly, the expenses and investments (cash outflows) that we expect in future, will be shown
by the downward arrows. In the diagram there are three arrows, the upward one is showing forecasted sales
(cash inflow) and two arrows downward show expenses of Rs.50, 000 and invest outlay of Rs.30, 000
respectively. Now the combined effect of the three arrows can be represented by a single arrow. We can see
that cash inflow of Rs.200,000 is having a +ve sign and expenses of Rs.50,000 and investment out lay of
Rs.30,000 have –ve signs and finally, by deducting the negative signed figures from the positive one we can
arrive at the net effect of the cash inflows and outflows, which is given as under
200,000-50,000-30,000 =Rs 120,000.
These different arrows can be added or subtracted because they are occurring at the same point of time and
Rs.120, 000 can be shown by one arrow sign. In order to calculate the present value of Rs.120, 000, rate of
interest as discount factor should be 10% per year.
Use Downward Pointing Arrows to show Cash Outflows (Cash Payments or Expenses or Investments). Use
Upward Pointing Arrows to show Cash Inflows (Cash Receipts ie. Cash Revenue or Income)
Let’s do a simple numerical example which will help us what an annuity calculation is like
Example:
Assume that we need to make a basic financial decision, whether to purchase a particular asset or to get it on
lease (installments).
A car has a Market Value today of Rs 150,000. If you get the car on Lease Financing, then you are required to
pay a fixed regular rental at a fixed interest rate to the Leasing Company. You are allowed to use the car but
the ownership of the car stays in the name of the Leasing Company until you complete all your rental
payments. The question is whether you should Lease the car or Buy it?
The Leasing Company quotes Rs 120,000 every year for 2 years in the form of Car Lease Rental at a Nominal
rate of interest (APR interest rate) of 20% pa. Then what is the total Future Value you would have paid after 2
Now we calculate the present value of the investment by using Time value of money concept.
First, we need to calculate the future value by using annuity formula
FV =CCF (1 + ) - 1]/ i
=120,000[ (1 + 0.2) -1]/0.2
= Rs 264,000 (yearly compounding)
If we deposit the amount annually in a bank at the rate of 20 percent, we would be able to get Rs 264,000 at
the end of the second year. Now we will calculate what the present value of this future value is going to be,
and for this, we will use the old interest rate formula
PV = FV/ (1 + )
= 264,000 / (1 + 0.2)
= Rs 183,333
The resulting amount is about Rs 33,000 more than what we would have originally paid if we had bought the
car rather than lease it
The above calculation, however, was not based on realistic assumptions because car lease rentals are generally
paid monthly, rather than annual payments. In fact, you pay Rs 10,000 per month for 2 years. We use periodic
interest rate (i/m). Now, what is the future value after 2 years? Our cash flow diagram should present the
monthly installments & not annual Payments.
It can be argued that by paying a rental of 10,000 monthly, we are actually paying Rs 120,000 in a year, so
there hardly any difference. But, by not realizing the difference, one is violating the time value of money
because cash flows occurring at different points of time cannot be subtracted or added.
It is the cardinal principle of Time value of money.
If we have to calculate the future value of the annuity on a monthly basis, we would use the following formula.
= CCF X {( + ( / ) ∗ -1}/i/m}
Now the m= 12 compounding cycle in a year
Putting the values in the formula, we obtain the result as under.
FV2=Rs 292,150
Now, we can calculate the present value of the future value of annuity
PV = FV / (1+i) n
=292150/(1+.2/12)2x12
=196,481
IRR is calculated by a trial and error method or iteration. Finding the value of an unknown variable may
involve solving of higher degree polynomial equations and the easiest way to go about it is to use trial and
error method.
In a trial-and-error method, we tryout a value of ‘i’, and see if the equation comes to the value of zero; if it
does not, try another value, even if the second value does not bring the equation down to zero and so on. The
higher the IRR, the better it is considered, however, which value of the IRR can be considered as acceptable is
difficult to measure.
Another important distinction needs to clarification here is that the internal rate of return is different from the
discounting rate that we use in the calculation of the NPV. In the NPV formula, we used the discount rate as
the required rate of return that we expected the project to generate. In case of IRR, we used the existing cash
flows to find the forecasted return. These two different interpretations of
‘i’ should be kept in mind while calculating NPV and IRR.
We can calculate the IRR for the café project in the following manner. Using the same formula of NPV, we
can put the values in the formula
IRR Equation:
NPV= -IO +CF1/ (1+IRR) + CF2/ (1 + IRR)
= 0= -200,000 + 120,000/ (1+0.1) + 240,000/ (1 + 0.1)
Solving the equation assuming IRR to be 10 percent, we have obtained a figure of 107,483, which was
calculated as our NPV for the café project. However, in order to bring the NPV down to zero, we need to
apply a higher rate as an assumed IRR. If we assume IRR to be 50 percent the equation can be solved as
follows.
NPV= -IO +CF1/ (1+IRR) + CF2/ (1+IRR)/(1 + IRR)
= 0= -200,000 + 120,000/(1+0.5) + 240,000/(1 + 0.5)
The calculation gives us a figure of -13,333, which is lesser than zero. In order to bring the value equal to zero
we would use a rate lesser than 50 percent.
Trying out various IRR rates, we can finally reach a rate of 43.6 percent at which the value of NPV would
come down to -48 which is close to zero. If we try out IRR with more decimal places, we can bring the value
of NPV equal to zero. However, with approximation, 43.6 percent is the actual IRR of the project.
Risk and Return
“The chance of financial loss or, more formally, the variability of returns associated with a given asset”.
When we talk about risk with the reference to the investment we are talking about risk in term of the
uncertainty in outcome of our investment. We are talking about the variability, spread, or volatility that can
take place in the expected future Value (Cash Flows) or Returns. For example, we are asking ourselves if we
invest Rs 1,000 for buying a share today then what will be the price of the share one year from now. There is
no guarantee about the price of the share after one year therefore there is an uncertainty or risk we are taking
because we do not know the final outcome. So, the difference or variation in the possible outcomes of a
particular investment also represents the riskiness of a particular investment.
Direct Securities: Direct securities include stocks and bonds. While valuing direct securities we take
into account the cash flows generated by the underlying assets.
Discounted Cash Flow (DCF) technique is often used to determine the value of a stock or bond.
Indirect Securities: Indirect securities include derivatives, Futures and Options
The securities do not generate any cash flow; however, its value depends on the value of the underlying asset.
Stocks (or Shares):
Stocks (or Shares) are paper certificates representing ownership in a business. Therefore, if a company has
issued 1 million shares and an investor owns 1 share only, he is a part owner (or shareholder) of the company.
Stocks or shares are represented in the equity section of the balance sheet. A stock certificate is perpetuity, i.e.,
it lasts as long as the company does. Shareholders have a residual claim (last claim) on whatever net income
(or profit) and assets are left over after the bondholders have been fully paid off. It is the most common source
of raising funds under Islamic Shariah. Shares are traded in Stock market e.g. Karachi Stock Exchange (KSE),
Lahore Stock Exchange (LSE) & Islamabad Stock Exchange (ISE).
Types of Stocks
Common stock represents the basic equity ownership in a corporation Common shareholders receive
dividends, or portion of the net income which the management decides, NOT to reinvest into the
company in the form of retained earnings.
Dividends are paid in proportion to the number of shares the stockholders own and are announced by
the board of directors, who may opt not to announce a dividend in a particular year. Common
Stockholders have voting rights to elect the board of directors.
Preferred stock is an equity which has characteristics of both bonds and common stock. It is the stock
with a predetermined or fixed dividend. In case, the board of directors announces dividends, the
preferred stockholders would have a priority claim on them, i.e., they would be paid dividends before
Call Provision:
The right (or option) of the Issuer to call back (redeem) or retire the bond by paying-off the Bondholders
before the Maturity Date. When market interest rates drop, Issuers (or Borrowers) often call back the old
bonds and issue new ones at lower interest rates.
Bond Ratings & Risk:
Bonds are rated by various Rating Agencies:
Internationally: Moody’s, S&P.
In Pakistan: PACRA, VIS.
International Bond Rating Scale (starting from the best or least risky): AAA, AA, A, BBB, BB, B, CCC, CC,
C, D. Also + is better and - is worse. So A+ is better than A. A- is worse than A. In Pakistan, Pakistan Credit
Rating Agency (PACRA) and Vital Information Services (VIS) are actively conducting analysis of corporate
securities and grading them.
Based on future Risk Potential of the company that is the Issuer of the bond.
Bond risk increases with:
Operating losses (check Cash Flow Statement and P/L)
Excessive borrowings or debt (check Balance Sheet)
Large variations in income
Small size of business
Country and foreign exchange rate risk
Types of Bonds:
Mortgage Bonds: backed & secured by real assets
Subordinated Debt and General Credit: lower rank and claim than Mortgage Bonds.
Debentures: Debentures are the most general corporate bonds. They're backed by the credit of the
issuer, rather than by any specific assets. These are not secured by real property, risky
Floating Rate Bond: It is defined as a type of bond bearing a yield that may rise and fall within a
specified range according to fluctuations in the market. The bond has been used in the housing bond
market
Eurobonds: it issued from a foreign country
Zero Bonds & Low Coupon Bonds: no regular interest payments (+ for lender), not callable (+ for
investor)
Junk Bonds & High Yield Bonds: Corporations that are small in size, or lack an established
operating track record are also likely to be considered speculative grade. Junk bonds are most
commonly associated with corporate issuers. They are high-risk debt with rating below BB by S&P.
Convertible Bonds:
A convertible bond is a bond which can be converted into the company's common stock. You can exercise the
convertible bond and exchange the bond into a predetermined amount of shares in the company. The
conversion ratio can vary from bond to bond. You can find the terms of the convertible, such as the exact
number of shares or the method of determining how many shares the bond is converted into, in the indenture.
For example a conversion ratio of 40:1 means that for every bond (with Rs.1,000 par value) you hold you can
exchange for 40 shares of stock. Occasionally, the indenture might have a provision that states the conversion
ratio will change through the years, but this is rare. Convertibles typically offer a lower yield than a regular
bond because there is the option to convert the shares into stock and collect the capital gain. But, should the
company go bankrupt, convertibles are ranked the same as regular bonds so you have a better chance of
getting some of your money back
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The term economics came from the Greek for oikos (house) and nomos (custom or law), hence "rules of the
household.
Branches of economics
Normative economics:
Normative economics is the branch of economics that incorporates value judgments about what the economy
should be like or what particular policy actions should be recommended to achieve a desirable goal. Normative
economics looks at the desirability of certain aspects of the economy. It underlies expressions of support for
particular economic policies. Normative economics is known as statements of opinion which cannot be proved
or disproved, and suggests what should be done to solve economic problems, i-e unemployment should be
reduced. Normative economics discusses "what ought to be".
Examples:
1- A normative economic theory not only describes how money-supply growth affects inflation, but it also
provides instructions that what policy should be followed.
2- A normative economic theory not only describes how interest rate affects inflation but it also provides
guidance that what policy should be followed.
Positive economics:
Positive economics, by contrast, is the analysis of facts and behavior in an economy or “the way things are.”
Positive statements can be proved or disproved, and which concern how an economy works, i-e unemployment
is increasing in our economy. Positive economics is sometimes defined as the economics of "what is"
Examples:
1- A positive economic theory might describe how money-supply growth affects inflation, but it does not
provide any instruction on what policy should be followed.
2- A positive economic theory might describe how interest rate affects inflation but it does not provide any
guidance on whether what policy should be followed.
We the people: includes firms, households and the government.
Goods are the things which are produced to be sold.
Services involve doing something for the customers but not producing goods.
Factors of production
Factors of production are inputs into the production process. These are the resources needed to produce goods
and services. The factors of production are:
Land includes the land used for agriculture or industrial purposes as well as natural resources taken
from above or below the soil.
Capital consists of durable producer goods (machines, plants etc.) that are in turn used for production
of other goods.
Labor consists of the manpower used in the process of production.
Entrepreneurship includes the managerial abilities that a person brings to the organization.
Entrepreneurs can be owners or managers of firms.
Scarcity:
Scarcity does not mean that a good is rare; scarcity exists because economic resources are unable to supply all
the goods demanded. It is a pervasive condition of human existence that exists because society has unlimited
Price discrimination (PD) happens when a producer charges different prices for the same product to different
customers. A seller with a degree of monopoly power has the ability to price discriminate. This means being
able to charge a different price to different customers.
(ii) Monopsony
A monopsony is a market in which there is a single buyer. Monopsony power is the ability of the buyer to
affect the price of the good and pay less than the price that would exist in a competitive market.
Example:
Nominal GDP was $150 billion in 1985
& $300 billion in 1994
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ASSUME that prices have risen by 50% over the period.
Real GDP in 1994 measured in 1985 prices:
= $300 billion x 100/150 = $200billion
Hypothetical economy
Year 1 Year 2
Apples produced 100 150
Chicken produced 100 140
Value added is the increase in the value of a good at each stage of the production process. The value that's
being increased is specifically the ability of a good to satisfy wants and needs either directly as consumption
good or indirectly as a capital good. A good that provides greater satisfaction has greater value. In essence, the
whole purpose of production is to transform raw materials and natural resources that have relatively little value
into goods and services that have greater value.
Final and Intermediate Goods:
GDP might be calculated at market prices (includes sales tax paid by consumer as part of the final price) or at
factor cost (excludes sales tax). If there is no sales tax, the two measures collapse to the same thing.
Final good:
A good (or service) that is available for purchase by the ultimate or intended user with no plans for further
physical transformation or as an input in the production of other goods that will be resold. Gross domestic
product seeks to measure the market value of final goods. Final goods are purchased through product markets
by the four basic macroeconomic sectors (household, business, government, and foreign) as consumption
expenditures, investment expenditures, government purchases, and exports.
Intermediate good:
A good (or service) that is used as an input or component in the production of another good. Intermediate
goods are combined into the production of finished products, or what are termed final goods. Intermediate
goods will be further processed before sold as final goods. Because gross domestic product seeks to measure
the market value of final goods, and because the value of intermediate goods are included in the value of final
goods, market transactions that capture the value of intermediate goods are not included separately in gross
domestic product. To do so would create the problem of double counting.
Difference between total value and value added:
Firm A:
Produces steel from raw iron and sells it for Rs 100,000 to firm B.
Firm B:
Buys steel worth Rs 100,000 then processes it to produce a car body worth Rs 200,000.
Firm C:
Buys the car body, adds the other parts etc. and sells complete car for Rs 450,000.
Value added or GDP:
Value of transactions: 100,000 + 200,000 + 450,000 = 750,000
GDP = Sum of the value added by each of the firms:
= 100,000 + (200,000 – 100,000) + (450,000 – 200,000)
= 100,000 + 100,000 + 250,000 = 450,000 GDP.
Also total expenditure of consumer on car = 450,000
The purchasing parity (PPP)
The purchasing power parity (PPP) is a measure of GDP recognizes the fact that a given amount of income in
one country might not be able to purchase the same quantity of goods and services in another country.
So, e.g. if China’ per capita income is 1/160th of Switzerland’s per capital income, it might be that goods and
services in China are much cheaper and therefore China’s per capita income does not need to grow 160 times
in order to deliver the same standard of living as in Switzerland. The PPP GDP per capita is therefore a more
sensible measure to use for comparison across countries at different levels of development. This is indeed the
reason why many international development organizations prefer this over simple GDP per capital.
The diagram summarizes some of the key influences on inflation. Reading from left to right:
Average earnings comprise basic pay + income from overtime payments, productivity bonuses,
profit-related pay and other supplements to earned income
Productivity measures output per person employed, or output per person hour. A rise in productivity
helps to keep unit costs down. However, if earnings to people in work are rising faster than
productivity, then unit labor costs will increase
The growth of unit labor costs is a key determinant of inflation in the medium term. Additional
pressure on prices comes from higher import prices, commodity prices (e.g. oil, copper and aluminum)
and also the impact of indirect taxes such as VAT and excise duties.
Prices also increase when businesses decide to increase their profit margins. They are more likely to
do this during the upswing phase of the economic cycle.
Cost Push Inflation
Cost-push inflation is an increase in input costs-wages, raw material & components which “push up” final
prices. Cost-push inflation occurs when businesses respond to rising production costs, by raising prices in
order to maintain their profit margins. There are many reasons why costs might rise:
Rising imported raw materials costs perhaps caused by inflation in countries that are heavily dependent on
exports of these commodities or alternatively by a fall in the value of the rupee in the foreign exchange
markets which increases the Pakistan price of imported inputs. A good example of cost push inflation was the
decision by Pakistan Gas and other energy suppliers to raise substantially the prices for gas and electricity that
it charges to domestic and industrial consumers at various points.
Rising labor costs - caused by wage increases which exceed any improvement in productivity. This cause is
important in those industries which are ‘labor-intensive’. Firms may decide not to pass these higher costs onto
their customers (they may be able to achieve some cost savings in other areas of the business) but in the long
run, wage inflation tends to move closely with price inflation because there are limits to the extent to which
any business can absorb higher wage expenses.
Higher indirect taxes imposed by the government – for example a rise in the rate of excise duty on alcohol
and cigarettes, an increase in fuel duties or perhaps a rise in the standard rate of Value Added Tax or an
extension to the range of products to which VAT is applied. These taxes are levied on producers (suppliers)
who, depending on the price elasticity of demand and supply for their products, can opt to pass on the burden
of the tax onto consumers. For example, if the government was to choose to levy a new tax on aviation fuel,
then this would contribute to a rise in cost-push inflation.
Pure inflation is a special case of inflation in which the prices of all the goods and services in the
economy are rising at the same rate. So if an economy produces three goods: apples, shirts and cars,
and they cost Rs. 5, Rs. 100 and Rs. 400,000 respectively in 1992, while the prices in 1993 are Rs. 6,
Rs. 120 and Rs. 480,000, and the prices in 1994 are Rs. 9, Rs. 180 and Rs. 720,000, respectively, then
we can say that there was pure inflation of 20% in 1993 (over 1992) and pure inflation of 50% in
1994 (Over 1993).
Measurement of inflation:
More generally, inflation (in % p.a.) is measured as
[(Pt - Pt-1)/Pt-1]*100
Where Pt refers to the average price level prevailing in year t, and Pt-1 is the average price level prevailing in
period t-1. The term average price level usually refers to the value of an index, like consumer price index or
producer price index etc., which weights the prices of goods according to their share in the total nominal GDP.
Dates Price level Inflation (%)
30th June 2000 100 ------
30th June 2001 105 5%
30th June 2002 107 1.9%
30th June 2003 120 12.1%
Money:
Any medium of exchange which is fully backed by the government of a country is called money. Real money
is that money which is fully backed by some precious thing or gold. Fiat money is not actually backed by the
government but the government just gives the warrantee that money can be converted into gold at any time.
Functions:
Medium of exchange: we use it to buy stuff..
Unit of account: the common unit by which everyone measures prices and values.
Store of value: transfers purchasing power from the present to the future.
Bank:
A bank is an institution which deals with money basically & may be even property on the country. An
organization, usually a corporation, chartered by a state or federal government, which does most or all of the
following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest
on them; discounts notes, makes loans, and invests in securities; collects checks, drafts, and notes; certifies
depositor's checks; and issues drafts and cashier's checks.
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Central Bank:
The generic name given to a country's primary monetary authority, such as the State Bank of Pakistan. Usually
has responsibility for issuing currency, administering monetary policy, holding member banks' deposits, and
facilitating the nation's banking industry.
The Balance of Payments (BOP):
BOP is an accounting record of a country’s transactions with the rest of the world.
Balance of trade means a statement that takes into account the total value of exports and imports of visible
commodities of a country during a year. On the other hand Balance of payments is a statistical statement of
income and expenditure both of the visible & invisible items of trade on international account during a
calendar year. Here a visible commodity is meant the commodities which when export or import are recorded
to the trade accounts at the ports. Invisible items are those items which are not shown in the trade accounts at
the time of their import such as services of banking, Shipping, insurance etc.
The balance of payments (or BOP) measures the payments that flow between any individual country and all
other countries. It is used to summarize all international economic transactions for that country during a
specific time period, usually a year. The BOP is determined by the country's exports and imports of goods,
services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners
(debits) and all payments and obligations received from foreigners (credits).
Balance of payments is one of the major indicators of a country's status in international trade, with net capital
outflow.
Fiscal policy is the government’s program with respect to the amount and composition of (i) expenditure: the
purchase of goods and services, and spending in the form of subsidies, interest payments on debt,
unemployment benefit, pension and other payments, (ii) revenues, i.e. taxes and non-tax fees (such as license
fees etc.) and (iii) public debt: borrowing to cover the excess of expenditure over revenues. Borrowing can be
done from three sources: domestic banks and the general public, the central bank (e.g. State Bank of Pakistan),
and foreign creditors.
Budget Deficit, Budget Surplus and Balanced Budget:
If i>ii: the government is said to be running a fiscal or budget deficit and so the government must borrow (or
raise debt) to cover the deficit; if i<ii: the government is said to be running a fiscal or budget surplus and so the
government can pay-off or reduce its debt; if i=ii: the government is said to be running a balanced budget and
the government’s net debt may remain constant.
Fiscal deficits and debt are often reported as a ratio of GDP. Although, there is no theoretical benchmark for
what constitutes a sustainable fiscal deficit or public debt ratio, the Maastricht criteria (for countries in the
European Union) is an important practical guide. It stipulates that fiscal deficit to GDP should be less than 3%
while public debt to GDP should be less than 60%.
Monetary policy: (money makes the world go round)
“Monitory policy is the deliberate exercise of the monetary authority’s power to induce expansion or
contraction in the money supply”.
Monetary policy is the process by which the government, central bank, or monetary authority manages the
supply of money, or trading in foreign exchange markets. Monetary policy is generally referred to as either
being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total
supply of money in the economy, and a contractionary policy decreases the total money supply.
Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates,
while contractionary policy has the goal of raising interest rates to combat inflation (or cool and otherwise
overheated economy). Monetary policy should be contrasted with fiscal policy, which refers to government
borrowing, spending and taxation.
Tools / instruments of monetary policy
Monetary policy can be defined as the central bank’s Programme, often changing on a daily basis, regarding
the direct or indirect control (through interest rates) of monetary conditions in the economy with a view to
managing aggregate demand and inflation. There are four major instruments of monetary policy:
I. Reserve ratio and SLRs: the central bank can impose and alter a mandatory reserve ratio for
commercial banks, and through that, affect the money multiplier. By extension, the central bank can force
commercial banks to comply with additional statutory liquidity requirements (SLRs) that work similarly to a
Managerial Economics:
Application of economic &
Decision science tools to solve
Managerial decision problems
Management decision problems (see the top of Fig) arise in any organization – be it a firm, a non- profit
organization (such as a hospital or a university), or a government agency- when it seeks to achieve some goal
or objective subject to some constraints. For example, a firm may seek to maximize profits subject to
limitations on the availability of essential inputs and in the face of legal constraints.
In all these cases, the organization faces management decision problems as it seeks to achieve its goal or
objective, subject to the constraints it faces. The goals and constraints may differ from case to case, but the
basic decision- making process is the same.
Relationship to Economic Theory:
The organization can solve its management decision problems by the application of economic theory and the
tools of decision science. Economic theory refers to microeconomics and macroeconomics.
Microeconomics is the study of the economic behavior of individual decision-making units, such as individual
consumers, resource owners, and business firms, in a free-enterprise system. Macroeconomics, on the other
hand, is the study of the total or aggregate level of output, income, employment, consumption, investment, and
prices for the economy viewed as a whole. Economic theories, which usually begin with a model, seek to
predict and explain economic behavior.
Relationship to the Decision Sciences:
Managerial economics is also closely related to the decision sciences. These use the tools of mathematical
economics and econometrics (see Fig.1) to construct and estimate decision models aimed at determining the
optimal behavior of the firm. Specifically, mathematical economics is used to formalize the economic models
postulated by economic theory. Econometrics then applies statistical tools (particularly regression analysis) to
real-world data to estimate the models postulated by economic theory and for forecasting.
Q = f(P,Y,Pc)
By collecting data on Q, P, Y and Pc for a particular commodity, we can then estimate the empirical
relationship. We will be able to know that how much in Q will occur by a change in P, Y and Pc. Also
forecasting is made possible
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Relationship to the Functional areas of Business Administration Studies
The relationship between managerial economics and the functional areas of business administration studies,
the latter include accounting, finance, marketing, personnel or human resource management, and production.
These disciplines study the business environment in which the firm operates and, as such, they provide the
background for managerial decision-making. Thus, managerial economics can be regarded as an overview
course that integrates economic theory, decision sciences, and the functional areas of business administration
studies; and it examines how they interact with one another as the firm attempts to achieve its goal most
efficiently.
Managerial economics is the use of economic theory and management science tools to examine how a firm can
achieve its objective most efficiently within the business environment in which it operates.
The Theory of the Firm
A firm is an organization that combines and organizes resources for the purpose of producing goods and / or
services for sale. These include proprietorships (firms owned by one individual), partnerships (firms owned by
two or more individuals), and corporations (owned by stockholders).
The functions of firms, therefore, is to purchase resources or inputs of labor services, capital, and raw
materials in order to transform them into goods and services for sale. Resources owners (workers and owners
of capital, land and raw materials) then use the income generated from the sale of their services or other
resources to firms to purchase the goods and services produced by firms. The circular flow of economic
activity is thus complete
The Objective and Value of the Firm:
Originally, the theory of the firm was based on the assumption that the goal or objective of the firm was to
maximize current or short-term profits. Since both short-term as well as long-term profits are clearly
important, the theory of the firm now postulates that the primary goal or objective of the firm is to maximize
the wealth or value of the firm. This is given by the present value of all expected future profits of the firm.
Future profits must be discounted to the present because a dollar of profit in the future is worth less than a
dollar of profit today.
Where PV is the present value of all expected future profits of the firm, represent the expected profits in each
of the n years considered, and r is the appropriate discount rate used to find the present value of future profits.
The Nature and Function of Profits:
Business versus economic profit:
To the general public and the business community, profit or business profit refers to the revenue of the firm
minus the explicit or accounting costs of the firm. Explicit costs are the actual out-of-pocket expenditures of
the firm to purchase or hire the inputs it requires in production. To the economist, however, economic profit
equals the revenue of the firm minus its explicit costs and implicit costs.
Implicit costs refer to the value of the inputs owned and used by the firm in its own production processes.
Specifically, implicit costs include the salary that the entrepreneur could earn from working for someone else
in a similar capacity (say, as the manager of another firm) and the return that the firm could earn from
investing its capital and renting its land and other inputs to other firms. Accordingly, economists include both
explicit and implicit costs in their definition of costs. That is, they include a normal return on owned resources
as part of costs, so that economic profit is revenue minus explicit and implicit costs. While the concepts of
business profit may be useful for accounting and tax purposes, it is the concept of economic profit that must be
used in order to reach correct investment decisions.
For example, suppose that a firm reports a business profit of $30,000 during a year, but the entrepreneur could
have earned $35,000 by managing another firm and $10000 by lending out his capital to another firm facing
similar risks. To the economists this entrepreneur is actually incurring an economic loss of $15,000 because,
from the business profit of $30,000 he would have to subtract the implicit or opportunity cost of $35,000 for
his wages and $10,000 for his capital.
Theories of Profit:
MARKETING
Marketing: It is the process of creating consumer value in the form of goods, services, or ideas that can
improve the consumer’s life.
Marketing is the organizational function charged with defining customer targets and the best way to satisfy
needs and wants competitively and profitably. Since consumers and business buyers face an abundance of
suppliers seeking to satisfy their everyday need, companies and nonprofit organizations cannot survive today
by simply doing a good job. They must do an excellent job if they are to remain in the increasingly
competitive global marketplace. This is what we say that survival of the fittest. Many studies have
demonstrated that the key to profitable performance is to know and satisfy target customers with competitively
superior offers. This process takes place today in an increasingly global, technical, and competitive
environment.
What is marketing?
Marketing is not only restricted to selling and advertising as is perceived but is More than it advertising it
identifies and satisfies customers needs. It functions revolve around wide relation variety and range of tasks
and activities mostly termed as functions related to 4ps i.e. Product, price, place and promotion. Marketing is
creating customer value and satisfaction is at the very heart of modern marketing thinking and practice.
b. A very simple definition of marketing is that it is the delivery of customer satisfaction at a profit.
c. Sound marketing is critical to the success of every organization.
“Marketing is a process of planning and executing the conception, pricing, promotion, and distribution of
ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.”
OR
“Marketing is a social and managerial process by which, individuals and groups obtain what they need and
want through creating and exchanging products and value with others”.
On-going
Process
Forced
Top management or
Internal Environment to
achieve
Programme
Budget
Performance
& Evaluation
Procedure
Strategy Formulation:
Strategy formulation means a strategy formulate to execute the business activities. Strategy formulation
includes developing:-
Vision and Mission (The target of the business)
Strength and weakness (Strong points of business and also weaknesses)
Opportunities and threats (These are related with external environment for the business)
Strategy formulation is also concerned with setting long term goals and objectives, generating alternative
strategies to achieve that long term goals and choosing particular strategy to pursue.
The considerations for the best strategy formulation should be as follows:
Allocation of resources
Business to enter or retain
Business to divest or liquidate
Joint ventures or mergers
Whether to expand or not
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Moving into foreign markets
Trying to avoid take over
Strategy Implementation:
Strategy implementation is often called the action stage of strategic management. Implementing means
mobilizing employees and managers in order to put formulated strategies into action. It is often considered to
be most difficult stage of strategic management. It requires personal discipline, commitment and sacrifice.
Strategy formulated but not implemented serve no useful purpose.
Strategy evaluation:
Strategy evaluation is the final stage in the strategic management process. Management desperately needs to
know when particular strategies are not working well; strategy evaluation is the primary means for obtaining
this information. All strategies are subject to future modification because external and internal forces are
constantly changing.
Nature of Strategic Management:
The strategic-management process does not end when the firm decides what strategy or strategies to pursue.
There must be a translation of strategic thought into strategic action. This translation is much easier if
managers and employees of the firm understand the business, feel a part of the company, and through
involvement in strategy-formulation activities have become committed to helping the organization succeed.
Without understanding and commitment, strategy-implementation efforts face major problems.
Implementing strategy affects an organization from top to bottom; it impacts all the functional and divisional
areas of a business. It is beyond the purpose and scope of this text to examine all the business administration
concepts and tools important in strategy implementation.
Prime task:
Peter Drucker says:
“The prime task is to think through the overall mission of a business”.
Key Terms in Strategic Management
Strategy:
“Strategies are the means by which long-term objectives will be achieved”.
“Strategy means long-term action plan to achieve basic long term goals & objectives of an
organization”.
Action plan are Steps that must be taken, or activities that must be performed well, for a strategy to succeed.
An action plan has three major elements (1) Specific tasks: what will be done and by whom. (2) Time horizon:
when will it be done? (3) Resource allocation: what specific funds are available for specific activities? It is
also called action program.
Strategies are potential actions that require top management decisions and large amounts of the firm's
resources. In addition, strategies affect an organization's long-term prosperity, typically for at least five years,
and thus are future-oriented. Strategies have multifunctional or multidivisional consequences and require
consideration of both external and internal factors facing the firm.
Strategists
Strategists are individuals who are most responsible for the success or failure of an organization. Strategists
are individuals who form strategies. Strategists have various job titles, such as chief executive officer,
president, and owner, chair of the board, executive director, chancellor, dean, or entrepreneur.
Vision Statements
Many organizations today develop a "vision statement" which answers the question, what do we want to
become? Developing a vision statement is often considered the first step in strategic planning, preceding even
development of a mission statement. Many vision statements are a single sentence. For example the vision
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statement of Stokes Eye Clinic in Florence, South Carolina, is "Our vision is to take care of your vision." The
vision of the Institute of Management Accountants is "Global leadership in education, certification, and
practice of management accounting and financial management."
Mission Statements
Mission statements are "enduring statements of purpose that distinguish one business from other similar firms.
A mission statement identifies the scope of a firm's operations in product and market terms. It addresses the
basic question that faces all strategists: What is our business? A clear mission statement describes the values
and priorities of an organization. Developing a mission statement compels strategists to think about the nature
and scope of present operations and to assess the potential attractiveness of future markets and activities. A
mission statement broadly charts the future direction of an organization. An example mission statement is
provided below for Microsoft.
Microsoft's mission is to create software for the personal computer that empowers and enriches people in the
workplace, at school and at home. Microsoft's early vision of a computer on every desk and in every home is
coupled today with a strong commitment to Internet-related technologies that expand the power and reach of
the PC and its users. As the world's leading software provider, Microsoft strives to produce innovative
products that meet our customers' evolving needs.
External Opportunities and Threats
External opportunities and external threats refer to economic, social, cultural, demographic, environmental,
political, legal, governmental, technological, and competitive trends and events that could significantly benefit
or harm an organization in the future. Opportunities and threats are largely beyond the control of a single
organization, thus the term external. The computer revolution, biotechnology, population shifts, changing
work values and attitudes, space exploration, recyclable packages, and increased competition from foreign
companies are examples of opportunities or threats for companies. These types of changes are creating a
different type of consumer and consequently a need for different types of products, services, and strategies.
Other opportunities and threats may include the passage of a law, the introduction of a new product by a
competitor, a national catastrophe, or the declining value of the dollar. A competitor's strength could be a
threat. Unrest in the Balkans, rising interest rates, or the war against drugs could represent an opportunity or a
threat. A basic tenet of strategic management is that firms need to formulate strategies to take advantage of
external opportunities and to avoid or reduce the impact of external threats. For this reason, identifying,
monitoring, and evaluating external opportunities and threats are essential for success.
Environmental Scanning:
The process of conducting research and gathering and assimilating external information is sometimes called
environmental scanning or industry analysis. Lobbying is one activity that some organizations utilize to
influence external opportunities and threats.
Environment scanning has the management scan external environment for opportunities and threats and
internal environment for strengths and weaknesses. The factor which are most important for corporation factor
are referred as a strategic factor and summarized as SWOT standing for strength, weaknesses, opportunities
and threats.
Environmental Scanning
The external environment consist of opportunities and threats variables that outside the organization.
External environment has two parts:
Task environment includes all those factors which affect the organization and itself affected by the
organization. These factor effects the specific related organizations. These factors are shareholders
community, labor unions, creditor, customers, competitors, trade associations.
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Social environment is an environment which includes those forces effect does not the short run
activities of the organization but it influenced the long run activities or decisions. PEST analysis are
taken for social environment PEST analysis stands for political and legal economic socio cultural
logical and technological.
Internal Strengths and Weaknesses/Internal assessments
Internal strengths and internal weaknesses are an organization's controllable activities that are performed
especially well or poorly. They arise in the management, marketing, finance/accounting,
production/operations, research and development, and computer information systems activities of a business.
Identifying and evaluating organizational strengths and weaknesses in the functional areas of a business is an
essential strategic-management activity. Organizations strive to pursue strategies that capitalize on internal
strengths and improve on internal weaknesses.
Strengths and weaknesses are determined relative to competitors. Relative deficiency or superiority is
important information. Also, strengths and weaknesses can be determined by elements of being rather than
performance. For example, strength may involve ownership of natural resources or an historic reputation for
quality. Strengths and weaknesses may be determined relative to a firm's own objectives. For example, high
levels of inventory turnover may not be strength to a firm that seeks never to stock-out.
Internal factors can be determined in a number of ways that include computing ratios, measuring performance,
and comparing to past periods and industry averages. Various types of surveys also can be developed and
administered to examine internal factors such as employee morale, production efficiency, advertising
effectiveness, and customer loyalty.
Objectives
Objectives can be defined as specific results that an organization seeks to achieve in pursuing its basic mission.
Long-Term Objectives
Long-term objectives represent the results expected from pursuing certain strategies. Strategies represent the
actions to be taken to accomplish long-term objectives. The time frame for objectives and strategies should be
consistent, usually from two to five years.
Objectives are essential for organizational success because they state direction; aid in evaluation; create
synergy; reveal priorities; focus coordination; and provide a basis for effective planning, organizing,
motivating and controlling activities. Objectives should be challenging, measurable, consistent, reasonable,
and clear. In a multidimensional firm, objectives should be established for the overall company and for each
division.
Goal: a desired future condition that the organization seeks to achieve in pursuing its resources.
Annual Objectives
Annual objectives are short-term milestones that organizations must achieve to reach long-term objectives.
Like long-term objectives, annual objectives should be measurable, quantitative, challenging, realistic,
consistent, and prioritized. They should be established at the corporate, divisional, and functional levels in a
large organization.
Annual objectives should be stated in terms of management, marketing, finance/accounting,
production/operations, research and development, and information systems accomplishments. A set of annual
objectives is needed for each long-term objective.
Annual objectives are especially important in strategy implementation, whereas long-term objectives are
particularly important in strategy formulation. Annual objectives represent the basis for allocating resources.
Policies
Policies are the means by which annual objectives will be achieved. Policies include guidelines, rules, and
procedures established to support efforts to achieve stated objectives. Policies are guides to decision making
and address repetitive or recurring situations.
PC-I (Planning Commission Pro forma-I --the pro forma statements are prepared on certain estimate, and
pro forma refers to forecasting)
PC-I It means to prepare a pro forma for development project.
PC-II it is used for putting up a proposal for the preparation of a feasibility study/report.
PC-III it is for monitoring the progress of developmental project both from financial & physical aspects.
PC-IV it is used to carry the evaluation of development work/project.
B Negotiate lease A 2
C Do renovations A,B 8
F Plan menu D 2
Total Time 41
Notice that in addition to identifying the tasks, you must put them in order. You must identify predecessor
tasks, that is, tasks that must be completed before others can begin. You must estimate the time each task will
consume.
Notice also that nine tasks in our restaurant example are not exhaustive. For simplicity we have left out
advertising, food purchasing, and so on.
Getting the picture:
The first step in CPM analysis is to chart the tasks visually in order to see the relationship among them.
Once you see the relationships, you realize that you can do certain tasks concurrently. In this example, you
might think of the project as having two tracks: a “Facilities Track” and a “Food Track.” The Facilities Track
(Tasks A, B, C, & E) involves getting the restaurant space ready. The Food Track (Tasks D, F, & G) involves
hiring the chef & crew & getting the menu squared away.
CPM helps you see how to “collapse” the project & get it finished in less elapsed time than the total project
will require. Here’s how to set it up with estimated times included.
The longest path through the project is called the Critical Path. In our example, that path extends from point
A to point I, and it will take a total of 23 weeks. This means that the total elapsed time of the project will be 23
weeks, even though the total project time is 41 weeks. That’s because the Facilities Track will take 18 weeks,
but the 16-week Food Track can be completed concurrently.
Note that the Food Track itself can be collapsed from 18 weeks to 16 weeks by planning the menu with the
chef while also hiring the crew. This does not improve the total elapsed time, but there is no reason not to get
whatever you can do in the most efficient way possible.
PERT:
PERT which stand for Program Evaluation and Review Technique, resembles Critical Path Method? PERT
was developed by the US Navy and the Lockheed Corporation for the Polaris missile system project in the late
1950s.
The major difference between PERT and CPM is that PERT enables you to make optimistic, pessimistic, and
“best guess” estimate of the time it will take to complete each task and the entire project. Then you calculate a
weighted average by assigning a value of 1 to the pessimistic and optimistic estimates, and a value of 4 to the
best guess. Then you plug the values into the following formula:
Estimated time = (Optimistic x 1) + (Best Guess x 4) + (Pessimistic x 1) / 6
(You divide by 6 because 1+4+1=6, and you are calculating a weighted average of the time estimates.)
Let’s say the guess estimate of a task’s duration is 10 weeks, the pessimistic estimate is 14 weeks, and the
optimistic estimate is 8 weeks. The PERT formula would calculate the estimated time as follows:
Estimated time = 8+ (10x4) + 14 /6
Estimated time = 62/6
The person must be a Chartered Accountant within the meaning of the Chartered Accountants Ordinance,
1961. For listed companies an auditor must have a satisfactory QCR (quality control review) rating issued by
ICAP.
What is an auditor’s report?
The primary aim of an audit is to enable the auditor to say “these accounts show a true and fair view” or, of
course, to say that “they do not show a true and fair view”.
At the end of his audit, when he has examined the entity, its record, and its financial statements, the auditor
produces a report addressed to the owners/stake holders in which he expresses his opinion of the truth and
fairness, and sometimes other aspects, of the financial statements.
Different types of audit?
1. Authority Basis:
a) Statutory Audit:
Independent persons conduct the statutory audit, it is compulsory for limited companies to get their accounts
audited by a chartered accountant, under the companies’ ordinance 1984, banking companies’ ordinance 1962,
insurance act 1938, and cooperative society’s rules 1927.
b) Private Audit: it is concerned with sole proprietors & partnership.
c) Internal Audit:
d) Government Audit: Post audit is the audit or review of Govt: finances after they have been
expended. The scope of post audit includes audit or review of transactions pertaining to the financial
operation of the various agencies of Govt: on the state levels, with verification of state revenues at the
source and audit of expenditure all the way through work to the recipient or beneficiary of the
services.
2) Scope Basis: Complete Audit, Partial Audit.
3) Purpose Basis: Management Audit, Cost Audit, Special Audit
4) Time Basis: Continuous Audit, Final Audit.
WHAT IS STATISTICS?
That science which enables us to draw conclusions about various phenomena on the basis of real data collected
on sample-basis.
“It is defined as the science of collection, presentation, analysis & interpretation of numerical data”.
Descriptive statistics:
The branch of statistics that deals with collection presentation and analysis of numerical data is called
descriptive statistics.
Pure statistics:
Pure statistics/theoretical statistics is mathematical & deals with general theories, formulae, equation & their
derivations.
Applied statistics deals with the application of statistical methods to concrete subject matter, such as
measurement of economic, commercial, social, agricultural, industrial, scientific and mental phenomena,
measurement of living organism, study of vital & population movements & actuarial principles.
Population consists of the totality of the observation with which we are concerned.
Data is a collection of any number of related observations.
Variables
A characteristic that varies with an individual or an object is called a variable. A variable is called a
quantitative variable when a characteristic can be expressed numerically such as age, weight, income or
number of children. On the other hand, if the characteristic is non-numerical such as education, sex, eye
colour, quality, intelligence, poverty, satisfaction, etc. the variable is referred to as a qualitative variable.
Primary data is the most original data and has not undergone any statistical treatment.
Secondary data is that data which has undergone the statistical treatment at least once.
Sample is the representative part of the population.
Parameter is numerical value calculated from population.
Statistic: is a numerical value calculated from sample
Frequency Distribution: A tabular arrangement of data in which various items are arranged into classes in a
group of data is called F.D.
Central Tendency: the value of average which is tend to lie in the center of distribution is called central
tendency.
Average: A value which is used in this way to represent the distribution.
Arithmetic Mean: A value that is obtained by summing all the value dividing by their number.
References:
The Complete Idiot’s Guide to MBA Basics By Tom Gorman
Principles of Accounting By M.A. Ghani
Introduction to Business By Professor M. Saeed Nasir
http://vustudents.ning.com/page/lecture-handouts
http://www.investorwords.com/
http://www.investorwords.com/term-of-the-day.html
http://www.investorguide.com/newsletters.php
http://www.google.com