1.

THE ENTERPRISE DEFINITION AND CLASSIFICATION

1.1 THE DEFINITION OF ENTERPRISE

An enterprise is an economic unit whose main goals are the production and marketing
of goods or services and gaining profit. To achieve its goals, the enterprise must find the
optimal combination between inputs used and take into account the quantity, composition and
quality requirements of goods and services imposed by the market.
The enterprises have a double role:
▪ An economic role: to produce goods or services, to create added value and, finally, to sell
what it produces in order to obtain profit
▪ A social role: -satisfies the needs of population
-contributes to the development of human civilization
-ensures a favorable working and living environment for employees
-contributes to the training and education of workers

An enterprise objective is expressed by an indicator, a level, a unit of measure, and a

determination over time. The most effective business objectives meet the following criteria:
S – are specific (to the business purpose)
M – are measurable - the goal can be quantified
A – are agreed - assumed by all those involved in the activity of the enterprise
R – are realistic - the goal must be a challenge (but at the same time it must be done with the
available resources)
T– are limited in time - there is a time limit until the goal has to be achieved

The main objectives of an enterprise are:

▪ survival - a short-term goal for small start-ups or when a new company enters on the
market (or even in times of crisis)
▪ maximizing the profit - trying to get the most possible profit
▪ obtaining a satisfactory profit (the target set for small businesses whose owners want to
limit their own efforts)
▪ sales growth
▪ business growth (involves mergers and takeover of other businesses)

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 ▪ ethical and social responsibility objectives

An enterprise may change its objectives over time due to the following reasons:
▪ the enterprise achieved its first established goal (they have to set a new target)
▪ the competitive environment undergoes serious changes
▪ technological evolution is causing changes on products

1.2 THE MAIN TYPES OF ENTERPRISES’ ORGANIZATION

Generally, four main types of organization are applied: sole proprietorships,

partnerships, private limited companies and public limited companies.
Sole proprietor is a business with only one owner. It has always been the most
common type of business organization in terms of the number of firms. However, the
contribution of sole proprietors to total output is relatively small. This is because the nature of
a firm that is owned by a single person does not lend itself to a prolonged and rapid growth in
size.
A major problem for the sole proprietor is in raising sufficient funds to finance
investment in the firm. For sole proprietors funds for investment can take many forms: retained
profit, bank borrowing, hire purchasing and leasing. The first way, retained profits, is available
to all firms that have been trading profitably for a period of time. The destination of any profit
in a sole proprietorship is either re-investment back into the firm or funds paid out to the
owner. The owner can therefore choose to put profits back into the business to finance
expansion and growth or take profits for purposes of personal or family consumption. The
availability of retained profits depends on the trading performance of the company in previous
years and on the owner’s attitude towards investment in the firm. The most prevalent method
of raising money is through bank borrowing.
The main reason for the large number of sole proprietors is the absence of any need
for complex and bureaucratic management structures. The owner is charged with all strategic
decision-making responsibility, with little or no need for the employment of specific managers
to run the business.

A partnership is a business in which responsibility for ownership is normally shared

between at least 2 and at most 20 partners. For a partnership funds are being provided by a
number of individuals and there is greater accessibility to larger amounts of capital. Further,
where external finance is required, banks and other financing institutions are usually more

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ready to lend and appropriate collateral for such loans is easier to acquire for a partnership. A
significant advantage of partnership is the pooling together of partners with skills in different
areas within the umbrella of one organization. Traditionally, partnerships have been the
organizational structure that has been associated with the professions (accountants, arhitects,
for example).

A private limited company is a firm that has issued a number of participating shares.
Company name ends with Ltd (limited). Ownership of a participating share means ownership
of a part of the company. This format of corporate structure entitles those who possess these
participating shares to limited liability, which is the most significant advantage for this type of
organization. Limited liability means that there is a distinction between what belongs to the
business and what is owned by the individual: the owner’s exposure is limited to the value of
participating shares held. The reason that these limited companies are referred to as private is
that their shares are not freely available to the general public.

The concept of the public limited company is similar to that of the private limited
company, in that it also has a legal identity independent of the people who created it or who
currently hold shares of ownership. A public limited company must have plc at the end of its
name. Public limited companies can invite the general public to subscribe to their shares. There
is also an unrestricted right for shareholders to transfer shares to anyone who offers them a
price that they are happy to accept. A public limited company will have its shares quoted on the
Stock Exchange, with the main advantage of that it allows the shares to be traded in large
volumes. Consequently, ownership of shares in this type of firm can be increased or decreased
at any time, depending on the perceived desirability of the shares. If it is judged that a company
is about to win a major contract, for example, the perception of the market is likely to be that
the company is going to report higher profits in the future. This will increase the attractiveness
of this firm to prospective share buyers. The demand for these shares will therefore increase,
together with their value.
In the case of a public limited company the number of shares runs into millions and
the number of shareholders can total hundreds of thousands, ranging from large financial
institutions which can own a significant percentage of the overall shares, to individuals, who
may only own one or two shares. All are owners of the firm, irrespective of the size of their
shareholding, and all have equal rights to vote on the strategic direction of the firm (assuming
ordinary shares are involved). The daily operation of a firm that required consensus by its
owners could not be achieved in the case of a public limited company because of the diversity

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of ownership. The shareholders will elect a Board of Directors to look after the strategic
decision-making of the business. They in turn will recruit managers to implement these
decisions in terms of day-to-day operations. The performance of the Board will be analyzed
and discussed by the shareholders at the Annual General Meeting. However, the views of the
vast majority of smaller investors in the company are usually either not heard or ignored. So,
the ownership of the business and the control of its operations may be in the hands of two
separate groups of people.

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 1. THE ENTERPRISE DEFINITION AND CLASSIFICATION

1.3 THE MAIN TYPES OF ENTERPRISES IN ROMANIA

In Romania, enterprises can set up and can organize their work in different forms.
1. Based on the importance to the national economy enterprises are classified into:
▪ national companies
▪ companies

The national companies are legal entities that are organized and function in strategic branches
of national economy (arms industry, mining and gas, post and rail transport). It can be of
national interest (established by Government decision) or of local
interest (established by decision of the county and municipal organs of state administration).
Companies are economic units with legal personality, created by free will and initiative of
investors, being fully autonomous in relation to third parties.

2. Based on the ownership form, there are:

• private enterprises - are owned by one or more private partners, united by free
will and initiative
• public companies – are full state ownership
• joint ventures - formed by joining public and the private capital.

3. After the capital origin there are:

• companies with domestic capital
• companies with foreign capital
• Joint-ventures with partly indigenous and partly foreign capital

4. Depending on the scope of activity there are:

• production companies (industrial, agricultural, construction)
• Commercial enterprises
• business service.
5. Depending on their size, companies can be divided into:
• small enterprises

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 • Medium enterprises
• large enterprises.

6. Depending on the way of capital formation and the liability limits to companies
obligations there are:
▪ Companies based on people – are formed by considering the individual members.
These companies are based on member’s personal qualities, knowledge and
mutual trust between them. This category includes partnership firm (rom.,
SOCIETATE IN NUME COLECTIV - SNC) and limited partnership (rom.,
SOCIETATE IN COMANDITA SIMPLA - SCS)
▪ Companies based on capital – the capital more important than the personal
qualities of those who are associated. This category includes: public limited
company / joint-stock company (rom., SOCIETATE PE ACTIUNI - SA) and
equity partnership company (rom. - SOCIETATE IN COMANDITA PE
ACTIUNI - SCA).

There is another type of companies: limited liability company Ltd (rom.,

SOCIETATE CU RASPUNDERE LIMITATA - SRL). The Limited Liability Company
combines some features of the companies based on people and of the companies based on
capital.

The partnership firm is formed through the contribution of at least two members. The capital
consists of participating shares that are not negotiable. The members liability is unlimited and
jointly. Unlimited liability means that there is no distinction between what belongs to the
business and what is owned by the individuals. In the case of bankruptcy all the possessions of
the owners can be seized and sold to pay the debts of the firm. The owners can be left with
nothing at all, not even his home or car.

The limited Partnership is constituted by the minimum intake of 2 associates. There are two
categories of associates:
▪ General partners – have unlimited and jointly liability for the company obligations
▪ Limited partners – have limited liability up to their share capital.
The limited partners provide the capital and can not become managers and not intervene in
business management. The general partners are those who manage the business and are
effectively responsible to the company's obligations.

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The capital consists of participating shares that are not negotiable.

The public limited company / joint-stock company is the most representative capital based
company. Its capital must be more than the equivalent of 25,000 euro (about 90,000 lei) and
consists of shares whose nominal value must be more than 0.1 lei. The shares will not be issued
for an amount less than face value. Number of shareholders must be more than 2, and their
liability is limited to their capital contribution. Current legislation states that a public limited
company may be established by subscription in full and simultaneous capital of the signers of
association or the public.

The equity partnership company is formed by two categories of shareholders:

• General shareholders - responsible jointly and severally liable for obligations of the company

• Limited shareholders – have limited liability up to their share capital.

The capital consists of shares, the minimum face value of a share is 0.1 lei. The capital must be
more than the equivalent of 25,000 euro (about 90,000 lei).

The limited liability company (Ltd) is the only type of organization that can be and act of will
of a single person. The minimum share capital limit for limited liability companies has been
eliminated (prior to this change, the minimum share capital limit for a limited liability
company was 200 lei). If it is a single-member company, he/she has all the rights and
obligations of the general meeting of associates. An individual or a legal entity can be sole
owner only in one limited liability Company. The participating shares are not negotiable and
can be transmitted between partners. The number of associates in a limited liability company
shall not be more than 50. The associates’ liability is limited to their capital contribution.

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 THE BUSINESS TREND

The business trend allows assessing whether the company’s activity is

developing, maintaining, or it is in recession.

This information is important because:

• Working in recession means that the company is facing financial
difficulties and problems in selling its products and it has old and used
production equipment. The recovery strategies aim at recession (to save the
islands of profit), restructuring, or where not possible, initiation of
insolvency procedure.
• If an enterprise is developing, this means that it has sufficient financial
resources; it is using modern equipment and is well appreciated on the
market.
The business trend assessment is based on the company’s turnover.
For a relevant assessment of business trend, we have to remove the influence
of inflation on turnover by calculating the turnover in constant /comparable
prices.

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TOconstan t = TOcurrent
IR
1+
100
Where:
TOconstant - turnover expressed in constant prices (comparable);
TOcurrent - turnover expressed in current prices
IR - the inflation rate (it can be also used the growth index of company’s
products prices ip)

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A relevant assessment of business trend with turnover should consider three
essential elements:
▪ the inflation rate, IR
▪ the company’s pricing policy,
▪ the company’s market position.

If:

• ip > IR - means that the company promotes prices that exceed the inflation
rate. This policy is entirely wrong on a market where competition is very
strong. If the company holds a monopoly position, than it will obtain
economic benefits without effort, but from a strategic point of view it will
make a rebound since diverted attention from cost reduction as a source of
profit;

• ip = IR - the company aligns its product prices to the inflation rate;

• ip < IR - means that company’s products prices growth is below the growth
of inflation rate. When this correlation is accepted deliberately (strong
competition on the market, the profit margin high enough to allow
reduction.) assessments are positive. But when this situation is an effect of a
bad management of the pricing policy, it will have negative consequences on
the company’s profitability.

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The dynamic indicators will be calculated in constant prices / comparable
prices and calculations will be made for a period of at least three years.

TURNOVER TREND
Period
INDICATORS M/U
1 2.................n
Turnover at current prices lei
Inflation rate %
Turnover at constant prices lei
The dynamic of turnover at
constant prices
%
▪ Fixed base
%
▪ Mobile base (chain base)

The annual average rate of

evolution of the turnover at
constant prices %

▪ The fixed base dynamic of turnover at constant prices:

TOi
I fixedTO = 100
TO0
Where: TOi is the turnover at constant prices in current year
TO0 is the turnover at constant prices in the reference year

If I fixedTO › 100 it shows an increase of turnover at constant prices in current

year comparing with the reference year (the first year of the period of
analyze).
If I fixedTO ‹ 100 it shows an decrease of turnover at constant prices in current
year comparing with the reference year.

▪ The mobile base dynamic of turnover at constant prices:

TOi 100
ImobileTO =
TO i−1
Where: TOi is the turnover at constant prices in current year
TOi-1 is the turnover at constant prices in the previous year

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When I mobileTO › 100 it shows an increase of turnover at constant prices in
current year comparing with the previous year
When I mobileTO ‹ 100 it shows a decrease of turnover at constant prices in
current year comparing with the previous year.

▪ The average annual rhythm of evolution in turnover at constant prices:

TOn
rTO = n−1 100 −100
TO 0
Where: TOn is the turnover at constant prices in the last year of the period of
analyze
TO0 is the turnover at constant prices in the first year of the period of
analyze
n represents the number of the years from the period of analyze.

When rˉTO is positive it shows the average annual rhythm of turnover’s

increase during the period of analyze.
When rˉTO is negative it shows the average annual rhythm of turnover’s
decrease during the period of analyze.

The main possible trends of evolution in time for turnover at constant prices
are presented in the next figure:

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 100
(3)
The
dynamics of
Dinamica (1)
turnover at
cifrei de
constant (2) (4)
afaceri cu
prices
baza in lant

(7)
(6)

(6) (5)

Time
timp
0

Figure 1. Time evolution of the turnover

The means of figures:

(1)- proportional increase trend
(2) - slow increase trend
(3) - sharp increase trend
(4) - convex parabola trend
(5) – decreasing trend
(6) - concave parabola trend
(7) – constant trend

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Conclusions:

1. Evolution as (1) and (3) means that the company is fast developing;
2. Evolution as (2) means a slow development;
3. Evolution as (7) means that the company is keeping the same level of
development;
4. Evolution as (4) means overcoming the recession with passing through
critical point (stopping the decline) followed by development of the
company;
5. Evolution as (5) and (6) means recession. These companies have failed to
stop the decline and are going for bankruptcy.

Following this analysis, the company’s status will fall into one of the
following situations:
• The company is in recession (free fall);
• The company maintains the same volume of activity;
• The company has decreased the volume of activity but recovered;
• The company has a continuous development that is maintained up to
present.

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 ECONOMIC STATUS OF THE COMPANY

a.) BUSINESS STRUCTURE

Business structure may be viewed from several perspectives: business

structure by products, business structure by customers or business structure
by geographical areas.

a1) The business structure by products can be illustrated based on

PARETO curve – the business structure by products can be investigated
using the classical scheme, known as the ABC curve or PARETO curve.
Analysis of this theoretical curve allows identifying in the total of products
sold, three subgroups with specific characteristics:
• One subgroup that includes very few varieties, but which bring a
major part of turnover;
• Two subgroups which account for less than half of turnover, but focus
most products sold.

From studies made were established the following coordinates of the

theoretical PARETO curve (Figure 1):
➢ 10 to 15% of products account for 60 – 70% of turnover (Area A)
➢ 20 to 30% of the products give 25 – 30% of turnover (Area B)
➢ 65 to 70% of the products give 10 – 15% of turnover (Zone C)
CA
Turnover
100

Actual reala
Curba Curve
90 Theoretical Curve
Curba teoretica

80 Curba reala
Actual Curve
70

60

50
zona
40 Area
C C

30 zona
Area
B B
20
Zona
Area A
A
10 10 20 30 40 50 60 70 80 90 100

% of products

Figure 1. PARETO Curve

Zone A includes products with a rapid rotation, which must be sale

continually. Therefore, for these products must be ensured an
adequate supply and an efficient management of stocks. Regarding the
profitability, the Area A includes products with a small commercial
margin;
Zone B includes standard items, whose rotation and commercial
margin are close to the average of business. It provides stability for
the company;
Zone C consists in products with a low rotation but with a larger
commercial margin. Supply and storage costs are higher compared to
areas A or B.
 Conclusions
o The theoretical curve has both statistical and indicative value;
o If the Actual curve is below the Theoretical curve then the company
has a very wide range of assortments in areas B and C, which can
complicate management business, particularly in stocks;
o If the Actual curve is above the Theoretical curve then the products
from Zone A are predominant and product mix is insufficient (there
are too few types of products).

a2) The business structure by customers expresses in a more general

form, the efficiency of the commercial function. It is very important for
an enterprise to have traditional customers because they assure the
stability and functionality of sales. The analysis should highlight all
categories of customers as the following table:

Table 1.
Structure of turnover by customers
Total sales Percentage Cumulative
CUSTOMERS
% percentage %
I. Traditional customers (over
4 years)
II. Customers going to be
loyal (between 1 and 4 years)
III. New customers (under 1 100
year)
Total 100 –
 a3) The business structure by geographical areas in a broad sense
includes the internal (national) market and foreign (international) market
and in a narrow sense, the area of the enterprise's products in Romania’s
regions. By area, we may mean a county or appropriate subdivisions or
groups of counties based on a specific activity. This analysis gives to the
manager the following information:
• Which are the geographical areas with the highest weight in the
absorption of company’s products;
• Which are the stable sales areas;
• Which are the geographical areas in that company failed to enter or
the market share is insignificant.

Table 2.
Structure of turnover by geographical areas
Geographical area Total sales Percentage Cumulative
percentage
1. Zone A*
2. Zone B
....
n. Zone N 100
TOTAL 100 –
* Ordering of zones is based on percentage from total sales. Dynamic
analysis is made for a period of at least three years.
b.) BUSINESS LOCATION

Business location is analysed from the following perspectives:

➢ Area site: urban or rural location, outside city, the suburbs or
residential area;
➢ Access to utilities: power, railways, roads, airports, access to rivers,
seas and so on;
➢ Future development opportunities – vertically and horizontally;
➢ Possibilities of natural disasters appearance – earthquakes, floods,
droughts and so on;
➢ The traditions, local cultural values and behaviour of people in the
area (population stable or migrating, the frequency of protest actions
and so on);
➢ Providing human resources in the area (especially with highly
qualified specialists);
➢ Tax facilities – a tax free zone or other facilities;

c.) EXPORT – IMPORT ACTIVITY

Exports, in addition to economic benefits, reflect a high level of business

competitiveness. Companies whose products have proved to be
competitive on foreign markets are even more competitive on domestic
market.

Imports have advantages when the company is importing machinery and

technology. A competitive enterprise activity has both import and export.
For the analysis, the relevant information is:
• Export business is significant or symbolic;
• What is the weight of imports in the total acquisitions;
• What is the trend of export and import activity;
• If there are sufficient foreign currency resources to cover the imports;
 SEMINAR

1) Example – partnership firm:

A partnership firm has a capital of 100 lei, composed by 10 participating shares, each
participating share having a value of 10 lei.
The capital was subscribed by 3 partners, as follows:
- partner A subscribed 2 participating shares
- partner B subscribed 2 participating shares
- partner C subscribed 6 participating shares
Show how each of the 3 owners will contribute to the coverage of a possible prejudice,
mentioning whether or not the company can continue its activity, in each of the following
situations:
a) Prejudice = 75 lei
b) Prejudice = 200 lei
c) Prejudice = 400 lei. In this case, show what happens if the partner A is insolvent, and the amount
he cannot cover is 40 lei.

Solution:
a) Prejudice = 75 lei: The remaining share capital = Initial share capital – Prejudice = 100 lei –
75 lei = 25 lei
=> after the prejudice is covered, the company can continue its activity with the capital
diminished to the value of 25 lei, because for this type of company the law does not provide a
minimum limit of the share capital.

The prejudice will be covered by the 3 associates in proportion to the number of social shares held
by each one, thus:

𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑤𝑛𝑒𝑑 𝑏𝑦 "𝑋”

Contribution of partner ,,X” = * Prejudice
𝑡𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠

Thus:
2 𝑝.𝑠.
Contribution of partner A: * 75 lei = 15 lei
10 𝑝.𝑠.
 2 𝑝.𝑠.
Contribution of partner B: * 75 lei = 15 lei
10 𝑝.𝑠.

6 𝑝.𝑠.
Contribution of partner C: * 75 lei = 45 lei
10 𝑝.𝑠.

b) Prejudice = 200 lei: Prejudice > Capital => after the full coverage of the loss the company
will dissolve

2 𝑝.𝑠.
Contribution of partner A: * 200 lei = 40 lei
10 𝑝.𝑠.

2 𝑝.𝑠.
Contribution of partner B: * 200 lei = 40 lei
10 𝑝.𝑠.

6 𝑝.𝑠.
Contribution of partner C: * 200 lei = 120 lei
10 𝑝.𝑠.

c) Prejudice = 400 lei: Prejudice > Capitalul => after the full coverage of the loss the company
will dissolve

2 𝑝.𝑠.
Contribution of partner A: * 400 lei = 80 lei (40 lei?)
10 𝑝.𝑠.

2 𝑝.𝑠.
Contribution of partner B: * 400 lei = 80 lei
10 𝑝.𝑠.

6 𝑝.𝑠.
Contribution of partner C: * 400 lei = 240 lei
10 𝑝.𝑠.
If partner A is insolvent and the amount it cannot cover is 40 lei, this part of the damage will be
covered proportionately, because they have unlimited and jointly responsability:
2 𝑝.𝑠.
Contribution of partner B: * 40 lei = 10 lei
8 𝑝.𝑠.

6 𝑝.𝑠.
Contribution of partner C: * 40 lei = 30 lei
8 𝑝.𝑠.

So, in this case:

The total contribution of partner B will be: 80 lei + 10 lei = 90 lei
The total contribution of partner C will be: 240 lei +30 lei = 270 lei
2) Example – public limited company:
A public limited company (Plc.) has a capital of 100,000 lei, composed by 1,000,000
shares, each share having a value of 0.1 lei.
The capital was subscribed by 5 shareholders, as follows:
- shareholder A subscribed 300,000 shares
- shareholder B subscribed 200,000 shares
- shareholder C subscribed 150,000 shares
- shareholder D subscribed 50,000 shares
- shareholder E subscribed 300,000 shares
Show how each owner will contribute to the coverage of a possible prejudice, mentioning
whether or not the company can continue its activity, in each of the following situations:
a) Prejudice = 5,000 lei
b) Prejudice = 20,000 lei
c) Prejudice = 150,000 lei.

Solution:
a) Prejudice = 5,000 lei:

Remaining capital = Initial share capital – Prejudice = 100,000 lei – 5,000 lei = 95,000 lei

=> Remaining capital > Capital limit (90,000 lei) after the prejudice is covered, the company
can continue its activity

The prejudice will be covered by the shareholders in proportion to the number of shares held by
each one, thus:

𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑤𝑛𝑒𝑑 𝑏𝑦 "𝑋”

Contribution of shareholder ,,X” = * Prejudice
𝑡𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠

Thus:
 300,000 𝑠.
Contribution of shareholder A: * 5,000 lei = 1,500 lei
1,000,000 𝑠.

200,000 𝑠.
Contribution of shareholder B: * 5,000 lei = 1,000 lei
1,000,000 𝑠.

150,000 𝑠.
Contribution of shareholder C: * 5,000 lei = 750 lei
1,000,000 𝑠.

50,000 𝑠.
Contribution of shareholder D: * 5,000 lei = 250 lei
1,000,000 𝑠.

300,000 𝑠.
Contribution of shareholder E: * 5,000 lei = 1,500 lei
1,000,000 𝑠.

b) Prejudice = 20,000 lei:

Remaining capital = Initial share capital – Prejudice = 100,000 lei – 20,000 lei = 80,000 lei

Remaining capital < Capital minimum limit (90,000 lei) the company will be dissolved if the
shareholders do not decide to supplement the share capital at least up to the minimum capital
limit provided by law (90,000 lei) in maximum 9 months

300,000 𝑠.
Contribution of shareholder A: * 20,000 lei = 6,000 lei
1,000,000 𝑠.

200,000 𝑠.
Contribution of shareholder B: * 20,000 lei = 4,000 lei
1,000,000 𝑠.

150,000 𝑠.
Contribution of shareholder C: * 20,000 lei = 3,000 lei
1,000,000 𝑠.
 50,000 𝑠.
Contribution of shareholder D: * 20,000 lei = 1,000 lei
1,000,000 𝑠.

300,000 𝑠.
Contribution of shareholder E: * 20,000 lei = 6,000 lei
1,000,000 𝑠.

c) Prejudice = 150,000 lei:

Prejudice > Capitalul => after the full coverage of the loss the company will dissolve

Contribution of shareholder A: 300,000 shares * 0.1 lei = 30,000 lei

Contribution of shareholder B: 200,000 shares * 0.1 lei = 20,000 lei
Contribution of shareholder C: 150,000 shares * 0.1 lei = 15,000 lei
Contribution of shareholder D: 50,000 shares * 0.1 lei = 5,000 lei
Contribution of shareholder E: 300,000 shares * 0.1 lei = 30,000 lei

In this way, the prejudice will be covered with the entire value of the share capital (100,000 lei),
resulting in an uncovered prejudice of 50,000 lei (Uncovered prejudice = 150,000 lei - 100,000
lei)

Observation:
1) If it is found that the prejudice was caused by a shareholder by committing a crime, the injured
party can sue him in order to recover the entire amount of the prejudice, 150,000 lei, in which case
the other shareholders will recover the value of the shares held
2) If the prejudice was not caused by a shareholder as a result of committing a crime, the injured
party remains with the uncovered prejudice of 50,000 lei.
 ECONOMIC STATUS OF THE COMPANY

d.) OVERALL ASSESSMENT ON BUSINESS EFFICIENCY

The purpose of this criterion is not to measure the business efficiency, which
is a more complex operation, but only to provide an overview of it. In this
scope, will be used a limited number of indicators.

1. Profit - a business cannot be considered effective if is not making profits.

Because of inflation, as in the case of the turnover, the dynamic analysis of
profit is expressed in constant (comparable) prices.

Where:
Pconstant i - profit expressed in constant prices (comparable prices) in year i;
Pcurrent i - profit expressed in current prices in year i
IRi - the inflation rate in year i (it can be also used the growth index of
company’s products prices ip)

▪ The fixed base dynamic of profit at constant prices (I fixed P) :

Where: Pi is the profit at constant prices in the current year;
P0 is the profit at constant prices in the reference year.

If I fixed P › 100 it shows an increase of profit at constant prices in

current year comparing with the reference year (the first year of the period of
analysis).
If I fixed P ‹ 100 it shows a decrease of profit at constant prices in
current year comparing with the reference year.

▪ The mobile base dynamic of profit at constant prices (I mobile P):

Where: Pi is the profit at constant prices in the current year;

Pi-1 is the profit at constant prices in the previous year.

When I mobile P › 100 it shows an increase of profit at constant prices in

current year comparing with the previous year;
When I mobile P ‹ 100 it shows a decrease of profit at constant prices in
current year comparing with the previous year.

▪ The average annual rhythm of profit evolution at constant prices:

Where: Pn is the profit at constant prices in the last year of the period of
analysis;
P0 is the profit at constant prices in the first year of the period of
analysis;
n represents the number of the years from the period of analysis.
 When rˉP is positive, it shows the average annual rhythm of profit’s
increase during the period of analysis.
When rˉP is negative, it shows the average annual rhythm of profit’s
decrease during the period of analysis.

The main possible trends of evolution in time of profit at constant prices are:

– sharp increase trend

– slow increase trend
– constant trend
– sharp decreasing trend
– slow decreasing trend
– convex parabola trend
– concave parabola trend

2. Labour productivity (Wi) - is an indicator that shows how the labour

was used in terms of efficiency:

Where: TOconstant i is the turnover at constant prices in the current year;

Ni is the number of employees in the current year.

The dynamic of the labour productivity is usually represented by following

indexes:

• The fixed base dynamic of labour productivity (I fixed W):

Where: Wi is the labour productivity in the current year;
W0 is the labour productivity in the reference year.

If I fixed W › 100 it shows an increase of labour productivity in current

year comparing with the reference year (usually, the first year of the period
of analysis).
If I fixed W ‹ 100 it shows a decrease of labour productivity in current year
comparing with the reference year.

▪ The mobile base dynamic of labour productivity (I mobile W):

Where: Wi is the labour productivity in the current year;

Wi-1 is the labour productivity in the previous year.

When I mobile W › 100 it shows an increase of labour productivity in

current year comparing with the previous year;
When I mobile W ‹ 100 it shows a decrease of labour productivity in
current year comparing with the previous year.

▪ The average annual rhythm of labour productivity evolution:

Wn
rW = n−1 100 −100
W0
Where: Wn is the labour productivity in the last year of the period of
analysis;
W0 is the labour productivity in the first year of the period of
analysis;
n represents the number of the years from the period of analysis.
 When rˉW is positive, it shows the average annual rhythm of labour
productivity’s increase during the period of analysis.
When rˉW is negative, it shows the average annual rhythm of labour
productivity’s decrease during the period of analysis.

As in the profit case, it is necessary to answer the following questions:

• The labour productivity has increased or decreased?
• Which are the causes generating this trend of the labour productivity?

3. Profit margin (PM i) express the enterprise’s profitability.

Where: Pi is the profit at current prices in the current year;

TO i is the turnover at current prices in the current year;

The dynamic of the profit margin can be represented by following indexes:

▪ The fixed base dynamic of profit margin (I fixed PM) :

Where: PM i is the profit margin in the current year;

PM 0 is the profit margin in the reference year.

If I fixed PM › 100 it shows an increase of profit margin in current year

comparing with the reference year (the first year of the period of analysis).
If I fixed PM ‹ 100 it shows a decrease of profit margin in current year
comparing with the reference year.

▪ The mobile base dynamic of profit margin (I mobile PM):

Where: PM i is the profit margin in the current year;
PM i-1 is the profit margin in the previous year.

When I mobile PM › 100 it shows an increase of profit margin in current

year comparing with the previous year;
When I mobile PM ‹ 100 it shows a decrease of profit margin in current
year comparing with the previous year.

▪ The average annual rhythm of profit margin evolution:

Where: PM n is the profit margin in the last year of the period of analysis;
PM 0 is the profit margin in the first year of the period of analysis;
n represents the number of the years from the period of analysis.

When rˉPM is positive, it shows the average annual rhythm of profit

margin’s increase during the period of analysis.
When rˉPM is negative, it shows the average annual rhythm of profit
margin’s decrease during the period of analysis.

Based on these indicators will be established if the business activity is

efficient or inefficient (problem area or critical area).
 ECONOMIC STATUS OF THE COMPANY

e.) INVESTMENT AND DIVIDEND POLICY

Investment policy must be examined both in terms of investment

orientation and in terms of volume and sources of investments.

In terms of investment orientation it can be identified the following policies:

❖ Investments oriented to replace the completely used equipment, with a
very low risk, since it not requires any changes in the manufacturing
technology;
❖ Investments oriented to modernize existing equipment in operation,
involving a low risk, due to insignificant corrections in the
manufacturing technology;
❖ Development (expansion) oriented investment of departments and
plants or new factories investments, involving a higher risk, given by
the need to widen the supply, labour, capital and sales markets ;
❖ Orientation towards strategic investments that implies setting up
subsidiaries abroad and merging with another company or insertion of
robotic lines in the entire manufacturing process. These investments
involve a significant risk due to business expansion in new
geographical areas or in new technological or commercial
environments completely restructured.

In terms of the volume of investment, the analysis should be made

considering the enterprise’s size, or more exactly, the enterprise’s assets
value. From this point of view is very important to calculate in how many
years the assets are renewed through investments. In some fields, due to
obsolescence, the technological equipment has to be replaced within
maximum 4-5 years. It is obvious that financing policy has a major impact
on business viability.

Constituting the sources and then allocating by destinations is a part of the

company's strategic development plan.
And here we can talk about certain policies such as:

Policy orientation on own resources financing, which may include:

• Self-financing;
• Capital increase by new contributions of owners in cash;

Worldwide, until the 6th decade of the last millennium, a good financial
structure was characterized by low levels of borrowing, with the emphasis
on self-financing and other own resources. Beginning with the 8th decade, an
optimum financial structure is characterized by a "normal" level of
borrowing, which is not excessive compared to enterprise’s capital. The
emphasis is put on the positive effects of an adequate volume of
indebtedness.

Policy orientation on medium or long-term financing

commitments like:
• Borrowing by bonds;
• Loans from specialized financial institutions;
• Medium-term and long-term bank loans;
 • Leasing contracts
In conclusion, although self-financing is a healthy and desirable financial
policy, is recommended to not exaggerate in this direction in the sense of not
breaking the enterprise from the financial markets and to assure a greater
mobility of capital. Efficiency calculations (as financial leverage) should be
the base of options to constitute the funding sources for investment.

The self-financing policy and dividend policy are closely connected. A

higher or a lower amount of dividends has a direct influence on the size of
development fund and thus on self-financing. Granting greater dividends to
shareholders is a positive policy as maintaining the confidence and the
loyalty to the company, but reduces the possibilities of self-financing.

In the practice of joint-stock companies can be underlined three types of

dividend policy:
❖ Policy of direct participation (profit sharing), based on providing
a relatively constant rate "d" in the distribution of dividends;
❖ Policy of stability or safety, in which the company aims to provide
a constant dividend, or more, a constant annual dividend increase
rate "g", independent of variations in profits. Dividend size for the
current year "t" is based on dividend distributed in the previous
year "t-1". That means: dividend t = f (dividend t-1);
❖ The waste policy or the opportunist policy, in which the dividend
amount is determined by investment and financing decisions. If
profitable investment opportunities exist, they will be covered
primarily by self-financing and only the amount of profit remained
not invested will be distributed as dividend to shareholders.
 CORPORATE GROUPS

A corporate group is a complex consisting of several companies with legal

personality, joined together by various links. One of these companies is called the
parent-company and it exerts the control over the assembly.

The corporate groups have emerged as a consequence of the phenomenon of

concentration.
The concentration of companies as corporate groups is a phenomenon that
occurred in the late nineteenth - early twentieth century in the United States. This
was due to the necessity of reducing the small Companies vulnerability to the
changes in the economic environment.

Under the current circumstances, the establishment and development of corporate

groups are supported by:
• The emergence and development of strong companies operating on an
international area. These companies have a dominant market position.
• The continuous development of financial markets which facilitated a certain
control and a certain influence of the purchasing company over the issuing
company.

In Romania, the economic concentration of companies can be achieved by any

legal act that operate the transfer of ownership or use over all or a part of property,
rights and obligations of a company or it is allowed to a company or a group of
companies to exert, directly or indirectly, an influence over one or more other
businesses.
In legal terms, an economic concentration may be achieved by:
• The fusion of two or more companies which were previously legally
independent;
• Venture company;
• Acquisition of assets.

Fusion is the legal and economic act whereby two or more companies decide to
put together their assets. It can be made by absorption (a company is absorbed
by another company – merger by absorption) or by merging two or more
companies to form a new company (merger by fusion).
In case of merger by absorption, the acquiring company integrates the entire
assets and liabilities of one or more companies that are called absorbed.
Mergers by fusion involve the closure of all companies that merge and setting
up a new company as an independent legal entity. The newly created company
takes over the total assets and all the liabilities of companies that merge.

Venture Company implies that only a part of two or more companies’ assets
are pooled for a limited period of time to achieve a common project.

Acquisition of assets is an operation whereby company A (a newly created

company or an existing company) has received as contribution a part of the
assets of another company B. For its contribution, company B will receive
shares issued by company A. Acquisition of shares is a transaction whereby a
company acquires shares issued by another company, to exert a certain control
over that company.

In the cases of venture companies, the acquisition of shares and also in some
rare cases of acquisition of assets each company keeps its legal personality.
This means that the premises required to form a corporate group are met. In the
majority cases of merger and acquisition of assets, at least one of the companies
 is losing its legal personality, by dissolving. Due to this situation, in these cases
the conditions for establishing a corporate group are not met.

In economic terms, the main forms of business concentration are:

• horizontal concentration - involves grouping companies producing the same
type of products, giving them the possibility to exert a control over the markets and
on market prices;
• vertical concentration – involves grouping companies with complementary
business, thereby obtaining a full control over the production cycle, from raw
material to finished product. Vertical concentration may be upstream (the
company takes control over its suppliers) or downstream (the company takes
control over its customers).
The upstream vertical concentration offers the possibility of exerting the control
over the costs and the quality of raw materials and over the whole company’s
supply system.
The downstream vertical concentration’s advantages consist into the possibility of
improving the products promotion and control their distribution chain.
• conglomerate concentration – implies grouping companies without any
apparent links between them. This type of concentration is aiming to diversify risk
and achieve high average of returns, thus ensuring a reduction in vulnerability to
changes in economic environment.

Although corporate groups can be established in various ways and may have very
different structures and forms, however, it is considered that the corporate groups
have some common characteristics:
• The companies that form a corporate group are legally independent, which gives
flexibility to the group in implementing strategies aimed at concentration,
diversification or reorganizing the corporate group;
• The corporate groups’ unitary is given by the existence of the parent–company.
The parent company has the control over the group and it coordinates the adoption
of a common development strategy across the group. But the concentration of
decision at the parent-company’s level can generate conflicts between it and the
other companies from the corporate group.
• In terms of defining areas of responsibility within the group, it can be observed a
decision concentration at the parent-company’s level or, conversely, a
decentralization of decision-making at the component companies’ level.
• The parent-company's role is not limited only to supervision or to assess the
results of dominated companies, but the sphere of control extends to the way of
integration into the global strategy defined in the whole group and the decisions
made by the companies (in the case of decentralization of decision);
• The corporate group aims in achieving a common development strategy for all
companies from the group.

In a corporate group, there can be financial links between the component

companies. The financial links between companies are expressed by that a
company owns a percentage of another company’s capital. Between the companies
within a corporate group the following types of financial links can be formed:
▪ Direct links: the parent- company holds shares in its subsidiaries
PC

A B C
▪ Indirect links: the parent-company holds shares in its subsidiaries, and
these subsidiaries own shares between them.
PC A B

▪ Radial links: the parent–company holds shares in its subsidiaries and one of
them has its own subsidiary
A PC B C

D
▪ Circular links: the parent-company owns shares of subsidiary A, that is
holding shares in subsidiary B, which holds shares in subsidiary C, which is
 holding shares of parent-company. If in that type of links there are only three
companies, circular links are called triangular.
PC

A B C
▪ Mutual links: the parent company holds shares in a subsidiary, and this, in
turn, holds shares of the parent-company.
PC A

Depending on the way of formation and the nature of the links that exist
between the parent-company and the other companies from the group, there are
different kinds of corporate groups:
▪ Cartel
▪ Trust
▪ Concern
▪ Holding company
▪ Industrial and financial groups.
 THE HUMAN POTENTIAL OF THE ENTERPRISE

The human potential of the enterprise is given by the number, structure,

behaviour and qualifications of employees.

1) Levels of analysis

In an enterprise, the human potential will be assessed at the following levels:

 Management – includes the staff from operative management
(General Manager and Deputy Directors) and the management of
functional departments and production departments.
 Administration and security personnel – includes counsellors,
secretaries, security staff, etc.
 Personnel from functional departments – includes the personnel
form departments as accounting, financial, commercial, investment,
design, research and development, etc.
 Personnel from production departments – includes engineers,
economists, technicians, foremen and workers.

2) Assessment criteria

a) Providing with staff seeks to highlight the accordance between the

number of existing personnel and the necessary personnel to achieve tasks.
This criterion applies to each level and after that is made the aggregation at
the entire firm’s level. Comparing the number of existing staff with the
number of necessary of personnel can result a deficit or reserve of personnel.

1
 Deficit of personnel at each level (Dpi) is calculated with the relation:

Dp i = Ne – Nn when Ne < Nn
Where: Ne is the number of existing personnel;
Nn is the number of necessary personnel to achieve tasks.

 Deficit of personnel at firm’s level (D) is given by the relation:

n
D   D pi
i 1

When is calculating the deficit of personal, the rule is that the surplus of
personnel in a particular category or level does not compensate for the
deficit in other categories or levels.
 Reserve of personnel at each level (Rpi) is calculated by the relation:

Rp i = Ne – Nn when Ne > Nn
 Reserve of personnel at firm’s level (R) is given by the relation:

n
R   R pi
i 1

For better assessments based on this criterion are calculated the relative
values of deficit (%D), respectively, reserve (%R) of personnel:

D
%D   100
Ne

R
%R   100
Ne

2
In the practice, the greatest difficulties are encountered in determining the
number of personnel required achieving the tasks. Depending on the
accuracy of the assessment, there are more possibilities:
 P1 – consists in an assessment by interviewing the experts and the
management staff from the enterprise. Formulating of the question may be
this: which of the following statements you believe is true for your business?
1 - There is a big discrepancy between existing staff and the necessary
of personnel: there is an excess of personnel or insufficient personnel.
2 - There is concordance in most categories of personnel;
3 - There is full concordance in all categories of personnel.
Critical analysis of responses, completed with its own information, allows to
analyst to get an actual image about situation of providing with staff in the
enterprise.
 P2 – consists in a correlative analysis in time of the personnel and
of the workload allows establishing the necessary of personnel based on the
relationship:
Ni = Ni-1 ·iQ · a

Where: Ni is the number of personnel from the current year;

Ni-1 is the number of personnel from the previous year;
iQ is the production growth index (Qi x100 /Qi-1);
a is a correction factor.
The correction factor (a) is used because between the changes in production
volume and number of personnel there is no proportional relationship of
dependency due to a number of fixed posts (a < 1).

3
This is a retrospective analysis that allows assessing whether the number of
personnel evolution has followed the evolutions in production. The main
deficiency of this assessment is that it assumes that in the year taken as
reference the number of personnel is dimensioned according to production
tasks.
 P3 – consists in establishing of working norms which ensures the
highest degree of objectivity, but also involves the highest costs and largest
volume of work.

b) The qualification of the personnel seeks the correlation between the

skill levels of employees and job requirements. The personnel qualification
is given by the knowledge gained through any form of training, by the
knowledge accumulated during professional activity and by the individual
skills.

c) The level of wages and the motivation of the personnel is a criterion

which should be compared both to the country's average level and firm’s
performance. Where there are low wages will appear complaints and
dissatisfaction, but a wage growth on account of deteriorating financial
situation of the company is not a solution. The analyst must ask three
important questions:
– The level of wages is below or above the national average?
– The level of wages is influenced by the performance or the
underperformance of the management?
– There is a correlation between the average wage in the company
and the labour productivity?

4
 d) The structure of human potential is assessed by two perspectives:

 Structure by categories of employees shall be evaluated based on

the following indicators:
1. The share of workers in total employees;
2. The share of unskilled workers in total workers;
3. The number of technical and operational staff to 100 workers;
4. The number of research and design staff to 100 employees;
5. The share of general service personnel to total employees;
6. Other indicators as: the share of engineers, economists, etc. to total
employees.

The assessment of structure by category of employees should take into

account:
 The specific of company activity – by example, the companies
from high technology areas needs intense research and design, a
powerful computers department, a large number of engineers and a
economic potential well organized in marketing and market
research departments;
 The structure of the companies with similar activity;
 The trend of structure’s evolution in the previous time periods;

 Structure by categories of ages and the employment period:

The age’s homogeneity ensures the combining of age-old experience with
the dynamism and spirit of the youth initiative. Joining the generations leads
to an optimal structure when is accomplished the relationship:

5
 p2 = p1 + p3
Where: p1 is the share of personnel under the age of 25 years;
p2 is the share of personnel between 26 and 50 years;
p3 is the share of personnel over the age of 50 years.
The employment period is also an important variable in the assessment of
human potential. As in the case of age, the homogeneity is the solution of an
optimum structure. Although the specific activity of the company influences
how the grouping is made, in practice, usually are used the following ranges:
under 5 years, 6 to 10 years, 11 to 20 years, 21 to 25 years and over 25
years.

e) The flexibility of human potential expresses the employees’ capacity

to adapt to a variety of tasks with a minimal effort. Flexibility is influenced
by professional knowledge and experience, by the capacity to adapt to
changes and by other individual skills of the human factor.

A global assessment of flexibility may be using the following two variables:

 Training for two or more professions;
 Training for interdisciplinary professions;

f) The reliability of human potential allows knowing and assessing the

employees’ skills so that human-machine system to operate at optimum
parameters. The ability of employees to perform without any errors and the
period of time necessary to correct an error define, in the general form, the
human reliability.

6
 g) The efficiency of using the human potential has several forms, but
two indicators are relevant:
 The labour productivity (W) is calculated as the ratio between an
indicator of the nature of production (production value, value added,
turnover, etc.) and average number of employees or total wages amount.
More common are these two relationships:

W(N) = Turnover (TO)

Number of employees(N)

(TO)
W(T w) = Turnover
Total wages(Tw)

For analyst following aspects of labour productivity are interesting:

– The trend of labour productivity: when the growth index of labour
productivity is increasing, the efficiency of using the human
potential is rising; when the growth index of labour productivity is
decreasing, the efficiency of using the human potential is declining;
– The comparison with companies developing similar activities,
preferably competitors: if the average annual labour productivity
growth in the analysed enterprise is greater than the same rate for the
competing company, the enterprise uses at a higher level the human
resources in relation to competitors (has a relative superiority in
front of them); if the average annual labour productivity growth in
the analysed enterprise is smaller than the same rate for the
competing company, the enterprise has a relative inferiority in
relation to competitors;

7
 – The correlation between wages and productivity: if the labour
productivity growth index calculated by the number of employees is
greater than the labour productivity growth index calculated by the
total wages, means that the enterprise promotes a policy of
inadequate salaries. This shows that average wage increases, without
adequate coverage in an increase of turnover;
– The causes that lead to declining of labour productivity (where
appropriate): inadequate management, improper using of working
time, poor technical equipment, lack of orders etc.

 The labour profitability (r) expresses the ability of labour force to

make profit, after the relationships:

P P
r or r 
N S
Where: P is the profit;
N is the number of employees;
S is the average salary.

For analyst are interesting some issues like:

– The trend of labour profitability;
– The comparison with companies developing similar activities,
preferably competitors;
– The causes that lead to declining of labour profitability etc.