Business & Finance

Chapter # 1
Introduction to business

Q-1) What is organization?

Q-2) Why do organizations exist?
Q-3) How do organizations differ?
Q-4) Define a not-for-profit organization. [MJ10] 3
Q-5) Is the ICAB a not-for-profit organization? [MJ10] 2
Q-6) What does organizations do?
Q-7) What is business?
Q-8) What is Stakeholder?
Q-9) Types of stake holder and their stake.
Q-10) Suppose you are the finance manager of XYZ Company Ltd. Being one of the
stakeholders what might be your stake and what would be your expectation from the
company? [MQ10]
Q-11) What expectations would the local community have of a company operating a coal-fired
power station within two miles of a medium-sized town?[IQ1]
Q-12) What are wider areas of social responsibility in which the business must take account?
Q-13) What are the business’s objectives?
Q-14) Is wealth maximization always the primary objective?
Q-15) What are the secondary objectives of business?
Q-16) What are the multiple objectives of business?
Q-17) What is Mission?
Q-18) What are the Elements of mission?
Q-19) What is Goal?
Q-20) Define organizational goals. [MJ10]3
Q-21) Types of goals.
Q-22) Most organizations establish quantifiable operational goals. Give reasons why non
operational goal goals might be still important. [MJ10]5
Q-23) Characteristics of operational goal (objectives):
Q-24) What are Purposes of setting operational objectives in a business?
Q-25) What is plan?
Q-26) Type of standard
Q-27) What is productivity?
Q-28) Niko ltd has revenue of Taka 1,600,000, cost of sales Taka 9,00,000 and expenses of
Taka 350,000.
calculate the GP margin, net margin, and Mark-up on cost of sale. [MJ10] 3
Q-29) What is economy?
Q-30) What is effectiveness?
Q-31) What is efficiency?
Q-32) What is Critical Success Factor (CFSs)?
Business & Finance
Chapter # 1: Introduction to business
Q-1) What is organization?
Organization is a social arrangement
for the controlled performance of
collective goals, which has a boundary
separating it from its environment.
Profit-oriented – A multinational car
manufacture, An accounting firm,
Not-for-profit – A charity, A trade union,
A local Authority, An army, A club,
Q-2) Why do organizations exist?
Organizations exist because they:
 Overcome people’s individual
limitation,
 Enable people to specialize
 Save time
 Accumulate and share knowledge
 Enable people to pool their expertise
 Enable synergy
In brief, organizations enable people to be
more productive.
Q-3) How do organizations differ?
Organizations differ in many ways.
1) Ownership
- Private : owned by the
private
investors/shareholders.
- Public : owned by the nation
and managed by
government.
2) Control
- By the owners themselves,
- By the people working on
their behalf or
- Indirectly by
government-sponsored
regulators
3) Activity
- Manufacturing, healthcare,
services (and so on)
4) Profit or non-profit orientation
2
- business exist to make a
profit
- an army, or a charity on the
other hand are not profit
oriented.
5) Size
- small business to
- multinational companies.
6) Legalstatus
- company, or
- unicorporated body such as
club, association, partnership
and sole trader
7) Sources of finance
- borrowing,
- government funding
- share issues
8) Technology
- high use of technology (eg
computer firms)
- low use (eg. Corner shop)
Q-4) Define a not-for-profit
organization. [MJ10] 3
A not-for-profit organization is an
organization that is being operated
to earn profit and does not distribute
its surplus funds to the owners but
instead uses them to help pursue
goals. Examples of NPOs include
charities, trade unions, clubs and
associations etc.
the Q-5) Is the ICAB a not-for-profit
organization? [MJ10] 2
Since ICAB is engaged in the
development and regulation of
accountancy profession in
the Bangladesh where there is no profit
motive, ICAB may be termed as a
not-for-profit organization.
Q-6) What does organizations do?
Business & Finance
Chapter # 1: Introduction to business
Differences in what organizations do:
Organizations do many different types of
work:
1) Agriculture
2) Manufacturing
3) Extractive/raw material
4) Energy
5) Retailing/distribution
6) Intellectual production
7) Service industries
3
its owners so as to maximize their
wealth and that can be regarded an
entity separate from its owners.
Q-8) What is Stakeholder?
Literally, a person or group of persons
who has a stake in the business. This
means that they have an interest in
respect of what the organization does
and how it performs.

Q-7) What is business?

An organization (however small) that is

oriented towards making a profit for
Q-9) Types of stake holder and their stake.

STAKE- Stake holder in a What do they typically expect

What is stake?
HOLDER business of the business?
P
A return on their investment so
R
that their wealth increases:
I
 steady, growing profits
M Shareholder Money invested
paid out by the business
A
 growth in capital value of
R
their share of the business
Y
S Directors/Managers, Livelihood, careers and Fair and growing remuneration
E Employee and Trade reputations Career progression
C union Safe working environment
O Training
N Pension
D Customers Their customs Products/services that are good
A quality and value
R Fair terms of trade
Y Continuity of supply
Suppliers and other The items they supply Fair terms of trade
business partners Prompt payment
Continuity of custom
Lenders Money lent A return on their investment
 interest
 repayment of capital
Government and its National infrastructure Reasonable employment and
agencies used by business other business practices
The welfare of Steady or rising stream of tax
employees revenue
Tax revenue
The local community National infrastructure Reasonable employment and
and the public at used by business other business practices
large The welfare of
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Chapter # 1: Introduction to business
employees
The natural The environment shared Reasonable environmental and
environment by all other business practice

Q-10) Suppose you are the finance
manager of XYZ Company Ltd.
Being one of the stakeholders
what might be your stake and
what would be your expectation
from the company? [MQ10]
The stake includes among
livelihoods, careers and reputations.
My expectations from the company would
be:
(i) To have a fair and growing
remuneration
(ii) Career progression
(iii) Good working environment
(iv) Training scope
(v) Pension/ recruitment benefit
Q-11) What expectations would the
local community have of a
company operating a coal-fired
power station within two miles
of a medium-sized town?[IQ1]
Q-12) What are wider areas of social
responsibility in which the
business must take account?
There are wider areas of social
responsibility of which the must take
account:
 The impact of its operations on the
natural environment
 Its human resource management
policy
 Non-reliance on contract with
adverse political cononations
 Charitable support and activity
 Above-minimum (legal) standards of
workplace health or safety
Q-13) What are the business’s
objectives?
Every business has a hierarchy of
objectives, from its primary objective
down to its supporting objectives.
Together these form multiple objectives.
others In fact, however, there is hierarchy of
objectives, with one primary objective
and series of secondary subordinate
objective which should combine to
ensure the achievement of the primary
objective.
Primary Objective
Profit
For a business the primary objective
is the financial objective of profit
maximization so as to increase
shareholder wealth.
Q-14) What are the secondary
objectives of business?
Secondary Objectives
- Market Position
- Product Development
- Technology
- Employee and management
Q-15) Is wealth maximization always
the primary objective?
1) Profit Satisficing
2) Revenue maximization
3) Multiple objectives
- Market Standing
- Innovation
- Productivity
- Physical and financial
resources
- Profitability
- Manager performance and
development
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Chapter # 1: Introduction to business
- Worker performance and
attitude Goals means broad, fairly timeless
- Social responsibility statement of what the organization wants to
4) Constraints theory achieve. Goals are developed in the
- Staff relations or strategic planning process and they are
environmental protection usually stated without reference to a
- To satisfy customers particular time period. The long term of an
organization may be to be an industry
leader or to earn sufficient profit for the
Q-16) What are the multiple maximization of shareholders’ wealth.
objectives of business?

(a) Market standing, Q-21) Types of goals.

(b) Innovation,
(c) Productivity, There are two types of goals:
(d) Physical and financial resources, 1) Non-operational, qualitative goals
(e) Profitability, (aims)
(f) Manager performance and 2) Operational, quantitative
development, (objectives)
(g) Worker performance and attitude,
(h) Social responsibility,
Q-22) Most organizations establish
quantifiable operational goals.
Q-17) What is Mission? Give reasons why non
operational goal goals might be
‘The business’s basic function in society’, still important. [IQ2, MJ10]5
is expressed in terms of how it satisfies
its stakeholders. Some of the organizational goals are
quantifiable in pure monetary terms like
return on investment, earning per share
Q-18) What are the Elements of growth in turnover etc. But for a healthy
mission? and sustainable future these quantifiable
goals are not themselves enough. Some
Elements of mission: non quantifiable goals i.e. employee
1) Purpose satisfaction, customer satisfaction, social
2) Strategy image are as important as quantifiable
3) Policies and standards of behavior goals. Therefore, while setting goals
4) values management must consider the
phenomenon and must develop appropriate
system to measure and control both
Q-19) What is Goal? quantifiable and non-quantifiable goals.

‘The intentions behind decisions or actions’

or ‘a desired end result’. Goals give flesh to Q-23) Characteristics of operational
the mission. goal (objectives):

Objectives should be SMART

Q-20) Define organizational goals. S – Specific
[MJ10]3 M – Measurable
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Chapter # 1: Introduction to business
A - Achievable Plan is a state what should be done
R - Reasonable to achieve the operational
T - Time-bound objectives.

Q-24) What are Purposes of setting Q-26) Type of standard

operational objectives in a
business? Standard and targets specify a
Objectives should enable management to: desired level of performance.
 Implement the mission (i) Physical Standard
 Publicize the direction to managers (ii) Cost Standard
and staff, (iii) Quality Standard
 Appraise the validity of decisions,
 Assess and control actual
performance, Q-27) What is productivity?
Q-25) What is plan?
This is the quantity of service or
product produced in relation to
resources put in.

Q-28) Niko ltd has revenue of Taka 1,600,000, cost of sales Taka 9,00,000 and
expenses of Taka 350,000.
Calculate the GP margin, net margin, and Mark-up on cost of sale. [IQ3,
MJ10] 3

Gross Margin: (1,6,000,00 – 900,000) /1,600,00 X 100% = 43.75%

Net margin: (1,600,000 – 900,000 – 350,000) / 1,600,000 X 100 % = 21.87%
Markup on cost of sale: (1,600,000 - 900,000) / 900,000 X 100 % = 77.78%

Efficiency means being effective at

minimum cost or controlling cost
Q-29) What is economy? without losing operational
effectiveness. Efficiency is therefore
Economy is the reduction or a combination of effectiveness and
containment of cost; this can be economy.
measured against targets.
Q-32) What is Critical Success Factor
(CFSs)?
Q-30) What is effectiveness?
CFS is those product features that
Effectiveness is the measure of are particularly valued by a group of
achievement and is assessed by customers and therefore where the
reference to objectives, such as organization must excel to
whether the target profit has been outperform the competition.
attained.

Q-31) What is efficiency?

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Chapter # 1: Introduction to business