Assignment Code: ECO-01/TMA/2022-2023

Course Code: ECO-01

Assignment Name: Business Organisation

Year: 2022-2023

Verification Status: Verified by Professor

Attempt all the questions:

Q1) What are the essential features of business? List different objectives of business. (10+10)

Ans) The essential features of business as key traits are as follows:

Dealings in Goods and Services: Products and services are the focus of business. The products could be consumer goods like candy, bread, clothing, or shoes, or they could be producer's goods like machinery and equipment that are used to create further consumer goods. In addition to real items, business also deals with intangible and invisible services like shipping, warehousing, banking, insurance, etc.

Production and/or Exchange: Only when there is production, transfer, exchange, or sale of commodities or services for value can economic activity be referred to as a "business". Activities that produce things for personal consumption or gift-giving are not considered business. There must be two participants, a buyer, and a seller, in a business transaction. Such an activity ought to involve the exchange of goods between a buyer and a seller. The items can be traded or bought with cash.

Continuity and Regularity in Dealings: One transaction cannot be considered business. Only those who engage in a task continuously or at least frequently are considered to be conducting business.

Profit Motive: The main goal of company is to make a profit. This is not meant to downplay the significance of the service component in commercial activities. In actuality, a company can only succeed when it can satisfactorily satisfy its clients. Profits are necessary for a company to be able to endure, develop, grow, and get notoriety.

Element of Risk: There is a chance of losing money in every firm. Risk is the possibility of suffering a loss. There is a risk aspect because of a number of uncontrollable circumstances for the company enterprise. Risks come in two different forms. Risks whose likelihood can be estimated and insured. Risks whose probability cannot be determined and against which insurance cannot be purchased.

Objectives of Business

While a businessman must make a profit in order to stay in operation, he should strive for more in order to ensure the survival and expansion of his enterprise.

Three major categories could be used to group corporate goals:

Economic Objectives: Business Organization's main goals are economic because it is essentially an economic activity.

Among the primary economic goals are:

1. Generating adequate profits

2. Discovering new markets and attracting additional clients.

3. Expansion and growth of the company's business operations.

4. Introducing innovations and making changes to products and services to give clients better, more affordable products and services.

Social Objectives: Because it is a part of society, business has responsibilities there as well. Several important societal goals include:

1. Giving the nation's citizens more and more employment chances

2. Supplying the community with high-quality commodities.

3. Offering products at fair costs.

4. Make sure investors receive just returns.

5. Avoiding unfair and opportunistic practises.

6. Production of items in line with priorities and national interests.

Human Objectives: Employees who are human beings typically carry out business operations. In actuality, the drive and aptitude of a company's personnel determine its effectiveness and success. Therefore, in order to protect the interests of its employees, business must also have some human purposes.

The following are some of the main human goals:

1. Employees receive a fair deal in terms of compensation and benefits.

2. improving the employees' working atmosphere and conditions.

3. Give satisfaction in work.

4. Give your staff more and more opportunity for advancement.

Q2) What is capital structure? Describe factors that determine the capital structure. (2+18)

Ans) Maintaining suitable ratios between owners' capital and borrowed capital is the usual rule. When business conditions are favourable and very profitable, borrowed cash may be double or even triple the amount of the owner's investment. A combination of ownership capital and borrowed capital may be used to raise the finances needed to cover both the long-term and short-term capital needs.

Factors Determining the Capital Structure

It relies on a number of variables how much long-term capital need be raised from various sources in order to establish the capital structure.

Nature of the Business: It is preferable to have a lesser proportion of borrowed capital if a company is involved in business operations where sales are subject to significant volatility. Sales variations are typical for businesses that produce capital goods, machine tools, televisions, and refrigerators. These businesses run the risk of experiencing financial trouble during periods of slow activity since they won't be able to pay their fixed obligations if their debt-to-equity ratios are high.

Characteristics of the Company: The amount of equity or debt capital that should be raised depends on a company's size as well as its credit position. Small businesses must rely more on owner capital because it is challenging for them to secure long-term financing. This is so because lenders view lending to small businesses as being riskier.

Management Control: Promoters who controlled a significant portion of the company's shares and its management take into account the potential impact of obtaining money through the issuance of equity shares. Equity shareholders with voting rights can affect the company's policy decisions or the choice of directors.

Cost of Finance: The cost of debt financing is invariably lower than the anticipated rate of return on equity capital since interest paid on borrowings is charged to profits before tax. Therefore, it is usually advantageous to borrow a portion of the total amount of money needed through a long-term loan. The overall cost of financing is decreased and the return on equity capital increases with lower debt financing costs.

Effect of Debt Financing on the Earnings Per Equity Share: If borrowed capital is utilised, the rate of return on equity share capital rises. Trading on equity or the "leverage effect" refers to the impact of debt on the rate of return on equity.

Expected Earning in Relation to Interest Charges: The expected coverage of interest by profits is another element that affects the debt-to-equity ratio. It may be safe to raise long-term loans rather than equity capital if the company's estimated average earnings are three to four times the amount of interest payable on borrowed capital.

Availability of Cash (Cash Flow): The availability of liquid liquidity is crucial for a company's capacity to meet its fixed obligations. The firm may have enough profits to repay the fixed costs associated with the debt, but if the income is constantly invested in new goods, book debts, or even the acquisition of equipment, especially if the business is expanding, the firm may not have enough cash on hand to pay.

Flexibility of Capital Structure: Management typically decides on the capital structure while taking into account their capacity to change the sources of funding. One of the fundamental factors is the potential for modifying the capital structure in the future.

Q3) Discuss various arguments in support of and against advertising. (10+10)

Ans) The employment of advertisements in society is defended in the following ways:

Arguments Against Advertising

Advertising Leads to Higher Prices: Many believe advertising raises prices. Advertising is costly. If it happens, expenses may be saved, items may cost less, and consumers may pay less. If the advertising spend improves the product, consumers may pay the same price for a better one.

Advertising Leads to Monopoly: It is common knowledge that major corporations build their brand identities through advertising. Consumers grow devoted to brands. New producers then find it challenging to break into the market.

Advertising Results in Inefficient Resource Allocation: The purpose of advertisements is not primarily to assist consumers. They primarily aim to shape customer demand so that it matches what has been produced.

Advertising causes undesirable social effects: There are some further criticisms of how advertising affects society and culture.

1. Advertisements regularly use undesirable themes like sex, horror, etc.

2. Consumers see innumerable product pitches, many of which they can't buy or utilise.

3. Alcohol, tobacco, and other vices are promoted through advertising.

4. It affects people's lives and social values. It's used to market materialistic items.

5. Advertisements often show inappropriate content, causing societal tension.

Advertising may Act Against the Freedom of Press: Advertising drives mass media. If the media's main source of money is commercials from a few large firms, it may be difficult to broadcast material in the public interest if it harms those corporations. Large sponsors can dominate media owners by blocking their advertising.

Advertising Encourages Unnecessary Competition: Advertising that is instructive and advertising that is aggressive are two different things. Advertising that provides consumers with useful information about a good or service is referred to as informative advertising. Ads of this nature are desirable.

Arguments in Support of Advertising

Society does not always benefit from advertising. It does, however, have some benefits as well. The following are justifications for advertising:

Advertising Leads to Reduction in the Cost of Goods: Some say advertising lowers prices. Advertising increases demand for a product and production in response. Scale economies occur when output rises. Scale benefits outweigh advertising costs.

Advertising Need Not Necessarily Lead to Monopoly: Marketing doesn't cause monopolies. It's not true that the first ad wins and latecomers lose. Advertising doesn't boost sales. Manufacturers of soap and cigarettes regularly create new brands, indicating consumers prefer novelty.

Advertising Directs Allocation of Resources According to Demand: Advertising affects resource allocation by generating demand for commodities. People are informed about the products that are on the market. Consumers make choices and purchases based on this information, favouring goods that more effectively meet their wants.

Advertising and Social Values: Norms and ideals are arbitrary, it's said. Another person may not find anything offensive. What's favourable now may not be tomorrow. Dishonest businesses misuse advertising.

Advertising Encourages Autonomy of Mass Media: Newspapers and magazines rely heavily on advertising to survive. Publishers sell newspapers and magazines at low prices. Advertisements make newspapers and magazines affordable. Advertising funds the media. Financial independence allows media to report on public issues openly and honestly.

Advertising provides useful information: Advertisements inform consumers about goods, prices, quality, sale terms, servicing, etc. It's a key source of information for folks in isolated areas who can't talk to salespeople. Advertising helps consumers by educating them.

Advertising Generates Employment: One argument in favour of advertising is that it creates jobs. In advertising agencies and the media, a sizable number of artists, designers, models, technologists, etc. make a living.

Q4) Discuss the pervasiveness of risk in business. Describe briefly the management of business risks. (10+10)

Ans) All commercial action has risks. Inability to recognise and handle risks causes numerous management mistakes. Managers often focus too much on profit and not enough on risk. Risk influences every aspect of an organisation. Let's examine risk in the following business areas:

Property and Personnel Risks: Every firm risks losing property and personnel due to fire, explosion, windstorm, flood, theft, business liability damage suits, earthquakes, and employee fatalities or disability. These hazards can ruin property or take life immediately. These risks could generate company losses.

Marketing Risks: Marketing involves delivering things from producers to consumers. Buying, selling, transferring, and storing are major responsibilities. Standardization, market knowledge, and research are other marketing essentials. These activities are all risky. The market can force you to sell at a loss.

Financial Risks: All businesses use debt and credit. Both received and provided credit might result in losses. Insolvent clients' bad debts are a company problem. Like debtors, banks and financial institutions may default or cancel loans due to tough business conditions. Slowing operations could cost the organisation money.

Production Risks: Manufacturing companies incur production losses owing to equipment failure, defective products from faulty equipment or low-quality raw materials, underutilization of installed capacity, inventory accumulation above current demand, incorrect plant architecture, uneconomical plant capacity, etc. Planning can lessen manufacturing risks.

Environmental Risks: Every firm must consider the market. Environmental elements like as competition, altering consumer tastes and preferences, technological breakthroughs, government rules, ecological concerns, and political changes affect every organisation. Environmental challenges threaten businesses.

Management of Business Risks

1. Five fundamental steps comprise risk management:

2. The hardest step is risk identification, which comes first. If you don't identify all of the firm's loss exposers, you won't be able to control such risks.

3. After identifying the risks, you should assess the possibility of suffering a financial loss. At this stage, it is necessary to calculate the likelihood of each risk or hazard mentioned in the first phase as well as the size of the financial loss the company would suffer if that risk came to pass.

4. After risk identification and accurate assessment, you should consider several risk management methods and decide which ones will work together to address the issue best in the third step.

The following are the fundamental risk management tools:

Risk Assumption or Retention: Most threats are handled this way. Businesses take risks, often unwittingly. Assuming a company acknowledges its risk but does nothing to reduce it. By recognising risks and hazards, a company's management takes action. He may change his business to reduce risks. Managing risks improves.

1. Loss Prevention: Taking the necessary steps to foresee a risk or lessen its financial impact on the company is another way to manage risk. Loss prevention is the practise in question.

2. Avoidance: Another strategy is to steer clear of probable loss-producing scenarios.

3. Transfer: Most hazards are transferred to another party. Insurance is the most common means to transfer pure risks like fire, wind, flood, riot, etc. Businesses transfer pure risks to insurers and focus on normal operations.

4. Separation: The firm's exposure sources are separated as opposed to being concentrated in one place where they could all be implicated in the same loss, which is the fifth way of risk control.

5. Combination: This strategy includes tactics like product diversification, the law of big numbers, the creation of numerous businesses with unconnected business sectors, etc.

Q5) Comment briefly on the following statements: 4x5

(a) An entrepreneur is a good judge of which products will sell.

Ans) An entrepreneur is a person whose mind initiates a commercial enterprise. He sees commercial prospects and knows what will sell. He's driven by imagination and success. An entrepreneur creates something unique. He pools scarce labour, capital, and raw materials to create something new and valuable.

Characteristics of an Entrepreneur

Independence: Many first-time business owners resisted being labelled or forced into a rut. Entrepreneurs, in fact, tend to get irritated when they are told what to do. They need to take charge. They value autonomy and independence.

1. Hard Work: The willingness to work, and work hard, is a defining characteristic of entrepreneurs. The owner of a successful firm has put in many hours of hard work, endured emotional strain, and persisted through adversity. There were probably numerous near misses in the beginning, but the owner kept going.

2. Desire-to Achieve Goals: They are highly motivated to find solutions to challenges and establish lucrative businesses that can sustain themselves over time. They weren't only interested in generating a profit but saw it as a symbol of their success and productivity.

3. Foresight and Dynamic Outlook: They comprehend commercial influences like the market, consumer attitude, and technology. They anticipate business risks and uncertainties more quickly, so they make excellent judgments quickly.

4. Open-Mindedness: They have a keen eye for forecasting how industries will evolve. They are aware that racism will continue to exist in society regardless of their efforts to stop it.

5. Optimistic Outlook: They think their problems are temporary and will better in the future. Entrepreneurs strive to achieve their goals as efficiently and effectively as possible, ideally with results they can be proud of.

6. Working Relationship: Employees are a company's most valuable asset, followed by its business contacts. People-friendly business entrepreneurs are more likely to succeed.

7. Good Organisers: They can coordinate the many moving components needed to build a successful company. They can persuade people of the organization's potential, enlist their participation, raise finance, purchase equipment, arrange for material delivery, hire appropriate personnel, and organise business duties.

8. Innovative Aptitude: A propensity for innovation is a common trait among prosperous business owners. On order to provide consumers with items that match their needs, the company invests a portion of its profits in study and development.

(b) Stock exchange plays a very important role in the economic development of a country.

Ans) As a component of the financial market, the stock exchange is crucial to the nation's economic growth. Now let's look at the economic aspects of how stock markets operate. These can include the following:

Primary Functions

1. On the stock exchange floor, it's easy to buy and sell stocks. Frequent transactions keep relationships consistent. The press accurately reports pricing for investors.

2. The stock market is vital to a country's capital market. Industrial and commercial firms can meet their financial demands by accessing national savings through stock markets.

3. The volume of purchasing and selling securities and their price changes are barometers of the economy and business climate.

4. Stock exchanges provide a continuous market for securities. Securities savings are cashed out and reinvested.

5. Investing knowledge encourages saving. The stock market teaches investors where and how to invest to make money.

6. Stock markets balance speculators' buy-and-sell prices of securities. Investors buy assets expecting price increases.

7. Observing stock exchange activities can help investors comprehend the pros and cons of various securities.

8. Stock market transactions shift money to more profitable enterprises. Growth-oriented industries are better able to attract people's savings than others.

Secondary Functions

1. Stock markets don't trade every company's shares. Companies must meet requirements to trade on an exchange's floor. The stock exchange verifies the company's authenticity to protect investors. Securities vary. Investors can compare the benefits of buying shares from businesses with diverse products, vast markets, and locations around the country.

2. Investors want easy cash conversion over a high return on investment. Stock markets may reassure investors. These markets make stock trading easier.

3. Every stock exchange records daily trades and prices. The closing prices of major securities are given to newspapers and other media.

4. Organized stock exchanges produce an "Official Yearbook" with company data. This helps investors make decisions.

5. Investors may trade securities based on which will be more profitable. A rise in a firm's shares or debentures shows investors believe it will outperform its competitors and have better long-term prospects.

6. Every stock exchange has specific management guidelines. Members can transact and trade securities. Members must follow the rules to safeguard investors from dishonesty and misconduct.

(c) There are various reasons of the government participating in business.

Ans) The brutal consequences of free trade economy around the world compelled the Government, social thinkers, and economists to stress for some sort of state intervention. There are many justifiable reasons for this need.

They are as follows:

1. Provision of Non-market Products and Indivisible Services

2. Provision of Basic Infrastructure

3. Improvement in Market Functioning

4. Correction of Inherent Defects in the Market Mechanism

5. Optimization of the Rate of Savings

6. Provision of Humanitarian Services

(d) The government company form of organization suffers from certain limitations.

Ans) A government corporation is a business or organisation in which the federal, state, or local governments collectively or individually hold at least 51 percent of the paid-up capital. There are numerous government-owned businesses; a few of them include State Trading Corporation of India, Bharat Heavy Electricals Limited, Coal India Limited, Steel Authority of India Limited, and others.

Limitations of a Government Company

1. Government officials, ministers, and politicians frequently meddle with these enterprises' operations.

2. These businesses avoid all constitutional obligations to answer to the parliament because they are funded by the government.

3. Due to the majority of the company's board being made up of politicians and public servants, who are more interested in appeasing their political party's owners or co-workers and less focused on the company's growth and development, the company's efficient operations are hindered.