Part V- Multiple Goals of business and Government Regulations
Business firms have multiple goals or objectives depend upon its need to satisfy various classes of stakeholders. The stakeholders may be of shareholders, managers, employees, customers etc. Therefore the goals of an organisation may be multiple and conflicting.
The major goals are:
(a)Maximisation of profits
(b)Maximisations of sales
(c)Maximisation of market share
(d)Maximisation of services
(e)Maximisation of worker satisfaction
(f)Maximisation of firm’s social responsibility, etc.
Profit Maximisation and Wealth Maximisation
Traditionally profit maximisation is considered as the main object of the firm. Profit maximisation is the maximising the rupee income of the business. Presently wealth maximisation is regarded as the better objective which refers to the maximisation of the market price of shares of the company. The modern theory of the firm postulates that the primary goal of the firm is to maximise the wealth or value of the firm.
Share holder Value Maximisation Model
The shareholder value maximisation or the shareholder wealth maximisation model assumes that the objective of the firm is to maximise the value of the firm as measured in the market place, i.e., maximise the market value of firm’s share. The value can be defined as the present value of the expected future cash flows of the firm.
Therefore the value of the firm is the value of its expected future earnings, discounted back to the present by an appropriate rate of interest. Since shareholders are the owners of the business, value of a firm represent the shareholder’s wealth.
.
. . Value of the firm = Net Present Value of expected future profits.
Government Regulations
What ever be the economic system, there must be some regulations and a legal framework to facilitate the smooth functioning of the system. The government has to consider the interests of all the stakeholders while framing such regulations. The government formed commercial laws or business laws to govern business and commercial transactions.
Commercial law include Mercantile law, Law of Agency, Law of Indemnity and Guarantee, Negotiable Instruments Act, Partnership Act, Company law etc. There are certain acts like MRTP ACT 1969, FERA 1973 (replaced by FEMA 1999) etc to control and manage monopolies and foreign trade.
Wednesday, December 1, 2010
Methodology of Business Studies - Section 2, Part 4
Part- IV Managerialism and Corporate Governance
Managerialism
The word management is a complex one. It is considered as a function, a process, a group, a discipline and so on. All institutions require management and in all of them, management is the effective and the active organ. Managerialism is the effective can the active organ. Managerialism is the belief that organisations have more similarities that differences, and thus the performance of all organisations can be optimised by the application of generic management skills and theory. It is the belief in or reliance on the use of professional managers in administering or planning activity. In short the experience and skills pertinent to an organisation’s core business are considered secondary but the generic skills of management are considered primary. This gains importance because of separation of ownership and management in corporate entities.
Corporate Governance
Corporate Governance means the way in which corporate bodies are governed or managed. Business ethics or ethical practices of the professionals and the corporate social responsibility, accountability to stakeholders, transparency and full disclosure are required for better governance. All these considerations within which a company is managed in order to increase the value of shareholders and protect the interest of stakeholders are called corporate Governance.
Corporate Governance is defined by Milton Friedmen as, “the conduct of business in accordance with shareholder’s desire, which generally is to make as much money as possible, while confirming to the basic rules of the society embodies in law and local customs”.
Managerialism, with corporate governance confines to not only efficient corporate management, but it include a fair, professional and transparent administration and strive to meet certain well defined, written objectives, irrespective of the type of organisation, its objectives, scale of operation or the nature of stake holders.
Managerialism
The word management is a complex one. It is considered as a function, a process, a group, a discipline and so on. All institutions require management and in all of them, management is the effective and the active organ. Managerialism is the effective can the active organ. Managerialism is the belief that organisations have more similarities that differences, and thus the performance of all organisations can be optimised by the application of generic management skills and theory. It is the belief in or reliance on the use of professional managers in administering or planning activity. In short the experience and skills pertinent to an organisation’s core business are considered secondary but the generic skills of management are considered primary. This gains importance because of separation of ownership and management in corporate entities.
Corporate Governance
Corporate Governance means the way in which corporate bodies are governed or managed. Business ethics or ethical practices of the professionals and the corporate social responsibility, accountability to stakeholders, transparency and full disclosure are required for better governance. All these considerations within which a company is managed in order to increase the value of shareholders and protect the interest of stakeholders are called corporate Governance.
Corporate Governance is defined by Milton Friedmen as, “the conduct of business in accordance with shareholder’s desire, which generally is to make as much money as possible, while confirming to the basic rules of the society embodies in law and local customs”.
Managerialism, with corporate governance confines to not only efficient corporate management, but it include a fair, professional and transparent administration and strive to meet certain well defined, written objectives, irrespective of the type of organisation, its objectives, scale of operation or the nature of stake holders.
Methodology of Business Studies - Section 2, Part 3
Part III – Public Sector – Private Sector -Cooperative Sector
and Non Profit Enterprises
Public Sector
A public sector enterprise is one that is owned, managed and controlled by the Central Government or any State Government or local authority. There are about 1000 PSEs, of which about 800 are owned by the States. The major part of public investment by the central government has been made in infrastructure such as power, coal, petroleum, steel, fertilizers, etc and a low percentage of investment has been made in textiles and consumer goods.
The major contributions of Public Sector to Indian economy are in the forms of :- (Goals of PSUs)
(1)Development orientation through mobilizing and utilizing saving and further capital formation.
(2)Generation of more employment opportunities.
(3)Contributes to the net domestic product through generation of internal resources, payment of dividend and through contribution to government exchequer (taxes and duties).
(4)Contributes towards the development of infrastructure.
(5)Contributes towards the welfare of weaker sections of economy.
(6)Helps in maintaining process of raw- materials.
(7)Contribute towards promotion of exports and import substitution.
(8)Helps in preventing imbalance of wealth and promoting equity.
(9)Protects the interest on consumers and
(10) Stands for the common good of all.
Problems faced by PSus:-
(1)Poor service from employees and their jobs are more secure than those in private sector.
(2)More wastage.
(3)Consumer dissatisfaction due to lack of innovative practices.
(4)Mis investment and mismanagement.
(5)Misallocation of labour and capital.
(6)Political influence and
(7)Lack of proper accountability.
Changing role of PSUs in India:-
At the time of Independence, PSUs were regarded as important catalysts for social change. They are regarded as the development agents. In the post 1990, the role of PSUs was redefined and made them accountable for losses and returns in investment. The government initiated disinvestment and even privatisation. Disinvestment means the dilation of stake of government is PSU to less than 50% of its total stock, and retains the control and management by govt. If disinvestment exceeds 50%, and the control and mgt. transferred to private – enterprise, it results is privatization. The government for raising resources now utilising this means and there fore the role of PSUs are getting reduced day by day and they need to compete with private sector for growth and survival.
Private Sector
A private sector enterprise is one which is owned, managed and controlled by individuals or group of individuals. In the post liberalisation era, role of private sector turns to be very important. The government has sought to transform itself from being a provider of public services to a purchaser on behalf of users. Why private sector is regarded as an important part of Indian economy, there are several reasons for the same:
(1) The private sector is the dominant sector of the economy.
(2) It contributes towards development through research and innovation.
(3) It creates more and more employment opportunities.
(4) It contributes to the development through small and micro businesses.
(5) It improves the standard of living of people through diversification.
(6) It attracts more foreign exchange.
(7) It provides fair return to investors.
The largest private sector company in terms of market capitalization is Reliance industries and the top 3 companies in terms of assets were Reliance Industries, Tata Steel and Hindalco. The top 3 IT Companies of the country are Infosys, TCS and Wipro.
Market capitalization is simply the value assigned by the stock market to a firm.
Co-operative Sector
Cooperative refers to an institutional frame work to organise self help among members. The major features of it consist of voluntary membership, democratic functionary, social interest promotion etc. The Indian cooperatives are patronised by the state through:
(1)Prevention of concentration of economic power.
(2)Wider dispersal of ownership of productive resources.
(3)Active involvement of people in the development programmes.
(4)Augmentation of productive resources.
(5)Prevention of unemployment and poverty.
(6)lower the bureaucratic evils.
(7)Act as instruments for planned growth of the country.
Non- Profit Enterprises
A non- profit organisation is an organisation that does not distribute its surplus funds to owners or shareholders, but instead uses them to pursue its goals. They can be of trusts, societies, section 25 companies and special licensed organisations. The basic objective or goal of NPOs is to obtain a response from a target market. The response could be a change in values, a financial contribution, the donation or services or some other type of exchange. They use advertising, publicity and personnel selling to communicate with clients and the public. Now a days they are raising money by increasing the prices of their services or are starting to change for their service. They also resort to donations, contributions or grants.
and Non Profit Enterprises
Public Sector
A public sector enterprise is one that is owned, managed and controlled by the Central Government or any State Government or local authority. There are about 1000 PSEs, of which about 800 are owned by the States. The major part of public investment by the central government has been made in infrastructure such as power, coal, petroleum, steel, fertilizers, etc and a low percentage of investment has been made in textiles and consumer goods.
The major contributions of Public Sector to Indian economy are in the forms of :- (Goals of PSUs)
(1)Development orientation through mobilizing and utilizing saving and further capital formation.
(2)Generation of more employment opportunities.
(3)Contributes to the net domestic product through generation of internal resources, payment of dividend and through contribution to government exchequer (taxes and duties).
(4)Contributes towards the development of infrastructure.
(5)Contributes towards the welfare of weaker sections of economy.
(6)Helps in maintaining process of raw- materials.
(7)Contribute towards promotion of exports and import substitution.
(8)Helps in preventing imbalance of wealth and promoting equity.
(9)Protects the interest on consumers and
(10) Stands for the common good of all.
Problems faced by PSus:-
(1)Poor service from employees and their jobs are more secure than those in private sector.
(2)More wastage.
(3)Consumer dissatisfaction due to lack of innovative practices.
(4)Mis investment and mismanagement.
(5)Misallocation of labour and capital.
(6)Political influence and
(7)Lack of proper accountability.
Changing role of PSUs in India:-
At the time of Independence, PSUs were regarded as important catalysts for social change. They are regarded as the development agents. In the post 1990, the role of PSUs was redefined and made them accountable for losses and returns in investment. The government initiated disinvestment and even privatisation. Disinvestment means the dilation of stake of government is PSU to less than 50% of its total stock, and retains the control and management by govt. If disinvestment exceeds 50%, and the control and mgt. transferred to private – enterprise, it results is privatization. The government for raising resources now utilising this means and there fore the role of PSUs are getting reduced day by day and they need to compete with private sector for growth and survival.
Private Sector
A private sector enterprise is one which is owned, managed and controlled by individuals or group of individuals. In the post liberalisation era, role of private sector turns to be very important. The government has sought to transform itself from being a provider of public services to a purchaser on behalf of users. Why private sector is regarded as an important part of Indian economy, there are several reasons for the same:
(1) The private sector is the dominant sector of the economy.
(2) It contributes towards development through research and innovation.
(3) It creates more and more employment opportunities.
(4) It contributes to the development through small and micro businesses.
(5) It improves the standard of living of people through diversification.
(6) It attracts more foreign exchange.
(7) It provides fair return to investors.
The largest private sector company in terms of market capitalization is Reliance industries and the top 3 companies in terms of assets were Reliance Industries, Tata Steel and Hindalco. The top 3 IT Companies of the country are Infosys, TCS and Wipro.
Market capitalization is simply the value assigned by the stock market to a firm.
Co-operative Sector
Cooperative refers to an institutional frame work to organise self help among members. The major features of it consist of voluntary membership, democratic functionary, social interest promotion etc. The Indian cooperatives are patronised by the state through:
- Participation in share capital.
- Provision of loans to societies.
- Provision of tax concessions.
- Provision of legal concessions.
- Provision of education and training.
- Assistance of RBI.
(1)Prevention of concentration of economic power.
(2)Wider dispersal of ownership of productive resources.
(3)Active involvement of people in the development programmes.
(4)Augmentation of productive resources.
(5)Prevention of unemployment and poverty.
(6)lower the bureaucratic evils.
(7)Act as instruments for planned growth of the country.
Non- Profit Enterprises
A non- profit organisation is an organisation that does not distribute its surplus funds to owners or shareholders, but instead uses them to pursue its goals. They can be of trusts, societies, section 25 companies and special licensed organisations. The basic objective or goal of NPOs is to obtain a response from a target market. The response could be a change in values, a financial contribution, the donation or services or some other type of exchange. They use advertising, publicity and personnel selling to communicate with clients and the public. Now a days they are raising money by increasing the prices of their services or are starting to change for their service. They also resort to donations, contributions or grants.
Methodology of Business Studies - Section 3, Part 4
Part – IV ACCOUNTING
Accounting: Accounting is a discipline which records, classifies, summarizes and interprets financial information about the activities of a concern so that intelligent decisions can be made about the concern. According to the committee on Terminology of the American Institute of Certified Public Accounts (AICPA), ‘ Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part at least, of a financial character, and interpreting the result there of .
Book Keeping and Accounting: Book keeping is the art and science of keeping a systematic record of business transactions in a set of books. But accounting is more concerned with summarization of the same for decision making. The major differences between them are
Book keeping is concerned with preliminary steps in accounting process viz. recording of business transactions, so it is used in a narrow sense. Whereas Accounting is used in a wider sense covering grouping, summarization, analysis, interpretation etc...
The scope of work in book keeping is clerical and routine in nature but scope of work of accounting is analytical in nature.
The results of records prepared in boo-keeping are for internal use. But the results of records prepared in accounting are communicated to both internal and external users.
Branches of Accounting: There are mainly 3 branches of accounting according to contents of information and usefulness.
Financial accounting – It deals with recording of financial transactions to enable the business to prepare final accounts. The main object of it is to find out the profitability and to provide information about the financial position of the concern.
Cost accounting – It is concerned with finding out the cost of goods produced or services rendered by a business. It is the process of accounting for costs. It helps in cost-control decision making.
Management accounting- It is related to that aspect of accounting information, which is useful to the management for taking various decisions. Thus management accounting consists of cost accounting, budgetary control, inventory control, internal auditing, reporting etc. In short it is the accounting for management.
The Accounting Process: The process of accounting that leads to the measurement of financial performance and position of an enterprise consists of the following stages:
Accounting is the language of business. To make the language convey the same meaning to all people, accountants all over the world have developed certain rules, procedures and conventions which represent a consensus view by the profession of good accounting practices and procedures. The uniformity in accounting practice enable comparison of financial reports of different companies. Accounting standards are the methods and procedures used in accounting for events reported in financial statements. The object of accounting standards is to provide uniformity in financial reporting and to ensure consistency and comparability of information.
To maintain uniformity in accounting principles throughout the world, International Accounting Standards Committee (IASC) came in to being on 29th June 1973 consisting of accounting bodies from 9 nations with its headquarters at London. The committee has laid down standards regarding various accounting matters. In tune with the same Institute of Chartered Accountants of India established an Accounting Standards Board (ASB) in April 1977. ASB prepared several accounting standards in tune with International Accounting Standards.
Some important Accounting Standards are
Accounting Standard 1– Disclosure of accounting policies
Accounting Standard 2- Valuation of inventory
Accounting Standard 3- Cash flow statements
Accounting Standard 6- Depreciation Accounting
Accounting Standard 8- Accounting for Research and Development
Accounting Standard 10- Accounting for fixed Assets etc...
Major factors of production and their rewards: The various resources that go into the production process for goods or services are called the factors of production or inputs. The major factors of productions are land, labor, capital and entrepreneurship.
Land- Land refers to the various natural resources like land surface, mines, forests, rivers and the sea. Land represents the gift of nature to own production process. Normally rent is regarded as the reward for land.
Labour - : Labour represents all kinds of physical and mental efforts of a man undertaken to earn an income. Wages or Salaries is the reward for labour.
Capital – Capital represents a stock of existing wealth that is used to produce further wealth. Interest is regarded as the reward for capital.
Profit – Profit is regarded as the reward for entrepreneurship.
Factors to be considered for starting a business
Direct taxes include taxes on income and property and indirect taxes covers taxes on commodities and services. Important direct taxes are income tax, corporate tax and wealth tax. Important indirect taxes are sales tax, excise duties and input duties.
Major sources of tax revenues for central government
Accounting: Accounting is a discipline which records, classifies, summarizes and interprets financial information about the activities of a concern so that intelligent decisions can be made about the concern. According to the committee on Terminology of the American Institute of Certified Public Accounts (AICPA), ‘ Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part at least, of a financial character, and interpreting the result there of .
Book Keeping and Accounting: Book keeping is the art and science of keeping a systematic record of business transactions in a set of books. But accounting is more concerned with summarization of the same for decision making. The major differences between them are
Book keeping is concerned with preliminary steps in accounting process viz. recording of business transactions, so it is used in a narrow sense. Whereas Accounting is used in a wider sense covering grouping, summarization, analysis, interpretation etc...
The scope of work in book keeping is clerical and routine in nature but scope of work of accounting is analytical in nature.
The results of records prepared in boo-keeping are for internal use. But the results of records prepared in accounting are communicated to both internal and external users.
Branches of Accounting: There are mainly 3 branches of accounting according to contents of information and usefulness.
Financial accounting – It deals with recording of financial transactions to enable the business to prepare final accounts. The main object of it is to find out the profitability and to provide information about the financial position of the concern.
Cost accounting – It is concerned with finding out the cost of goods produced or services rendered by a business. It is the process of accounting for costs. It helps in cost-control decision making.
Management accounting- It is related to that aspect of accounting information, which is useful to the management for taking various decisions. Thus management accounting consists of cost accounting, budgetary control, inventory control, internal auditing, reporting etc. In short it is the accounting for management.
The Accounting Process: The process of accounting that leads to the measurement of financial performance and position of an enterprise consists of the following stages:
- Documentations
- Recording of transactions chronologically in journal.
- Classification of transactions according to nature and posting them in to respective ledgers.
- Summarizing the transactions with the help of trail balance
- Bifurcating transactions and preparing P&L account and balance sheet.
- Analyzing the statements and interpreting the data.
- Formulation of economic policies
- Anticipating changes and preparing for the same
- Giving early warning of sickness
- Helping in evolving a proper system of financial and Information technology
- Providing evidence in the court of law
- Ascertaining financial conditions of enterprise and so on
Accounting is the language of business. To make the language convey the same meaning to all people, accountants all over the world have developed certain rules, procedures and conventions which represent a consensus view by the profession of good accounting practices and procedures. The uniformity in accounting practice enable comparison of financial reports of different companies. Accounting standards are the methods and procedures used in accounting for events reported in financial statements. The object of accounting standards is to provide uniformity in financial reporting and to ensure consistency and comparability of information.
To maintain uniformity in accounting principles throughout the world, International Accounting Standards Committee (IASC) came in to being on 29th June 1973 consisting of accounting bodies from 9 nations with its headquarters at London. The committee has laid down standards regarding various accounting matters. In tune with the same Institute of Chartered Accountants of India established an Accounting Standards Board (ASB) in April 1977. ASB prepared several accounting standards in tune with International Accounting Standards.
Some important Accounting Standards are
Accounting Standard 1– Disclosure of accounting policies
Accounting Standard 2- Valuation of inventory
Accounting Standard 3- Cash flow statements
Accounting Standard 6- Depreciation Accounting
Accounting Standard 8- Accounting for Research and Development
Accounting Standard 10- Accounting for fixed Assets etc...
Major factors of production and their rewards: The various resources that go into the production process for goods or services are called the factors of production or inputs. The major factors of productions are land, labor, capital and entrepreneurship.
Land- Land refers to the various natural resources like land surface, mines, forests, rivers and the sea. Land represents the gift of nature to own production process. Normally rent is regarded as the reward for land.
Labour - : Labour represents all kinds of physical and mental efforts of a man undertaken to earn an income. Wages or Salaries is the reward for labour.
Capital – Capital represents a stock of existing wealth that is used to produce further wealth. Interest is regarded as the reward for capital.
Profit – Profit is regarded as the reward for entrepreneurship.
Factors to be considered for starting a business
- Select a proper line of business based on its capacity to generate good return at minimum risk
- Select a proper location for the business by considering various factors like availability of raw-materials, availability of labor, transportations and banking facilities, power, water etc.
- Decide about the form of organisation structure – i.e., sole proprietorship, partnership, corporate form etc.
- Estimate the fund requirements and find various sources of finance.
- Decide on the structures and constructions
- Decide on labour requirements, sources and rewards
- Fulfillment of legal requirements and procedural formalities
- Launching of the enterprise
Direct taxes include taxes on income and property and indirect taxes covers taxes on commodities and services. Important direct taxes are income tax, corporate tax and wealth tax. Important indirect taxes are sales tax, excise duties and input duties.
Major sources of tax revenues for central government
- Tax on income other than agricultural income
- Customs duty and exports duties
- Corporation tax
- Estate duty in respect of succession to properly other than agricultural land
- Taxes on sale or purchase of newspapers and on advertisements published there is etc.
- Taxes on agricultural income
- Land revenue
- Taxes on land and building
- Taxes on electricity
- Taxes on vehicle for use on roads etc...
Methodology of Business Studies - Section 3, Part 3
Part III STOCK EXCHANGE
Savings: The income of a person may be used for purchasing goods and services that he currently requires or it may be saved for meeting future requirements. Savings are generated when a person or an organisation abstains from present consumption for a future use.
The Central Statistical Organisation (CSO) defines saving as “ the excess of current income over current expenditure and is the balancing item on the income outlay accounts of producing enterprises, households, government administration and other final consumers’. For the purpose of estimating the domestic savings, the economy has been divided into three broad institutional sectors: such as households, private corporate and public sector.
Factors affecting savings : In order to promote economic development, savings is not only to be generated but also to be mobilized to the maximum extent possible and then channelize them into productive investment. The main factors that determine the size of savings are:
Financial Market: A market is a place used for buying and selling goods. The economic units in an economy such as individuals in the house hold sector, business units in the industrial and commercial sector and government organizations and departments engaged in various economic activities and transactions involving money. Some are in financial deficit and some others are in financial surplus. The transfer of funds from surplus generators to deficit generators is essential for economic development.
The market facilitate such an exchange or transfer is called financial market. the commodity exchanged in this market is a financial asset instead of physical asset. When the financial assets transferred are corporate securities and government securities, the mechanism of transfer is called securities market.
Money Market and Capital Market: On the basis of the maturity period of securities traded in the securities market, the market is segmented into money market and capital market. Money market is the market for short- term financial assets with maturities of one year or less. Treasury bills, commercial bills, commercial paper, certificated of deposits, etc are the short term securities traded in the money market.
Capital market is the market where securities with maturities of more than one year are bought and sold. Equity shares, preference shares, debentures and bonds are the long term securities traded in the capital market
Primary Market and Secondary Market: Depending on the nature and type of securities traded, financial market may be classified as primary market and secondary market. The market mechanism for buying and selling of new issues of securities is known as primary market. This market is also termed as new issues market.
The Secondary market deals with securities which have already been issued and are owned by investors. These may be traded between investors. The buying and selling of securities already issued and outstanding take place in stock exchanges. Hence stock exchanges constitute the secondary market.
Methods of floating New Issues
The methods by which new issues of shares are floated in the primary market in India are:
Public issue – Sale of securities to members of the public directly by a company. The company makes an offer for a sale of a fixed number of shares at a particular price through a legal document called prospectus.
Rights Issue – As per section 81 of the Companies Act, 1956, when a company issues additional equity capital it has to be offered first to the existing shareholders on a pro-rata basis. Such an issue of securities to the existing share holders in proportion to their current holding is called rights issue.
Private Placement – Private placement is a sale of securities privately by a company to a selected group of investors. The securities are normally placed with the institutional investors, mutual funds or other financial institutions.
Stock Exchange – Definition
A stock exchange may be defined as, “a centralised market for buying and selling stocks where the price is determined through supply- demand mechanism”.
According to the Securities Contracts (Regulation) Act 1956, “Stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities”.
Role and functions of a Stock Exchange: A stock exchange has an important role to fulfill the economic development of a country. The stock exchange performs certain essential functions in the process of capital formation and in raising resources for the corporate sector. Some of them are:
Characteristics of Stock Exchange: The essential features or characteristics of stock exchange are:
Stock broking: Stock broking is the professional activity of buying and selling stocks and shares for clients. A transaction on a stock exchange must be made between two members of the exchange. Such an exchange must be done through a broker. “There are 3 types of stock broking services:
Difference between Primary market and Secondary Market
In Primary Market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already issued securities are traded among investors. Secondary market could be either auction or dealer market. Stock Exchange is the part of an auction market and over the Counter market as part of the dealer market.
NASDAQ- NASDAQ is an American Stock Exchange. It originally stood for ‘National Association of Securities Dealers Automated Quotations’. It is the largest electronic screen-based equity securities trading market in the US and fourth largest by market capitalization in the world.
Savings: The income of a person may be used for purchasing goods and services that he currently requires or it may be saved for meeting future requirements. Savings are generated when a person or an organisation abstains from present consumption for a future use.
The Central Statistical Organisation (CSO) defines saving as “ the excess of current income over current expenditure and is the balancing item on the income outlay accounts of producing enterprises, households, government administration and other final consumers’. For the purpose of estimating the domestic savings, the economy has been divided into three broad institutional sectors: such as households, private corporate and public sector.
Factors affecting savings : In order to promote economic development, savings is not only to be generated but also to be mobilized to the maximum extent possible and then channelize them into productive investment. The main factors that determine the size of savings are:
- Size of income
- The fiscal and monetary policy of the government. (Monetary policy concerned with the management of the supply, cost and availability of money. Fiscal policy is a package of economic measures of the government regarding its public expenditure, public revenue and public borrowing.)
- Subjective factors like need for meeting unforeseen contingencies, meet expected future needs, meet speculative or business purposes, need to accumulate wealth etc.
- Rate of interest prevailing in the economy
- Price level changes (Inflation )
- Spending habit of people
- Demonstration effect (desire to imitate the superior consumption standards of the advanced countries.
Financial Market: A market is a place used for buying and selling goods. The economic units in an economy such as individuals in the house hold sector, business units in the industrial and commercial sector and government organizations and departments engaged in various economic activities and transactions involving money. Some are in financial deficit and some others are in financial surplus. The transfer of funds from surplus generators to deficit generators is essential for economic development.
The market facilitate such an exchange or transfer is called financial market. the commodity exchanged in this market is a financial asset instead of physical asset. When the financial assets transferred are corporate securities and government securities, the mechanism of transfer is called securities market.
Money Market and Capital Market: On the basis of the maturity period of securities traded in the securities market, the market is segmented into money market and capital market. Money market is the market for short- term financial assets with maturities of one year or less. Treasury bills, commercial bills, commercial paper, certificated of deposits, etc are the short term securities traded in the money market.
Capital market is the market where securities with maturities of more than one year are bought and sold. Equity shares, preference shares, debentures and bonds are the long term securities traded in the capital market
Primary Market and Secondary Market: Depending on the nature and type of securities traded, financial market may be classified as primary market and secondary market. The market mechanism for buying and selling of new issues of securities is known as primary market. This market is also termed as new issues market.
The Secondary market deals with securities which have already been issued and are owned by investors. These may be traded between investors. The buying and selling of securities already issued and outstanding take place in stock exchanges. Hence stock exchanges constitute the secondary market.
Methods of floating New Issues
The methods by which new issues of shares are floated in the primary market in India are:
Public issue – Sale of securities to members of the public directly by a company. The company makes an offer for a sale of a fixed number of shares at a particular price through a legal document called prospectus.
Rights Issue – As per section 81 of the Companies Act, 1956, when a company issues additional equity capital it has to be offered first to the existing shareholders on a pro-rata basis. Such an issue of securities to the existing share holders in proportion to their current holding is called rights issue.
Private Placement – Private placement is a sale of securities privately by a company to a selected group of investors. The securities are normally placed with the institutional investors, mutual funds or other financial institutions.
Stock Exchange – Definition
A stock exchange may be defined as, “a centralised market for buying and selling stocks where the price is determined through supply- demand mechanism”.
According to the Securities Contracts (Regulation) Act 1956, “Stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities”.
Role and functions of a Stock Exchange: A stock exchange has an important role to fulfill the economic development of a country. The stock exchange performs certain essential functions in the process of capital formation and in raising resources for the corporate sector. Some of them are:
- Established for the purpose of assisting, regulating and controlling business of buying, selling and dealing in securities.
- Provides a market for the trading of securities to individuals and organisations seeking to invest their savings or excess funds through the purchase of securities.
- Provides a physical location for buying and selling securities that have been listed for trading on that exchange.
- Establishes rules for fair trading practices and regulates the trading activities of its members according to those rules.
- The exchange itself does not buy or sell the securities, nor does it set prices for them. It assures that no investor will have an undue advantage over the other market participants.
Characteristics of Stock Exchange: The essential features or characteristics of stock exchange are:
- It is a voluntary association registered by certain laws.
- Control of the exchange performed by governing body, which was elected by the members of exchange.
- The members should obey the rules and regulations
- Only securities enlisted in the official list of stock exchange can be transacted through stock exchange.
Stock broking: Stock broking is the professional activity of buying and selling stocks and shares for clients. A transaction on a stock exchange must be made between two members of the exchange. Such an exchange must be done through a broker. “There are 3 types of stock broking services:
- Pertaining to only execution, which means the broker will only carryout the client’s instruction to buy or sell
- Concerned with the advisory dealing, where the broker advises the client on which shares to buy and sell, but leaves the final decision to the investor.
- Discretionary dealings, where the stock broker ascertains the clients’s investment objectives and then makes all dealing decisions on behalf of his client.
Difference between Primary market and Secondary Market
In Primary Market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already issued securities are traded among investors. Secondary market could be either auction or dealer market. Stock Exchange is the part of an auction market and over the Counter market as part of the dealer market.
NASDAQ- NASDAQ is an American Stock Exchange. It originally stood for ‘National Association of Securities Dealers Automated Quotations’. It is the largest electronic screen-based equity securities trading market in the US and fourth largest by market capitalization in the world.
Methodology of Business Studies - Section 3, Part 2
Part -2 – BUSINESS FINANCE
Business Finance: - Finance is considered to be the life blood of business. When finance is used for some business activities, it may be called business finance. It refers to the money and credit employed in business. It may be defined as the process of raising, providing and managing of all funds to be used in connection with business activities.
According the B.O Wheeler, “Business finance is that business activity which is concerned with the acquisition and conservation of capital funds in meeting the financial needs and overall objectives of a business enterprise”.
Finance is required for the purchase of fixed assets, meeting the cost of current assets, acquiring intangible assets, meeting the day to day expenses, meeting the cost of raising finance, providing for the growth and expansion of business and so on. the capital required by a business is segregated into fixed capital and working capital.
Fixed Capital: - Fixed capital is represented by fixed assets like plant and machinery, land and buildings, furniture etc. Capital investment in such assets is more or less permanent in nature. It requires large amount of money for a long period of time. The return will derived over a long period of time. The amount of fixed capital required in an organization depends on nature of business, scale of operation, type of manufacturing process, mode of acquiring fixed assets etc.
Working Capital: - Working Capital is the amount of capital which is required for the day to day working of a business. It is the capital used for carrying out routine business operations of financing current assets. It is also known as circulating capital because of the fact that it keeps on revolving or circulating from cash to current assets and back. There are two concepts of working capital- Gross working Capital (Total funds invested in current assets) and Net working Capital (Difference between current assets and current liabilities.)
On the basis of period for which finance is required, business finance may be classified into:
Long term finance: – Funds which are required to be invested in the business for a long period generally exceeding five years are called long- term finance. Shares, debentures, loans etc are the main sources of this finance.
Medium – term finance: – Finance required for a period of one year to five years is known as medium term finance. Redeemable preference shares, debentures, loans etc are its main sources.
Short – term finance: - finance required for meeting day- to- day operations of a business or for meeting the working capital requirements are called short- term finance. Trade credit, short term loans, public deposits, accounts receivable financing etc are the main sources to it. This type of finance is required for a short period up to one year.
Sources of business finance: The term source implies the agencies from which funds are procured. To meet its requirements, the private corporate sector raises finance from different sources. These sources can be classified into two categories:
A. Owned funds: - The amount contributed by the owners is known as ownership capital. Owned funds consist of the amount contributed by owners as well as the profits reinvested in the business. It acts as a source of permanent capital, risk capital and affords a right to management and control with claim only on the residual profit.
B. Borrowed Capital: – Finance raised by way of loans and credit from the public, banks and financial institution is known as borrowed capital. Its major sources consist of debentures, public deposits, banks etc. It usually available only for a fixed period and involves payment of fixed rate of interest at regular intervals.
Difference between Ownership Capital and Creditorship Capital
1. Owned capital comprises the amounts contributed by the owners and their profits reinvested. Creditorship capital consists of funds available in the form of loans or credit.
2. Owned capital is permanently invested in business whereas borrowed capital is available only for a limited period of time.
3. Owned capital act as the risk capital of business but the borrowed capital is generally secured in nature.
The major sources of business finance are:
1. Share: - The capital of a company is usually divided into certain indivisible units of a definite sum. These units are called share. Shares represent the interest of a share holder in a company measured in terms of money. Those who subscribe shares are called shareholders. Different kinds of shares are:
Preference shares:- Those shares which carry preferential right in respect of dividend and repayment of capital in the event of winding up of the company. These shares may be of:
Cumulative and Non cumulative
Participating and Non Participating
Convertible and Non Convertible
Redeemable and Irredeemable
Equity shares or ordinary shares: - Shares which do not enjoy any of the preferences attached to the preference shares are known as equity shares. They are the real owners of the company and bear the risk of business. Dividend on equity shares is paid after the dividend on preference shares has been paid. In the event of winding up, equity capital can be repaid only after settling all other claims.
Debentures: - Debenture is a certificate issued by a company under its seal acknowledging a debt due to its holders. It is a creditor ship security entitled to get the periodical payment of interest at a fixed rate.
Retained Earning: - Profits which are not distributed among the shareholders and re-invested into business is called retained earnings. This process of ploughing back of profits is also known as ‘self financing’ because it is an internal source of finance
Public deposits: – The deposits made by the public with corporate are known as public deposits.
Leading Institutions for business finance
Institutional finance refers to an institutional source of finance to business enterprises. It generally consists of:
1.Banks and other public financial institutions
2.Non- Banking finance companies, and
3.Investment Trusts and Mutual funds
Commercial Banks:- Commercial banks play a very significant role in financing the short term requirements of corporates. They provide finance by way of loans, overdrafts, cash credit and discounting bills.
Loan is granted for a specific project or purpose. Under overdraft arrangement, a customer having a current account with the bank is allowed to overdraw his account. Under cash credit scheme, the bank fixes a cash credit limit for the customer, the customer can withdraw up to this limit any number of times. But interest is charged only on the amount actually utilized. Commercial banks extend credit to industries by discounting their bills and promissory notes at a price less than their face value, the difference is the amount of interest charged by the bank.
Lending is the primary source of income for banks. The RBI insisted that 40 % of the total lending of banks should be to priority sectors such as agriculture, small enterprises, retail trade, micro-credit, education loans and housing loans.
There are 3 constituents of commercial banking structure in India. They are Public Sector banks, private sector banks and foreign banks. Public sector banking in India consists of 19 nationalized banks besides the State Bank of India and its seven associate banks, one other public sector bank (IDBI Ltd) and 88 regional rural banks. The foreign banks in the private sector are those banks that are incorporated in foreign countries. There are 30 such banks with 279 branches.
Non- Banking Finance Companies (NBFCs): Non-banking finance companies are financial institutions that provide specific financial services to meet the requirements of specific segments of the industry. NBFC is defined as a company that is a financial institution and has as its business the receiving of deposits or lending under any scheme of arrangement. It resembles like banking company since it receives deposits and lends money. However, it is not a bank because it is not incorporated as a bank and is not governed by Banking Regulation Act 1947. RBI mentioned five kinds of NBFCs such as – leasing finance companies, hire-purchase finance companies, loan finance companies, investment finance companies and residuary non- banking companies.
International sources of business funds: With the globalization and liberalization of the economy, Indian companies have started generating funds from international markets. The international sources from where the funds can be procured include foreign currency loans, commercial banks, financial assistance from international agencies and issues of financial instruments like global depository receipts (GDR) American depository receipts (ADR) and foreign currency convertible bonds (FCCB).
GDR is an instrument issued abroad by an Indian company to raise funds in some foreign currency and is listed and traded on a foreign stock exchange. GDR is issued in the form of depository receipt or certificate created by the Overseas Depository Bank outside India and issued to non – resident investors against the issue of ordinary shares or foreign currency convertible debentures of the issuing company.
The depositary receipts issued by a company in the US to US citizens only and can be listed and traded on a stock exchange of US only is called ADR.
An FCCB is a bond issued by an Indian company subscribed by non-residents in foreign currency and convertible is to equity shares of issuing company.
Cost of Capital: - Cost of Capital means the minimum return expected by the suppliers of capital. It is the rate of return required by lenders and stockholders of lend or invest their funds in the firm. This expected return depends on the risk they have to undertake.
Business Finance: - Finance is considered to be the life blood of business. When finance is used for some business activities, it may be called business finance. It refers to the money and credit employed in business. It may be defined as the process of raising, providing and managing of all funds to be used in connection with business activities.
According the B.O Wheeler, “Business finance is that business activity which is concerned with the acquisition and conservation of capital funds in meeting the financial needs and overall objectives of a business enterprise”.
Finance is required for the purchase of fixed assets, meeting the cost of current assets, acquiring intangible assets, meeting the day to day expenses, meeting the cost of raising finance, providing for the growth and expansion of business and so on. the capital required by a business is segregated into fixed capital and working capital.
Fixed Capital: - Fixed capital is represented by fixed assets like plant and machinery, land and buildings, furniture etc. Capital investment in such assets is more or less permanent in nature. It requires large amount of money for a long period of time. The return will derived over a long period of time. The amount of fixed capital required in an organization depends on nature of business, scale of operation, type of manufacturing process, mode of acquiring fixed assets etc.
Working Capital: - Working Capital is the amount of capital which is required for the day to day working of a business. It is the capital used for carrying out routine business operations of financing current assets. It is also known as circulating capital because of the fact that it keeps on revolving or circulating from cash to current assets and back. There are two concepts of working capital- Gross working Capital (Total funds invested in current assets) and Net working Capital (Difference between current assets and current liabilities.)
On the basis of period for which finance is required, business finance may be classified into:
Long term finance: – Funds which are required to be invested in the business for a long period generally exceeding five years are called long- term finance. Shares, debentures, loans etc are the main sources of this finance.
Medium – term finance: – Finance required for a period of one year to five years is known as medium term finance. Redeemable preference shares, debentures, loans etc are its main sources.
Short – term finance: - finance required for meeting day- to- day operations of a business or for meeting the working capital requirements are called short- term finance. Trade credit, short term loans, public deposits, accounts receivable financing etc are the main sources to it. This type of finance is required for a short period up to one year.
Sources of business finance: The term source implies the agencies from which funds are procured. To meet its requirements, the private corporate sector raises finance from different sources. These sources can be classified into two categories:
A. Owned funds: - The amount contributed by the owners is known as ownership capital. Owned funds consist of the amount contributed by owners as well as the profits reinvested in the business. It acts as a source of permanent capital, risk capital and affords a right to management and control with claim only on the residual profit.
B. Borrowed Capital: – Finance raised by way of loans and credit from the public, banks and financial institution is known as borrowed capital. Its major sources consist of debentures, public deposits, banks etc. It usually available only for a fixed period and involves payment of fixed rate of interest at regular intervals.
Difference between Ownership Capital and Creditorship Capital
1. Owned capital comprises the amounts contributed by the owners and their profits reinvested. Creditorship capital consists of funds available in the form of loans or credit.
2. Owned capital is permanently invested in business whereas borrowed capital is available only for a limited period of time.
3. Owned capital act as the risk capital of business but the borrowed capital is generally secured in nature.
The major sources of business finance are:
1. Share: - The capital of a company is usually divided into certain indivisible units of a definite sum. These units are called share. Shares represent the interest of a share holder in a company measured in terms of money. Those who subscribe shares are called shareholders. Different kinds of shares are:
Preference shares:- Those shares which carry preferential right in respect of dividend and repayment of capital in the event of winding up of the company. These shares may be of:
Cumulative and Non cumulative
Participating and Non Participating
Convertible and Non Convertible
Redeemable and Irredeemable
Equity shares or ordinary shares: - Shares which do not enjoy any of the preferences attached to the preference shares are known as equity shares. They are the real owners of the company and bear the risk of business. Dividend on equity shares is paid after the dividend on preference shares has been paid. In the event of winding up, equity capital can be repaid only after settling all other claims.
Debentures: - Debenture is a certificate issued by a company under its seal acknowledging a debt due to its holders. It is a creditor ship security entitled to get the periodical payment of interest at a fixed rate.
Retained Earning: - Profits which are not distributed among the shareholders and re-invested into business is called retained earnings. This process of ploughing back of profits is also known as ‘self financing’ because it is an internal source of finance
Public deposits: – The deposits made by the public with corporate are known as public deposits.
Leading Institutions for business finance
Institutional finance refers to an institutional source of finance to business enterprises. It generally consists of:
1.Banks and other public financial institutions
2.Non- Banking finance companies, and
3.Investment Trusts and Mutual funds
Commercial Banks:- Commercial banks play a very significant role in financing the short term requirements of corporates. They provide finance by way of loans, overdrafts, cash credit and discounting bills.
Loan is granted for a specific project or purpose. Under overdraft arrangement, a customer having a current account with the bank is allowed to overdraw his account. Under cash credit scheme, the bank fixes a cash credit limit for the customer, the customer can withdraw up to this limit any number of times. But interest is charged only on the amount actually utilized. Commercial banks extend credit to industries by discounting their bills and promissory notes at a price less than their face value, the difference is the amount of interest charged by the bank.
Lending is the primary source of income for banks. The RBI insisted that 40 % of the total lending of banks should be to priority sectors such as agriculture, small enterprises, retail trade, micro-credit, education loans and housing loans.
There are 3 constituents of commercial banking structure in India. They are Public Sector banks, private sector banks and foreign banks. Public sector banking in India consists of 19 nationalized banks besides the State Bank of India and its seven associate banks, one other public sector bank (IDBI Ltd) and 88 regional rural banks. The foreign banks in the private sector are those banks that are incorporated in foreign countries. There are 30 such banks with 279 branches.
Non- Banking Finance Companies (NBFCs): Non-banking finance companies are financial institutions that provide specific financial services to meet the requirements of specific segments of the industry. NBFC is defined as a company that is a financial institution and has as its business the receiving of deposits or lending under any scheme of arrangement. It resembles like banking company since it receives deposits and lends money. However, it is not a bank because it is not incorporated as a bank and is not governed by Banking Regulation Act 1947. RBI mentioned five kinds of NBFCs such as – leasing finance companies, hire-purchase finance companies, loan finance companies, investment finance companies and residuary non- banking companies.
International sources of business funds: With the globalization and liberalization of the economy, Indian companies have started generating funds from international markets. The international sources from where the funds can be procured include foreign currency loans, commercial banks, financial assistance from international agencies and issues of financial instruments like global depository receipts (GDR) American depository receipts (ADR) and foreign currency convertible bonds (FCCB).
GDR is an instrument issued abroad by an Indian company to raise funds in some foreign currency and is listed and traded on a foreign stock exchange. GDR is issued in the form of depository receipt or certificate created by the Overseas Depository Bank outside India and issued to non – resident investors against the issue of ordinary shares or foreign currency convertible debentures of the issuing company.
The depositary receipts issued by a company in the US to US citizens only and can be listed and traded on a stock exchange of US only is called ADR.
An FCCB is a bond issued by an Indian company subscribed by non-residents in foreign currency and convertible is to equity shares of issuing company.
Cost of Capital: - Cost of Capital means the minimum return expected by the suppliers of capital. It is the rate of return required by lenders and stockholders of lend or invest their funds in the firm. This expected return depends on the risk they have to undertake.
Methodology of Business Studies - Section 3
Part I- Entrepreneurship
For every person who has a head and heart, there are three options to keep him or her busy and to contribute to his or her development and economic development of the country at large. The three alternatives are wage-employment, self-employment and being the employer. Among them the best option is accepting the challenge of becoming an employer than being an employee.
Entrepreneur- The word entrepreneur is derived from the French verb ‘ entreprendre’ which means to undertake. An entrepreneur is a person who brings us overall change through innovation for the maximum social good. He is a person handling ventures spun-off from a large business such as a company created as a subsidiary to produce the products of anew invention.
Professor Schumpter defined entrepreneur as “ any person who is innovative and profit earned by an entrepreneur is a reward for innovativeness”.
In short, an entrepreneur is a person who is responsible for setting up a business or an enterprise. He is one who has the innovative skill, looking for high achievements, agent of change and works for the good people.
Entrepreneurship- In broad sense, the word entrepreneurship is the process of starting and running ones’ own business. Presently it is known by other words as “adventurism”, ‘risk-taking’, ‘thrill-seeking’,’ innovating’ and the like.
According to professor B. Higgins, Entrepreneurship is “the function of seeking investment and production opportunities, organizing an enterprise to undertake a new product, process of raising capital, having labour, arranging the supply of raw-materials, finding site, introducing a new technique and commodities, discovering new sources of raw-materials and selecting top managers for day-to –day operations of the enterprise”.
In short, entrepreneurship is the creative and innovative response of the environment and an ability to recognize, initiate and exploit economic opportunity.
Difference between Entrepreneur and Entrepreneurship: Actually the words entrepreneur and entrepreneurship are inseparable and the latter part speaks of the functions of the former. The major differences based on it is as shown below.
Entrepreneur
Entrepreneurship
Person
Process
Organizer
Organization
Innovator
Innovation
Initiator
Initiative
Decision Maker
Decision
Leader
Leadership
Risk-taken
Risk
Motivator
Motivation
Communicator
Communication
Administrator
Administration
Planner
Planning
Director
Direction etc….
Factors affecting Entrepreneurial supply: The entrepreneurs are responsible for providing economic efficiency and bringing new innovations to the market. One of the key tasks of economic development in developing countries is the fostering of an entrepreneurial spirit. The emergence and development of entrepreneurship is not spontaneous, but it depends on economic, social, psychological, political and legal factors prevailing in the economy.
The major facilitating factors which influences the entrepreneurship are:
1)Function of innovation
2)Function of high achievement
3)Function of building organization
4)Function of leadership skills
5)Function of linking the missing gaps
6)Function of group solidarity
7)Function of religious belief.
Intrapreneurship- Intrapreneurship is the practice of Entrepreneurship by employees with in an organization. It means the innovation occurs inside established companies through the efforts of creative employees. The idea of Entrepreneurship calls that managers inside the company should be encouraged to be entrepreneurs within the firm rather than moving out.
Entrepreneur Vs Intrapreneur
Entrepreneur is one who has a dream and builds an organization to achieve it. Intrapreneur is one who has a dream and tries to achieve it within an already existing co-operation.
Entrepreneurs must ensure the technology works, and sell it at a profit. Intrapreneurs must also get their company to let them do the innovative project to completion.
Entrepreneurs require funds of their own to initiate the project but the company/organizations often has capital to fund the project for the intrapreneurs.
Entrepreneurs require to arrange manpower for the project, but intrapreneurs do not have to worry about finding the talent tot get tasks performed.
Entrepreneur has to create a brand of his own. Intrapreneurs can use the branding of the company/organization to get their ideas to take root.
Entrepreneur Vs Manager
A manager is someone who directs a team and an entrepreneur is someone who organizes, manages and assumes the risk of a business or enterprise. So an entrepreneur can be a manager but a manager cannot be an entrepreneur.
A manager always like to control all aspects of their workplace. They constantly supervise the work assigned to their employees. But an entrepreneurs is generally considered as a leader versus a manager. They will give people tasks and deadline and generally leave them alone until it is completed. They trust the people than that of managers.
Entrepreneur is creator of ideas and managers are the peoples who implement the ideas of others. Manager is regarded as a coordinator, but an entrepreneur is regarded as a leader.
Savvy Intrapreneur - Savvy Intrapreneur takes a good idea and makes it better. A Savvy Intrapreneur steps out of the comfort zone of corporate security, to insure he creates additional income, which at least matches their take home pay. A Savvy Intrapreneur runs themselves like a business putting in 1 hour a day of overtime for their own financial future.
Entrepreneurship and Economic Development: Entrepreneurship and economic development are intimately related. Schumpter opines that entrepreneurial process is a major factor in economic development and the entrepreneurship the key to economic growth. Entrepreneurship is an approach to management that can be applied in start-up situations as well as within more established businesses. The growing interest, in the area of entrepreneurship has developed alongside interest in the changing role of small businesses. Small entrepreneurship has a fabulous potential in a developing country like India. The small industries now – a – days turn to be the main source of employment of our country. So it leads to growth in employment and decrease in unemployment. It also leads to improvement in the social, economic and institutional progress in many respects.
For every person who has a head and heart, there are three options to keep him or her busy and to contribute to his or her development and economic development of the country at large. The three alternatives are wage-employment, self-employment and being the employer. Among them the best option is accepting the challenge of becoming an employer than being an employee.
Entrepreneur- The word entrepreneur is derived from the French verb ‘ entreprendre’ which means to undertake. An entrepreneur is a person who brings us overall change through innovation for the maximum social good. He is a person handling ventures spun-off from a large business such as a company created as a subsidiary to produce the products of anew invention.
Professor Schumpter defined entrepreneur as “ any person who is innovative and profit earned by an entrepreneur is a reward for innovativeness”.
In short, an entrepreneur is a person who is responsible for setting up a business or an enterprise. He is one who has the innovative skill, looking for high achievements, agent of change and works for the good people.
Entrepreneurship- In broad sense, the word entrepreneurship is the process of starting and running ones’ own business. Presently it is known by other words as “adventurism”, ‘risk-taking’, ‘thrill-seeking’,’ innovating’ and the like.
According to professor B. Higgins, Entrepreneurship is “the function of seeking investment and production opportunities, organizing an enterprise to undertake a new product, process of raising capital, having labour, arranging the supply of raw-materials, finding site, introducing a new technique and commodities, discovering new sources of raw-materials and selecting top managers for day-to –day operations of the enterprise”.
In short, entrepreneurship is the creative and innovative response of the environment and an ability to recognize, initiate and exploit economic opportunity.
Difference between Entrepreneur and Entrepreneurship: Actually the words entrepreneur and entrepreneurship are inseparable and the latter part speaks of the functions of the former. The major differences based on it is as shown below.
Entrepreneur
Entrepreneurship
Person
Process
Organizer
Organization
Innovator
Innovation
Initiator
Initiative
Decision Maker
Decision
Leader
Leadership
Risk-taken
Risk
Motivator
Motivation
Communicator
Communication
Administrator
Administration
Planner
Planning
Director
Direction etc….
Factors affecting Entrepreneurial supply: The entrepreneurs are responsible for providing economic efficiency and bringing new innovations to the market. One of the key tasks of economic development in developing countries is the fostering of an entrepreneurial spirit. The emergence and development of entrepreneurship is not spontaneous, but it depends on economic, social, psychological, political and legal factors prevailing in the economy.
The major facilitating factors which influences the entrepreneurship are:
- Govt and Institutional support
- Favourable economic conditions including availability of capital
- Support from the society
- Mechanical knowledge and availability of workers.
- Entrepreneurial training facilities
- Support from suppliers of raw-materials
- Favourable market conditions and market contacts.
- Prevalence of family business
- Capable advisors and supporters, and
- Successful role models
- Legal and bureaucratic constraints
- Lack of co-operation from financial institutions
- Political instability
- Non-availability of capital
- Lack of business knowledge
- Social stigmas
- Lack of technical skills
- Lack of proper market
- Time pressures and distractions
1)Function of innovation
2)Function of high achievement
3)Function of building organization
4)Function of leadership skills
5)Function of linking the missing gaps
6)Function of group solidarity
7)Function of religious belief.
Intrapreneurship- Intrapreneurship is the practice of Entrepreneurship by employees with in an organization. It means the innovation occurs inside established companies through the efforts of creative employees. The idea of Entrepreneurship calls that managers inside the company should be encouraged to be entrepreneurs within the firm rather than moving out.
Entrepreneur Vs Intrapreneur
Entrepreneur is one who has a dream and builds an organization to achieve it. Intrapreneur is one who has a dream and tries to achieve it within an already existing co-operation.
Entrepreneurs must ensure the technology works, and sell it at a profit. Intrapreneurs must also get their company to let them do the innovative project to completion.
Entrepreneurs require funds of their own to initiate the project but the company/organizations often has capital to fund the project for the intrapreneurs.
Entrepreneurs require to arrange manpower for the project, but intrapreneurs do not have to worry about finding the talent tot get tasks performed.
Entrepreneur has to create a brand of his own. Intrapreneurs can use the branding of the company/organization to get their ideas to take root.
Entrepreneur Vs Manager
A manager is someone who directs a team and an entrepreneur is someone who organizes, manages and assumes the risk of a business or enterprise. So an entrepreneur can be a manager but a manager cannot be an entrepreneur.
A manager always like to control all aspects of their workplace. They constantly supervise the work assigned to their employees. But an entrepreneurs is generally considered as a leader versus a manager. They will give people tasks and deadline and generally leave them alone until it is completed. They trust the people than that of managers.
Entrepreneur is creator of ideas and managers are the peoples who implement the ideas of others. Manager is regarded as a coordinator, but an entrepreneur is regarded as a leader.
Savvy Intrapreneur - Savvy Intrapreneur takes a good idea and makes it better. A Savvy Intrapreneur steps out of the comfort zone of corporate security, to insure he creates additional income, which at least matches their take home pay. A Savvy Intrapreneur runs themselves like a business putting in 1 hour a day of overtime for their own financial future.
Entrepreneurship and Economic Development: Entrepreneurship and economic development are intimately related. Schumpter opines that entrepreneurial process is a major factor in economic development and the entrepreneurship the key to economic growth. Entrepreneurship is an approach to management that can be applied in start-up situations as well as within more established businesses. The growing interest, in the area of entrepreneurship has developed alongside interest in the changing role of small businesses. Small entrepreneurship has a fabulous potential in a developing country like India. The small industries now – a – days turn to be the main source of employment of our country. So it leads to growth in employment and decrease in unemployment. It also leads to improvement in the social, economic and institutional progress in many respects.
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