EN20CS301265 Naman Jain

FMEA

UNIT 1 Concepts of Management

Definition, characteristics, and importance of management;
Management: Science or Art, Difference between Management and Administration, Levels of
management, Functions of Management, Managerial Roles, Managerial skills and competencies;
Decision Making: Definition, process, and types; Decision making under certainty, uncertainty, and
risk; Cross-cultural issues in management and challenges

UNIT 2 Fundamentals of Marketing and Human Resource Management

Introduction to Marketing: Definition, importance, function, and scope of marketing, Core
Concepts of marketing, Marketing concepts and orientations, Marketing environment, marketing
mix, Holistic marketing concept, Customer Relationship Management (CRM).
Introduction to Human Resource Management (HRM): Nature, Scope, Objectives, and Functions;
Role of HR manager, Process and need for Human Resource Planning, Human resource policies,
Changing role of Human Resources in India, Globalization and its impact on Human Resource.

UNIT 3 Fundamentals of Economics

Introduction to Economics: Definition, nature, scope and significance; Difference between micro
and macroeconomics; Time value of money, Law of diminishing marginal utility; Theory of Demand
and Supply, Price elasticity of demand; Meaning and types of costs, Law of variable proportions;
Types of market structure; National income and related aggregates; Meaning and types of Inflation;
Meaning and phases of the business cycle.

UNIT 4 Basic Accounting Principles

Accounting Principles and Procedure, Double entry system, Journal, Ledger, Trail Balance, Cash
Book; Preparation of Trading, Profit, and Loss Account; Balance sheet; Cost Accounting:
Introduction, Classification of costs, Methods, and Techniques of costing, Cost sheet and
preparation of cost sheet; Breakeven Analysis: Meaning and its application.

UNIT 5 Fundamentals of Financial Management

Introduction of Business Finance: Meaning, Definition of Financial Management, Goals of Financial
Management (Profit Maximization and Wealth Maximization), Modern approaches to Financial
Management — (Investment Decision, Financing Decision and Dividend Policy Decisions).
P a g e 1 | 30
 EN20CS301265 Naman Jain

UNIT 1
Concepts of Management
DEFINITION, CHARACTERISTICS, AND IMPORTANCE OF MANAGEMENT
• Definition of Management: Management involves planning, organizing, leading, and
controlling resources to achieve organizational goals.
• Characteristics of Management:
1. Goal-oriented: Management focuses on achieving specific objectives and targets.
2. Universal: Management principles are applicable across various industries and
sectors.
3. Continuous Process: Management involves ongoing planning, organizing, leading,
and controlling.
4. Dynamic: It adapts to changing circumstances and environments.
5. Interdisciplinary: Management draws from multiple fields like economics, psychology,
and sociology.
6. Efficient Resource Utilization: Management ensures optimal use of resources to
achieve goals.
• Importance of Management: Ensures efficient resource utilization, goal attainment,
adaptability to change, and organizational success.

MANAGEMENT AS A SCIENCE:
• Some argue that management can be approached as a science because it involves
systematic and structured processes.

• It relies on the application of principles, theories, and data-driven decision-making.

• Management science involves quantitative methods, statistical analysis, and models to solve
problems and make informed decisions.
• It seeks to establish cause-and-effect relationships and predict outcomes based on empirical
evidence.

MANAGEMENT AS AN ART:
• Others view management as an art because it requires practical skills, creativity, and
intuition.

• Effective management often involves making decisions in complex and uncertain situations
where there is no one-size-fits-all solution.
• Managers must adapt their approaches to different contexts, and success often depends
on personal judgment and experience.
• Leadership, motivation, and communication are considered artful aspects of management,
as they involve interpersonal and human elements that are not entirely predictable or
controllable.

P a g e 2 | 30
 EN20CS301265 Naman Jain

LEVELS OF MANAGEMENT
• Top-Level Management: Responsible for setting organizational goals, making major
decisions, and representing the organization.

• Middle-Level Management: Implements top-level decisions, coordinates between various

departments, and focuses on specific functions.
• Lower-Level Management: Directly supervises employees, ensures daily tasks are completed,
and reports to middle-level managers.

FUNCTIONS OF MANAGEMENT
• Planning: Setting objectives, developing strategies, and creating plans to achieve goals.

• Organizing: Structuring tasks, allocating resources, and establishing authority and

responsibility.

• Leading: Guiding, motivating, and influencing employees to achieve organizational goals.

• Controlling: Monitoring performance, comparing it to objectives, and making necessary
adjustments.

MANAGERIAL ROLES
• Interpersonal Roles: Figurehead, Leader, Liaison.

• Informational Roles: Monitor, Disseminator, Spokesperson.

• Decisional Roles: Entrepreneur, Disturbance Handler, Resource Allocator, Negotiator.

MANAGERIAL SKILLS AND COMPETENCIES

• Technical Skills: Knowledge and expertise in a specific field or area.
• Human Skills: The ability to work well with others, understand their emotions, and build
relationships.

• Conceptual Skills: The ability to think critically, analyze complex situations, and make
strategic decisions.
• Time Management, Communication, Problem-solving, and Leadership skills are essential for
effective management.

DIFFERENCE BETWEEN MANAGEMENT AND ADMINISTRATION

• Scope: Management focuses on executing daily operations and achieving short-term goals,
while administration sets long-term objectives and policies.
• Nature: Management deals with tactical decisions and day-to-day tasks, while
administration handles strategic planning and high-level decisions.
• Decision-Making: Managers make operational decisions, and administrators make strategic
decisions.
• Hierarchy: Management positions are lower in the organizational hierarchy, while
administration holds higher positions.
• Accountability: Managers are accountable for short-term goals, and administrators for
overall organizational success.

P a g e 3 | 30
 EN20CS301265 Naman Jain

DECISION MAKING
Definition: Decision-making is the process of selecting the best course of action from several
alternatives to achieve a specific goal or solve a problem. It involves evaluating options,
considering available information, and making choices.

Process of Decision Making:

1. Identifying the Problem: The first step is to recognize the need for a decision. This involves
identifying a problem or opportunity that requires action.
2. Gathering Information: Gather relevant data and information to understand the situation, its
causes, and potential solutions.
3. Generating Alternatives: Brainstorm and create a list of possible solutions or courses of action.
Creativity plays a vital role in this stage.

4. Evaluating Alternatives: Assess each alternative by considering its advantages,

disadvantages, and potential outcomes. This may involve using decision-making tools and
techniques.

5. Making a Choice: Select the best alternative based on the evaluation. This is the decision-
making point.
6. Implementing the Decision: Put the chosen alternative into action. This step may involve
allocating resources and assigning responsibilities.

7. Monitoring and Evaluating: Continuously assess the decision's implementation and its impact.
Adjustments may be necessary based on feedback.

Types of Decision Making:

1. Programmed Decision Making: These are routine decisions made in response to recurring
situations. They often follow established procedures or rules.

2. Non-Programmed Decision Making: These decisions are unique, complex, and require more
analysis. They are made in response to novel or unfamiliar situations.
3. Individual Decision Making: Decisions made by a single person. This can be efficient for
routine decisions but may lack diverse perspectives.

4. Group Decision Making: Decisions made by a group of individuals. This can lead to a broader
range of ideas but may take longer and involve compromise.

Decision-Making Under Different Conditions:

1. Decision-Making Under Certainty: In this condition, the decision-maker has complete
information about all alternatives and their outcomes. The decision is straightforward.

2. Decision-Making Under Uncertainty: Under uncertainty, the decision-maker lacks complete

information and may not know the probabilities of outcomes. Decisions are often based on
judgment, intuition, or limited information.
3. Decision Making Under Risk: Risk involves a situation where the decision-maker has some
information but is still unsure about the exact outcomes and their probabilities. Techniques
like risk assessment and probability analysis can be used.

P a g e 4 | 30
 EN20CS301265 Naman Jain

Cross-Cultural Issues in Management and Challenges:

1. Cultural Differences: Different cultures have varying values, beliefs, and norms, which can
affect communication, leadership, and decision-making styles.
2. Language Barriers: Language differences can lead to misunderstandings and
misinterpretations in multinational teams and organizations.

3. Ethical Dilemmas: Ethical standards can differ between cultures, leading to challenges in
resolving ethical issues and conflicts.
4. Management Styles: Cultural variations can influence leadership and management
approaches, making it necessary to adapt leadership styles when working across cultures.
5. Communication Challenges: Effective communication may be hindered by differences in
communication styles, non-verbal cues, and expectations.

6. Conflict Resolution: Conflicts may arise due to cultural misunderstandings or differences in

conflict resolution approaches.
7. Globalization: Managing diverse teams and addressing cross-cultural issues becomes
increasingly important as organizations operate on a global scale.

P a g e 5 | 30
 EN20CS301265 Naman Jain

UNIT 2
Fundamentals of Marketing and Human
Resource Management
INTRODUCTION TO MARKETING:
Definition: Marketing is a business discipline that involves creating, communicating, delivering,
and exchanging products or services to fulfill customer needs and achieve organizational goals.

Importance of Marketing:
1. Customer Satisfaction: Marketing ensures products or services meet customer needs and
preferences, leading to higher customer satisfaction.

2. Profitability: Effective marketing strategies can increase sales and revenue, contributing to
the organization's profitability.
3. Market Expansion: Marketing helps organizations enter new markets and expand their
customer base.

4. Competitive Advantage: Marketing strategies can create a competitive edge by

highlighting unique features or benefits.

Functions of Marketing:
1. Market Research: Gathering data on customer needs, preferences, and market trends.

2. Product Development: Creating and refining products or services to meet market demands.
3. Pricing: Setting appropriate prices based on costs, competition, and perceived value.
4. Promotion: Communicating product benefits through advertising, sales promotions, and
public relations.

5. Distribution: Ensuring products reach customers efficiently through distribution channels.

Scope of Marketing:
Marketing encompasses various areas, including:

• Goods Marketing: Promoting and selling physical products.

• Service Marketing: Promoting and delivering intangible services.

• Digital Marketing: Utilizing online platforms for promotion.

• B2B Marketing: Business-to-business marketing for products or services.

• Consumer Marketing: Marketing directly to end consumers.

• International Marketing: Marketing in global markets.

P a g e 6 | 30
 EN20CS301265 Naman Jain

Core Concepts of Marketing:

1. Needs, Wants, and Demands: Understanding customer needs, wants, and demands drives
marketing efforts.

2. Target Market: Identifying specific customer segments to focus marketing efforts.

3. Value, Satisfaction, and Quality: Providing value, satisfying customer needs, and maintaining
quality are central to marketing success.
4. Exchange and Transaction: Marketing involves transactions where goods, services, or values
are exchanged between buyers and sellers.

Marketing Concepts and Orientations:

• Product Orientation: Emphasizing product quality and features without much focus on
customer needs.

• Sales Orientation: Prioritizing aggressive sales techniques to move products, often used for
unsought goods.

• Market Orientation: Concentrating on understanding and fulfilling customer needs and

preferences.
• Societal Marketing Orientation: Considering not only customer satisfaction but also societal
well-being and ethical considerations.

Marketing Environment:
• Microenvironment: Factors directly affecting the organization, such as suppliers, customers,
competitors, and intermediaries.
• Macroenvironment: Broader factors impacting the organization, including economic,
demographic, social, technological, political, and cultural influences.

Marketing-Mix (4Ps):
1. Product: Decisions related to product design, features, branding, and packaging.

2. Price: Determining the pricing strategy, including pricing methods and discounts.

3. Place (Distribution): Deciding on distribution channels, retail locations, and logistics.

4. Promotion: Strategies for advertising, sales promotions, public relations, and personal selling.

Holistic marketing
1. Integration: Holistic marketing integrates all marketing efforts, both internal and external, to
create a unified brand experience.
2. Customer-Centric: It prioritizes understanding and meeting customer needs at every
touchpoint.

3. Internal and External Focus: It considers employees (internal) and customers (external) as
essential stakeholders.
4. Societal Perspective: Holistic marketing goes beyond profit to address ethical and social
responsibilities.
5. Continuous Monitoring: This involves ongoing analysis of customer feedback, market trends,
and performance metrics to refine strategies.

P a g e 7 | 30
 EN20CS301265 Naman Jain

Customer Relationship Management (CRM)

1. Data Centralization: CRM centralizes customer data in one place, making it accessible to all
teams, improving collaboration, and enabling a 360-degree view of each customer.
2. Personalization: CRM allows businesses to tailor marketing messages and interactions to
individual customer preferences, enhancing the customer experience.

3. Sales Optimization: CRM helps sales teams manage leads, track opportunities, and
automate processes, leading to more efficient and effective sales operations.
4. Customer Retention: CRM aids in identifying and nurturing existing customer relationships,
increasing customer loyalty, and reducing churn.
5. Data Analytics: CRM systems provide insights through data analytics, enabling data-driven
decision-making and improved marketing and sales strategies.

INTRODUCTION TO HUMAN RESOURCE MANAGEMENT (HRM):

Nature of HRM:
• Human Resource Management (HRM) is the strategic and systematic management of an
organization's workforce.
• It involves the planning, acquisition, development, and retention of human resources to
achieve organizational goals.

Scope of HRM:
• HRM encompasses various functions, including recruitment, training, performance
management, compensation, employee relations, and compliance with labor laws.

• It applies to all levels of employees, from entry-level to senior management.

Objectives of HRM:
• Attract and retain a skilled and motivated workforce.

• Develop and enhance employees' skills and capabilities.

• Ensure compliance with employment laws and regulations.

• Promote a positive work culture and employee engagement.

• Contribute to the achievement of organizational goals and competitiveness.

Functions of HRM:
1. Recruitment and Selection: Identifying and hiring qualified candidates.

2. Training and Development: Enhancing employees' skills and knowledge.

3. Performance Management: Evaluating and improving employee performance.

4. Compensation and Benefits: Designing fair and competitive compensation packages.

5. Employee Relations: Managing workplace conflicts and fostering a positive work

environment.

6. Legal Compliance: Ensuring adherence to labor laws and regulations.

7. HR Planning: Anticipating future workforce needs and addressing skill gaps.

P a g e 8 | 30
 EN20CS301265 Naman Jain

Role of HR Manager:
• HR managers play a pivotal role in aligning HR strategies with the organization's objectives.

• They oversee HR functions, develop policies, handle employee concerns, and contribute to
organizational growth.
• HR managers also act as change agents, facilitating organizational change and
development.

Process and Need for Human Resource Planning:

• Human Resource Planning (HRP) involves forecasting future workforce needs, analyzing the
current workforce, and identifying gaps.

• It is essential for efficient talent management, workforce optimization, and adapting to

changing business environments.

• HRP ensures that an organization has the right people with the right skills at the right time.

Human Resource Policies:

• HR policies are guidelines and rules that govern various aspects of the employment
relationship, such as recruitment, compensation, and performance expectations.

• These policies ensure consistency, fairness, and compliance within the organization.

Changing Role of Human Resources in India:

• In India, HR has evolved from being primarily administrative to a strategic business partner.

• HR professionals are increasingly involved in organizational strategy, talent management,

and leadership development.

• They play a vital role in addressing workforce diversity, employee engagement, and global
expansion.

Globalization and its Impact on Human Resources:

• Globalization has increased the need for HRM to manage diverse, multicultural workforces.
• HR professionals must adapt to international labor laws, cultural differences, and language
barriers.

• Talent acquisition and management in a global context have become crucial for businesses
expanding internationally.

P a g e 9 | 30
 EN20CS301265 Naman Jain

UNIT 3
Fundamentals of Economics
DEFINITION OF ECONOMICS:
• Economics is a social science that studies how individuals, businesses, governments, and
societies allocate their scarce resources to satisfy unlimited wants and needs. It involves the
analysis of production, distribution, and consumption of goods and services.

NATURE OF ECONOMICS:
• Social Science: Economics is a social science that studies human behaviours and
interactions in the context of resource allocation.
• Scarcity and Choice: At its core, economics deals with the concept of scarcity, where
resources are limited, but human wants and needs are virtually unlimited. This scarcity forces
individuals, firms, and governments to make choices.
• Rational Behaviour: Economics assumes that individuals and organizations act rationally,
seeking to maximize their utility (satisfaction) or profit given the constraints they face.
• Interdependence: Economic decisions are interdependent; one person's choice can affect
others, and the entire economic system is interconnected.

SCOPE OF ECONOMICS:
• Microeconomics: Microeconomics focuses on individual economic agents, such as
consumers, firms, and markets. It examines topics like supply and demand, pricing, consumer
behaviour, and market competition.
• Macroeconomics: Macroeconomics studies the economy as a whole. It analyses topics like
overall economic growth, inflation, unemployment, fiscal policy, and monetary policy.
• International Economics: This branch deals with the economic interactions between
countries, including trade, exchange rates, and international finance.
• Development Economics: It focuses on issues related to economic development, poverty,
inequality, and the challenges faced by less developed countries.
• Environmental Economics: This field addresses the economic aspects of environmental
issues, such as pollution, resource depletion, and sustainable development.

SIGNIFICANCE OF ECONOMICS:
• Resource Allocation: Economics provides a framework for efficiently allocating limited
resources to meet society's needs and wants.
• Policy Guidance: Economists provide insights and recommendations to policymakers,
helping them design effective economic policies, such as taxation, healthcare, and
education.
• Business Decision-Making: Firms use economic analysis to make decisions about production,
pricing, investment, and market strategies.
• Personal Finance: Individuals use economic principles to manage their finances, make
budgetary decisions, and plan for the future.

P a g e 10 | 30
 EN20CS301265 Naman Jain

• Understanding Global Issues: Economics helps in understanding global challenges like trade
wars, currency fluctuations, and economic crises.
• -Social Welfare: It plays a crucial role in addressing issues related to poverty, income
distribution, and social welfare programs.

DIFFERENCE BETWEEN MICRO AND MACROECONOMICS

Aspect Microeconomics Macroeconomics

Individual agents: consumers, Aggregate economy: overall

Focus firms, households economic performance

Small-scale, specific markets or The large-scale, entire

Scope industries economy

Questions How do individuals make What factors influence

Addressed choices? overall economic growth?

Aggregate variables: GDP,

Variables Prices, supply and demand, inflation, unemployment
Analyzed individual preferences rates

Perfect competition, Aggregate demand and

Market Types monopoly, oligopoly supply, overall price levels

Policy Market interventions, Fiscal and monetary policies,

Implications regulations, taxes government spending

How does the price of What factors influence a

smartphones impact consumer country's unemployment
Examples demand? rate?

TIME VALUE OF MONEY:

Definition: The Time Value of Money (TVM) is a fundamental financial concept that reflects the idea
that a sum of money today is worth more than the same sum of money in the future. This concept
is based on the understanding that money has the potential to earn a return over time, whether
through investments, savings, or interest. The Time Value of Money is important because it provides
a framework for making financial decisions by accounting for the opportunity cost of using money
in one way versus another.

1. Present Value (PV): PV represents the current worth of a future sum of money, taking into
account a specific interest rate or discount rate.
2. Future Value (FV): FV is the value of a sum of money at a future date, taking into
consideration a specific interest rate.
3. Opportunity Cost: The time value of money is closely related to the concept of opportunity
cost, emphasizing that money has the potential to earn returns, and choosing one option
over another implies forgoing those potential returns.

P a g e 11 | 30
 EN20CS301265 Naman Jain

LAW OF DIMINISHING MARGINAL UTILITY:

Definition: The Law of Diminishing Marginal Utility asserts that as a person consumes more units of a
good or service, the additional satisfaction or utility derived from each successive unit decreases.

1. Diminishing Satisfaction: Consumers experience diminishing additional satisfaction as they

consume more of a good. The first unit provides the most utility, and each subsequent unit
adds less satisfaction.
2. Consumer Decision-Making: This law is fundamental to understanding consumer behavior
and choices. Consumers allocate their resources in a way that maximizes overall satisfaction,
considering the diminishing marginal utility of goods and services.
3. Budget Allocation: The concept influences how individuals allocate their budgets among
various goods and services. Consumers tend to prioritize spending on items that provide the
highest marginal utility.

THEORY OF DEMAND AND SUPPLY:

Definition: The Theory of Demand and Supply is a fundamental economic principle that describes
the relationship between the quantity of a good or service demanded and the quantity supplied.
1. Demand: Describes the quantity of a good or service that consumers are willing and able to
buy at various prices, assuming other factors remain constant.

2. Supply: Describes the quantity of a good or service that producers are willing and able to
sell at different prices, assuming other factors remain constant.
3. Equilibrium Price: The point where the quantity demanded equals the quantity supplied. This
is where the market is said to be in equilibrium.

PRICE ELASTICITY OF DEMAND:

Definition: Price elasticity of demand measures how sensitive the quantity demanded of a good is
to a change in its price.
1. Elastic Demand: When the percentage change in quantity demanded is greater than the
percentage change in price (|Ed| > 1).

2. Inelastic Demand: When the percentage change in quantity demanded is less than the
percentage change in price (|Ed| < 1).
3. Unitary Elasticity: When the percentage change in quantity demanded is equal to the
percentage change in price (|Ed| = 1).

P a g e 12 | 30
 EN20CS301265 Naman Jain

MEANING AND TYPES OF COSTS:

Definition: Costs in economics refer to the expenses incurred in the production of goods and
services. There are various types of costs associated with production.

1. Fixed Costs (FC):

• Fixed costs do not change with the level of production and include expenses like rent,
salaries of permanent staff, and insurance premiums.
• They are incurred even if production is zero, reflecting the essential costs of
maintaining operations.
2. Variable Costs (VC):
• Variable costs fluctuate with the level of production and include expenses like raw
materials, direct labour, and electricity.
• These costs vary in direct proportion to the quantity of goods or services produced.
3. Total Costs (TC):
• Total costs are the sum of fixed and variable costs (TC = FC + VC).
• They represent the overall cost of production and are crucial for determining the
breakeven point.
4. Marginal Cost (MC):
• Marginal cost is the additional cost incurred by producing one more unit of a good or
service.
• It is calculated as the change in total cost divided by the change in quantity.
5. Average Total Cost (ATC):
• Average total cost is the total cost per unit of output (ATC = TC / Quantity).
• It provides insights into the average cost efficiency of production.
6. Average Fixed Cost (AFC):
• Average fixed cost is the fixed cost per unit of output (AFC = FC / Quantity).
• It decreases as production increases due to spreading fixed costs over more units.
7. Average Variable Cost (AVC):
• Average variable cost is the variable cost per unit of output (AVC = VC / Quantity).
• It reflects the variable cost efficiency of production.
8. Explicit Costs:
• Explicit costs are actual, out-of-pocket expenses that a business incurs, such as rent,
wages, and utility bills.
9. Implicit Costs:
• Implicit costs represent the opportunity costs of using resources owned by the business.
These costs include the foregone income or benefits associated with using resources
for one purpose instead of the next best alternative.

P a g e 13 | 30
 EN20CS301265 Naman Jain

LAW OF VARIABLE PROPORTIONS:

Definition: Also known as the Law of Diminishing Marginal Returns, this law states that if one factor
of production is increased while other factors are held constant, the marginal output will eventually
decrease.

1. Increasing Returns:
• Initially, adding more units of a variable input increases total output at an accelerating
rate.

• This phase is characterized by improved efficiency and specialization.

2. Diminishing Returns:
• Following the increasing returns phase, additional units of the variable input lead to
diminishing marginal returns.
• The efficiency gains become less significant, resulting in a slower increase in total
output.

3. Negative Returns:
• At a certain point, further increases in the variable input may result in negative
marginal returns.

• Total output begins to decline, signalling an inefficient use of resources.

4. Optimal Input Combination:

• The law highlights the importance of finding the optimal combination of inputs to
maximize total output.

5. Applicability in Agriculture:
• The law is often observed in agriculture, where adding more fertilizer or labor to a fixed
amount of land may initially boost crop yields but eventually lead to diminishing
returns.

TYPES OF MARKET STRUCTURE:

Definition: Market structure refers to the organizational and competitive characteristics of a market.
There are several types of market structures:

1. Perfect Competition:

• Many small firms, each producing an identical product.

• Perfectly elastic demand curve for each firm.

• No pricing power; price is determined by market forces.

2. Monopoly:

• Single seller or producer dominating the market.

• Unique product with no close substitutes.

• Significant pricing power; the monopolist sets the price.

P a g e 14 | 30
 EN20CS301265 Naman Jain

3. Oligopoly:

• Few large firms dominate the market.

• Products can be differentiated or identical.

• High barriers to entry; firms consider the actions of competitors.

4. Monopolistic Competition:

• Many firms producing differentiated products.

• Some pricing power; firms can set prices within limits.

• Relatively easy entry and exit.

5. Market Power:
• Perfect competition has no market power; other structures exhibit varying degrees of
market power.

6. Duopoly: -
• Number of Firms: Two firms dominate a duopoly.
• Product Differentiation: Products may be homogeneous or differentiated.
• Barriers to Entry: Entry barriers can vary depending on the industry.
• Control Over Price: Firms may have some pricing power, and their actions significantly
impact the market.

NATIONAL INCOME AND RELATED AGGREGATES:

Definition: National income measures the total value of all goods and services produced by a
country in a specific time period. Related aggregates include various components of national
income.
1. Gross Domestic Product (GDP):
• GDP measures the total value of all goods and services produced within a country's
borders in a specific time period.
2. Gross National Product (GNP):
• GNP measures the total value of all goods and services produced by a country's
residents, whether within the country or abroad.
3. Net National Product (NNP):
• NNP is GNP minus depreciation or the value of capital that has worn out during the
production process.
4. Personal Income:
• Personal income represents the income received by individuals, including wages,
rent, and interest, but excluding taxes and transfer payments.
5. Disposable Income:
• Disposable income is personal income minus personal taxes. It represents the income
available to individuals for spending or saving.
P a g e 15 | 30
 EN20CS301265 Naman Jain

MEANING AND TYPES OF INFLATION:

Definition: Inflation is the sustained increase in the general price level of goods and services in an
economy over time, resulting in a decrease in the purchasing power of a currency. It is typically
measured as the percentage change in a price index, such as the Consumer Price Index (CPI) or
the Producer Price Index (PPI).
1. Demand-Pull Inflation:
• Caused by an increase in aggregate demand exceeding aggregate supply.
• Factors include increased consumer spending, investment, or government
expenditures.
2. Cost-Push Inflation:
• Caused by a decrease in aggregate supply due to rising production costs.
• Factors may include increased wages, higher raw material prices, or supply chain
disruptions.
3. Built-In Inflation (Wage-Price Inflation):
• Occurs when workers demand higher wages, and businesses pass those increased
labour costs onto consumers as higher prices.
• Creates a feedback loop as higher prices lead to further wage demands.
4. Hyperinflation:
• Characterized by extremely high and typically accelerating inflation rates.
• Can erode the value of a currency rapidly, leading to economic instability.
5. Open or Import Inflation:
• Arises from an increase in the prices of imported goods and services.
• Exchange rate fluctuations and international events can contribute to this type of
inflation.

P a g e 16 | 30
 EN20CS301265 Naman Jain

MEANING AND PHASES OF BUSINESS CYCLE:

Definition: The business cycle refers to the recurring pattern of economic expansion (growth) and
contraction (recession) in an economy. It is characterized by fluctuations in various economic
indicators such as GDP, employment, and investment.
1. Expansion (Recovery) Phase:
• Characterized by increasing economic activity, rising GDP, and declining
unemployment.
• Consumer and business confidence is high, leading to increased spending and
investment.
2. Peak:
• The highest point of economic activity in the business cycle.
• Employment is typically at its peak, and inflation may start to rise.
3. Contraction (Recession) Phase:
• A decline in economic activity, falling GDP, and rising unemployment.
• Consumer and business confidence decreases, leading to reduced spending and
investment.
4. Trough:
• The lowest point of the business cycle.
• Economic activity is at its lowest, and unemployment is typically at its highest.
5. Recovery Phase:
• Following the trough, the economy begins to recover.
• Economic activity increases, unemployment declines, and consumer and business
confidence improve.

P a g e 17 | 30
 EN20CS301265 Naman Jain

UNIT 4
Basic Accounting Principles

ACCOUNTING PRINCIPLES AND PROCEDURES:

Definition: Accounting principles and procedures form the foundation of the accounting
profession and are essential for maintaining accurate financial records, preparing
financial statements, and making informed business decisions. Here's an overview of some
key accounting principles and procedures:

Accounting Principles:
1. Principle of Regularity:

• Transactions should conform to established rules and regulations.

• Ensures adherence to legal and regulatory requirements in financial reporting.

• Promotes transparency and accountability in business operations.

2. Principle of Consistency:
• Consistent accounting methods should be applied over different periods.

• Facilitates meaningful comparisons of financial information.

• Enhances reliability and predictability in financial reporting.

3. Principle of Sincerity:
• Financial statements should present a true and fair view of the entity's financial
position.

• Emphasizes honesty and accuracy in financial reporting.

• Builds trust among stakeholders, such as investors and creditors.

4. Principle of Permanence of Methods:

• Consistent accounting methods should be maintained over time.

• Provides stability and reliability for financial analysis.

• Helps in making accurate comparisons of financial performance.

5. Principle of Conservatism:
• Encourages caution in recognizing revenues and assets.

• Recognizes expenses and liabilities as soon as they are probable and certain.

• Mitigates the risk of overstating financial performance.

P a g e 18 | 30
 EN20CS301265 Naman Jain

Accounting Procedures:
1. Identification of Transactions:

• Recognize and record business transactions with financial implications.

• Essential for capturing all relevant financial activities of the entity.

• Forms the starting point of the accounting process.

2. Recording in the Journal:

• Transactions are recorded in the journal with details such as date, particulars, and
amounts.

• Journal serves as a chronological record of financial events.

• Captures the dual aspect of each transaction.

3. Posting to the Ledger:

• Information from the journal is transferred to respective accounts in the ledger.

• Ledger organizes accounts by category (assets, liabilities, equity, income, and

expenses).

• Facilitates a systematic and categorized record of financial transactions.

4. Preparation of Trial Balance:

• Lists all ledger accounts and their balances to ensure debits equal credits.

• Assists in identifying errors and ensuring the integrity of the double-entry system.
• Acts as an internal control tool.

5. Preparation of Financial Statements:

• Involves creating financial statements like the income statement, balance sheet, and
cash flow statement.
• Summarizes financial information for external reporting.

• Aids in assessing the financial performance and position of the entity.

DOUBLE ENTRY SYSTEM:

Explanation: The double-entry system is a foundational accounting method that requires every
transaction to be recorded with at least two entries, a debit and a credit, ensuring that the
accounting equation (Assets = Liabilities + Equity) remains balanced. This system captures the dual
impact of each transaction.

Example: Suppose a business borrows $1,000 from a bank. In the double-entry system:

• Debit: Cash Account (Increase in Asset) - $1,000

• Credit: Loan Payable Account (Increase in Liability) - $1,000

Here, the cash account is debited as it increases, and the loan payable account is credited as it
increases, maintaining the balance. In accounting, the journal, ledger, and trial balance are key
components of the double-entry accounting system, which helps businesses record financial
transactions accurately and prepare financial statements.
P a g e 19 | 30
 EN20CS301265 Naman Jain

JOURNAL:
Explanation: The journal is the initial book of entries where transactions are recorded in
chronological order. It includes details such as the date, particulars, and amounts of each
transaction, following the principles of the double-entry system.

Example:

Date Particulars Debit ($) Credit ($)

2023-01-01 Cash Borrowed from Bank 1,000

This journal entry captures the borrowing of $1,000 from the bank. Cash is debited (increase),
reflecting the increase in assets.

LEDGER:
Explanation: The ledger is a categorized collection of accounts that summarizes transactions. Each
account in the ledger represents a specific type of asset, liability, equity, income, or expense.

Example:

Account Date Description/Transaction Debit ($) Credit ($)

Cash 2023-01-01 Cash Borrowed from Bank 1,000

Loan Payable 2023-01-01 Cash Borrowed from Bank 1,000

Sales Revenue 2023-01-05 Sale of Goods to Customer XYZ 500

Rent Expense 2023-01-15 Payment for Office Rent 300

Cash 2023-01-15 Payment for Office Rent 300

These ledger entries organize transactions by account, providing a detailed record of financial
activities.

TRIAL BALANCE:
Explanation: The trial balance is a statement that lists all ledger accounts and their balances to
ensure the equality of total debits and total credits, confirming the accuracy of the recorded
transactions.
Example:

Account Debit ($) Credit ($)

Cash 1,000

Loan Payable 1,000

This trial balance verifies that the total debits equal total credits, confirming the accuracy of the
recorded transactions.

P a g e 20 | 30
 EN20CS301265 Naman Jain

CASH BOOK:
Explanation: A cash book is a financial ledger that records all cash transactions of a business,
including both receipts and payments. It is an essential accounting tool that provides a systematic
and detailed account of the flow of cash, helping businesses monitor their liquidity and financial
activities. The cash book is typically divided into two sides: the Receipts Side, which records all cash
inflows, and the Payments Side, which records all cash outflows.

Example:

TRADING ACCOUNT:
Definition: The trading account is prepared to determine the gross profit or gross loss of a business
by comparing the cost of goods sold with the sales revenue.
Example: If a business sells goods for $10,000 and the cost of goods sold is $6,000, the gross profit is
$4,000 ($10,000 - $6,000).

Particulars Amount ($)

Trading Account

Sales 10,000

Cost of Goods Sold (6,000)

Gross Profit 4,000

PROFIT AND LOSS ACCOUNT:

Definition: The profit and loss account summarizes the revenues and expenses of a business to
determine the net profit or net loss for a specific period.

Particulars Amount ($)

Revenues 50,000

Expenses (40,000)

Net Profit 10,000

P a g e 21 | 30
 EN20CS301265 Naman Jain

BALANCE SHEET:
1. Balance Sheet:

• Definition: A balance sheet is a financial statement that provides a snapshot of a

company's financial position at a specific point in time, showing assets, liabilities, and
owner's equity.
• Example: If a business has assets worth $100,000 (cash, inventory, equipment) and
liabilities of $40,000 (loans, accounts payable), the owner's equity is $60,000
($100,000 - $40,000).

2. Assets:

• Definition: Assets are resources owned by a business that have economic value and
can be used to generate future revenue.
• Example: Examples of assets include cash, accounts receivable, inventory, and
property.

3. Liabilities:

• Definition: Liabilities are obligations or debts that a business owes to external parties.
• Example: Loans, accounts payable, and accrued expenses are common liabilities.

Remember that the balance sheet follows the accounting equation: Assets = Liabilities + Owner's
Equity. It's important to ensure that the balance sheet stays balanced.

P a g e 22 | 30
 EN20CS301265 Naman Jain

COST ACCOUNTING:
Introduction:

• Definition: Cost accounting involves the collection, analysis, and interpretation of financial
information for decision-making, cost control, and performance evaluation within an
organization.
• Purpose: It helps management in making informed decisions by providing detailed cost
information about products, services, or activities.

CLASSIFICATION OF COSTS:
Types of Costs:

• Direct Costs:

• Definition: Costs directly attributable to a specific product, service, or activity.

• Example: Direct labour and direct materials for manufacturing a product.

• Indirect Costs:

• Definition: Costs that cannot be directly traced to a specific product or service.

• Example: Factory overhead costs such as rent, utilities, and indirect labor.

• Fixed Costs:

• Definition: Costs that remain constant regardless of the level of production or sales.

• Example: Rent for a production facility.

• Variable Costs:

• Definition: Costs that vary in direct proportion to the level of production or sales.

• Example: Raw materials used in manufacturing.

• Implicit Costs:

• Definition: Opportunity costs associated with using resources that a company already
owns. These costs do not involve a direct cash outlay.
• Example: The owner of a business using their personal office space for business
operations without charging rent.

• Explicit Costs:

• Definition: The actual, out-of-pocket costs incurred by a company in its business

operations.

• Example: Payments for raw materials, labour, rent, and other tangible expenses.
• Marginal Costs:

• Definition: The additional cost incurred by producing one more unit of a product or
service.

• Example: If producing one more unit requires an additional $5 in raw materials and
labour, the marginal cost is $5.

P a g e 23 | 30
 EN20CS301265 Naman Jain

METHODS AND TECHNIQUES OF COSTING:

1. Job Order Costing:

• Definition: Allocates costs to specific jobs or orders, typically used for customized or
unique products or services.

• Example: Construction projects, custom-made machinery.

2. Process Costing:

• Definition: Allocates costs to homogeneous products produced in large quantities on

a continuous basis.

• Example: Production of beverages, chemicals.

3. Activity-Based Costing (ABC):

• Definition: Allocates costs based on the activities that drive the costs, providing a more
accurate reflection of resource consumption.
• Example: Identifying and allocating costs based on specific activities within the
production process, such as setup or machine hours.

4. Standard Costing:
• Definition: Involves setting predetermined costs for various elements of production
and comparing them with actual costs to identify variances.
• Example: Setting standard costs for materials and labour and comparing them to the
actual costs incurred during production.

COST SHEET AND PREPARATION:

1. Cost Sheet:
• Definition: A document that summarizes the costs involved in the production of a
product or the delivery of a service.
• Components: Includes direct materials, direct labour, factory overhead, and other
relevant costs.

2. Preparation of Cost Sheet:

• Direct Materials: List the cost of raw materials used in production.

• Direct Labor: Include the cost of labour directly involved in the manufacturing process.

• Factory Overhead: Factor in indirect costs related to production, such as utilities and
maintenance.
• Other Costs: Include additional costs such as administrative and selling expenses.

• Total Cost: Sum up direct materials, direct labour, factory overhead, and other costs
to determine the total cost of production.

• Unit Cost: Calculate the cost per unit by dividing the total cost by the number of units
produced.

P a g e 24 | 30
 EN20CS301265 Naman Jain

BREAK-EVEN ANALYSIS:
Definition:
A break-even analysis is an economic tool that is used to determine the cost structure of a company
or the number of units that need to be sold to cover the cost. Break-even is a circumstance where
a company neither makes a profit nor loss but recovers all the money spent.

The break-even analysis is used to examine the relation between the fixed cost, variable cost, and
revenue. Usually, an organisation with a low fixed cost will have a low break-even point of sale.

Components of Break-Even Analysis:

• Fixed Costs: Overhead costs such as taxes, salaries, rent, depreciation, labor, and energy.

• Variable Costs: Fluctuating costs tied to production volume, including packaging, raw
materials, fuel, etc.

Break-Even Analysis Formula:

• Break-even point = Fixed cost / (Price per unit - Variable cost per unit)

Example of Break-Even Analysis:

• Company X Selling a Pen:

• Fixed costs: ₹1,00,000 (lease, property tax, salaries)

• Variable cost per pen: ₹2

• Selling price per pen: ₹12

• Calculation:

• Break-even point = ₹1,00,000 / (₹12 - ₹2)

• Break-even point = ₹1,00,000 / ₹10

• Break-even point = 10,000 units

• Conclusion:

• Company X needs to sell 10,000 units of pens to break-even.

P a g e 25 | 30
 EN20CS301265 Naman Jain

Importance:
• Manages Units to be Sold: Determines the number of units needed to cover costs by
analysing variable costs, selling price, and total costs.
• Budgeting and Setting Targets: Facilitates goal-setting and budgeting by identifying the
break-even point.

• Managing Margin of Safety: Helps in making informed decisions by determining the minimum
sales required for profitability.
• Monitoring and Controlling Costs: Assists in detecting changes in fixed and variable costs
that may impact profit margins.
• Designing Pricing Strategy: Influences pricing decisions, as changes in product prices can
affect the break-even point.

Uses of Break-Even Analysis:

• New Business: Essential for new ventures to guide pricing strategy and assess cost-
effectiveness.
• Manufacturing New Products: Important for existing companies launching new products to
evaluate their impact on overall costs.
• Change in Business Model: Helpful when there is a shift in business models, guiding
adjustments to selling prices.

P a g e 26 | 30
 EN20CS301265 Naman Jain

UNIT 5
Fundamentals of Financial Management

INTRODUCTION TO BUSINESS FINANCE:

Definition: Financial Management refers to the strategic planning, organizing, directing, and
controlling of financial undertakings within an organization. It involves managing financial
resources efficiently to achieve the organization's goals and objectives. Financial Management
encompasses a wide range of activities, including budgeting, financial planning, investment
decisions, risk management, and the analysis of financial performance.

Key Components:
1. Financial Planning: Developing comprehensive financial plans that align with the
organization's objectives.
2. Budgeting: Creating budgets that outline expected revenues, expenses, and cash flows
over a specific period.

3. Capital Budgeting: Evaluating and making decisions about long-term investment

opportunities to allocate resources efficiently.
4. Financial Analysis: Assessing the financial health of the organization through the analysis of
financial statements, ratios, and other financial metrics.
5. Risk Management: Identifying and managing financial risks to protect the organization from
uncertainties.
6. Working Capital Management: Efficiently managing short-term assets and liabilities to
ensure smooth day-to-day operations.
7. Financing Decisions: Determining the optimal mix of debt and equity to fund the
organization's activities.
8. Cash Management: Managing cash inflows and outflows to ensure liquidity and meet
financial obligations.

Significance:
1. Strategic Decision-Making: Financial management aids in making informed decisions that
align with the organization's strategic goals.

2. Resource Allocation: Efficient allocation of financial resources to various activities to

maximize returns.
3. Performance Evaluation: Assessing the financial performance of the organization through
financial statements and key performance indicators.
4. Sustainability: Ensuring the organization's long-term sustainability by maintaining financial
health.

5. Compliance: Adhering to financial regulations and standards to maintain transparency

and accountability.

P a g e 27 | 30
 EN20CS301265 Naman Jain

GOALS OF FINANCIAL MANAGEMENT

Financial management has two primary goals: Profit Maximization and Wealth Maximization.
These goals guide financial decision-making and contribute to the overall success and
sustainability of a business.

1. Profit Maximization:
Definition: Profit Maximization is the traditional and straightforward goal of financial management.
It aims to maximize the net income or profits of the company within a given period. Profit is the
surplus remaining after deducting all expenses from revenues.

Objectives and Characteristics:

• Maximizing Net Income: The primary focus is on earning the highest possible amount of net
income.

• Short-Term Perspective: Profit maximization often has a short-term perspective, focusing on

immediate financial gains.

• Risk Consideration: It may involve taking calculated risks to generate higher profits.
• Shareholder Wealth: While profit maximization is essential, it does not consider the time
value of money or the risk associated with future cash flows.

Criticism:

• Ignores Timing and Risk: Profit maximization does not consider the timing of cash flows or
the level of risk associated with earning profits over time.
• Ignores Stakeholder Interests: It might lead to decisions that benefit shareholders at the
expense of other stakeholders, such as employees and customers.

2. Wealth Maximization:
Definition: Wealth Maximization is a broader and more modern goal of financial management. It
focuses on increasing the overall wealth of shareholders, considering both the timing and risk of
future cash flows. Wealth refers to the market value of a company's shares.

Objectives and Characteristics:

• Maximizing Shareholder Value: The primary objective is to maximize the market value of
the company's shares.
• Long-Term Perspective: Wealth maximization considers the long-term impact of financial
decisions on the value of the firm.

• Time Value of Money: It recognizes the time value of money, emphasizing the importance
of cash flows at different points in time.

• Risk-Return Trade-off: Wealth maximization considers the trade-off between risk and return,
aiming for sustainable and balanced growth.
Advantages:

• Holistic Approach: Wealth maximization takes a holistic approach, considering the interests
of various stakeholders, including shareholders, employees, and creditors.
• Long-Term Sustainability: By focusing on the long-term value of the firm, wealth
maximization promotes sustainability and stability.

P a g e 28 | 30
 EN20CS301265 Naman Jain

MODERN APPROACHES TO FINANCIAL MANAGEMENT

1. Investment Decision:
Modern Approach:

• Capital Asset Pricing Model (CAPM): Utilizes the CAPM to evaluate the expected return on
an investment by considering its systematic risk in relation to the market.
• Real Options Theory: Considers the flexibility and strategic value of investment decisions by
incorporating real options, such as the option to expand, delay, or abandon a project.
• Monte Carlo Simulation: Uses simulation techniques to model various possible outcomes and
assess the uncertainty associated with investment decisions.

2. Financing Decision:
Modern Approach:

• Modigliani-Miller Theorem (MM): Recognizes that, under certain conditions, the value of a
firm is not affected by its capital structure. MM theorem provides insights into the irrelevance
of the financing decision in a perfect capital market.

• Pecking Order Theory: Suggests that firms prefer internal financing (retained earnings) over
external financing and prioritize debt over equity to minimize information asymmetry.
• Market Timing Theory: Proposes that companies should time their issuance of securities based
on market conditions to maximize shareholder value.

3. Dividend Policy Decisions:

Modern Approach:
• Residual Dividend Model: Recommends paying dividends only after meeting the financial
needs of the company's investments. Any excess earnings are paid out as dividends.
• Clientele Effect: Recognizes that different investors have distinct preferences for dividend
payments. Companies may tailor their dividend policies to attract specific types of investors.
• Share Repurchase: Instead of or in addition to dividends, companies may opt for share
repurchases to return value to shareholders. Share repurchases can be more tax-efficient for
investors.

• Dividend Relevance Theory: Acknowledges that dividends may convey information to

investors about the company's financial health and future prospects.

Cross-Cutting Modern Practices (For All above mentioned):

• Financial Technology (FinTech): Leverages technology to enhance financial services,
automate processes, and provide data-driven insights for better decision-making.

• Sustainability and ESG Considerations: Integrates Environmental, Social, and Governance

(ESG) factors into financial decision-making, recognizing the importance of sustainability and
ethical practices.
• Data Analytics and Artificial Intelligence: Utilizes advanced data analytics and AI tools to
analyse large datasets, identify patterns, and make data-driven financial decisions.

P a g e 29 | 30
 EN20CS301265 Naman Jain

PROFIT MAXIMIZATION V/S WEALTH MAXIMIZATION:

Criteria Profit Maximization Wealth Maximization

To maximize the net profit or To maximize the market value

Objective earnings of the firm. of the company's shares.

Time Horizon Short-term focus. Long-term focus.

Emphasizes immediate returns and Considers the timing and risk of

Timing of Returns quick profits. future cash flows.

Risk May involve taking higher risks for Emphasizes the tradeoff
Consideration immediate gains. between risk and return.

May not prioritize long-term Prioritizes long-term

Sustainability sustainability. sustainability and growth.

May or may not directly contribute Directly linked to the

Shareholder to shareholder wealth maximization of shareholder
Wealth maximization. wealth.

May lead to decisions that prioritize

short-term gains without Considers the long-term
considering long-term impact and overall well-being
Decision Making consequences. of shareholders.

Focuses on maximizing
Focuses on maximizing accounting shareholder value in terms of
Evaluation Metric profits. the market price of shares.

May not consider the flexibility and Considers the flexibility and
strategic value of investment strategic value of investment
Flexibility decisions. decisions through real options.

May not necessarily result in an Directly linked to an increase in

Market Value increase in the market value of the the market value of the
Consideration company. company.

P a g e 30 | 30