ECO 01 Solved Assignment 2022 – 23
IGNOU B.Com Free Solved Assignment 2022 – 23
Business Organisation ECO 01 Solved Assignment 2022 – 23
COURSE CODE AND TITLE: ECO – 01 BUSINESS ORGANISATION
ASSIGNMENT CODE: ECO-01/TMA/2022-2023
COVERAGE: ALL BLOCKS
Maximum Marks: 100
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1. What are the essential features of business? List different objectives of business. (10+10)
Ans: Business is an economic activity, which is related with continuous and regular production and distribution of goods and services for satisfying human wants.
Lewis Henry defines business as, “Human activity directed towards producing or acquiring wealth through buying and selling of goods.”
Thus, the term business means continuous production and distribution of goods and services with the aim of earning profits under uncertain market conditions.
Characteristics or features of business are discussed in following points:
a) Exchange of goods and services: All business activities are directly or indirectly concerned with the exchange of goods or services for money or money’s worth.
b) Deals in numerous transactions: A businessman regularly deals in a number of transactions and not just one or two transactions.
c) Dealing in goods and services: Dealing in goods and services is essential for an activity to be called as business. Irrespective of the types of goods and services acquired through production for sale, it is all business.
d) Profit is the main Objective: The business is carried on with the intention of earning a profit. It is a very important feature of business because it separates business from other activities of human beings.
e) Business skills for economic success: To be a good businessman, one needs to have good business qualities and skills.
f) Risks and Uncertainties: Business is subject to risks and uncertainties. Risk stands for some possibility of loss. There is uncertainty in the market and the entrepreneur faces all such uncertainties and risks.
Objectives of Business
The main objective of a business undertaking is to earn profits. Profit earning is considered necessary for the survival of the business. The objectives of the business may be categorised under these headings:
(a) Economic Objectives
(b) Human Objectives
(c) Social Objectives
(d) Organic objectives
(a) Economic Objectives: Economic objectives of a business are
1. Profit earning for existence and expansion of business.
2. Production and sale of Goods to earn profit.
3. Creating Markets to sell products.
4. Technological Improvement to keep pace with the changing business world.
(b) Human Objectives: Human objectives of business are that a workable balance should be maintained among the claims of various interested groups like employees, shareholders and consumers. These objectives can be discussed as follows.
1. Welfare of employees by providing physical comfort, material incentives, appreciation, and dignity of labour.
2. Satisfaction of Consumers should be given due weightage.
3. Satisfaction of Shareholders by giving reasonable return on the money invested by the shareholders.
(C) Social Objectives or Social Responsibility of the Business: The social responsibility of the business can be studied as follows.
1. To make Goods and Services available to meet requirements of the society.
2. To Supply Quality Goods at reasonable price.
3. Co-operation with the Government.
4. To make proper Financial Planning to make sure that adequate funds are raised at the minimum cost.
(d) Organic Objectives:A business is like human being that takes birth, grows, becomes adult and it not sustained, grows old and then fades out from the scene. In one-way business is organic entity. It must work and struggle like a man for its survival. A firm which does not work as a part of the society, loses its existence and value.
2. What is capital structure? Describe factors that determine the capital structure. (2+18)
Ans: Ans: Capital structure refers to the mix of sources from where long term funds required by a business may be raised i.e. what should be the proportion of equity share capital, preference share capital, internal sources, debentures and other sources of funds in total amount of capital which an undertaking may raise for establishing its business. In simple words, capital structure means the proportion of debt and equity used for financing the operations of business and it is calculated by the following
formula: Capital structure = Debt/Equity.
Following Internal and External factors are to be considered before determining capital structure.
Internal Factors
1. Cash flow position: If cash flow position of the company is sound, then debt can be raised and if cash flow is not sound debt should be avoided and it must employ more of equity in its capital.
2. Interest coverage ratio: It is the ratio that expresses the number of times the Net profit before interest and tax covers the interest liabilities. Higher the ratio better is the position of the firm to raise debt.
3. Control: Issue of Equity shares dilutes the control of the existing shareholders, whereas issue of debt does not as the debenture holders do not participate in the management. Thus if control is to be retained, equity should be avoided.
4. Cost of debt: If firm can arrange borrowed fund at low rate of interest then it will prefer more of debt as compared to equity.
External Factors
5. Stock market conditions: If the stock market is bullish, the investors are adventurous and are ready to invest in risky securities. In this case, equity can be issued even at a premium. Whereas in the Bearish phase, when the investors become cautious, debt should be issued as there is a demand for fixed cost security.
6. Regulatory framework: Before determining the capital structure of a company, the guidelines of SEBI and concerned regulatory authority is to be considered.
7. Flexibility: Excess of debt may restrict the firm’s capacity to borrow further. To maintain flexibility, it must maintain some borrowing power to take care of unforeseen circumstances.
8. Tax rate: As interest on debt is treated as an expense, it is tax deductible. Dividend on equity is the distribution of profit so is not tax deductible. Thus if the tax rates are high, issue of debt is an attractive means as it is economical in nature.
3. Discuss various arguments in support of and against advertising. (20)
Ans: Advertising: It is the most commonly used tool of promotion. It is an impersonal form of communication, which is paid by the marketers (sponsors) to promote goods or services. Common mediums are newspaper, magazine, television and radio. Advertisements play a very important role in offering innumerable benefits to the manufacturers, customers and to the society in general.
Advertising is considered to be very useful because it beneficial for manufacturers, consumers, salesmen and society in large. Arguments in favour of advertising are given below:
Advantages of Manufacturers
1) It creates demand for new products by informing people about the availability and suggesting them about the use of such goods.
2) It promotes increased sales by maintaining the present demand and expanding the markets by attracting more people to buy.
3) It creates goodwill by making the name of the manufacturer and his products famous and known in every home.
4) It creates steady demand for products by smoothening out the seasonal fluctuations in demand.
5) It reduces the cost of production by making large-scale production possible through creation of demand. The large-scale production reduces the total cost per unit of production.
Advantages to Consumers
1) It facilitates purchasing by educating consumers to select correct brands of commodities which increase their personal satisfaction.
2) It makes available goods at reduced prices as advertisement increases sales, promotes large-scale production, reduces cost of production and distribution and increases competition. This result in reduction in prices and consumers get goods at reduced rates.
3) It increases the utility of commodities. Consumers come to know about the proper and diverse use of commodities through advertising. This helps to increase the utility of commodities for the consumers.
4) It ensures good quality of products. Advertising encourages manufacturers to produce better quality products which boosts the confidence of the consumers and ensures them availability of goods quality products.
5) It reduces the possibility of being cheated as through advertisements the consumers come to know about the prices and composition of goods.
Advantages to Salesmen
1) It creates a proper base for the salesman by acquainting more people, in a shorter time, with the merits of a product, its new uses, new varieties and so on.
2) It educates even salesmen and increases their confidence, capacity and initiative.
3) It reinforces the sales points and simplifies work of the salesmen as they cannot reach all places and at all the times.
4) It reduces the effort of the salesmen as they can reach the right prospects with the least effort.
5) It increases the remuneration of salesmen by supplementing their efforts to increase sales and thereby increase remuneration.
Advantages to the Society:
Advertisement is beneficial not only to the manufacturers and the consumers but also to the society at large in the following ways:
1) It uplifts the living standards of the people. Advertising acts as an effective tool in raising standard of living.
2) It generates gainful employment opportunities. Advertisement generates gainful employment opportunities both directly and indirectly.
3) It provides new horizons of knowledge. It improves the knowledge, language and style of the people.
4) It provides a regular source of income to newspapers. It has been estimated that nearly 80% of the income of newspapers and magazines is secured through advertisements. In its absence, the newspapers and magazines would have become very costly and beyond the reach of people at large.
5) It transforms culture of a nation. The basis of advertising is the taste of the public, its social customs and its culture. It influences the fashions, tastes, habits, attitudes and likes and dislikes, etc. of the society at large.
6) It acts as a barometer of a nation’s economic growth. Advertising promotes healthy competition and provides better quality goods at cheaper rates to the society.
Arguments Against Advertising
Several objections have been raised against advertising and some people criticize advertising as a social waste. The main point of criticism is as follows:
a) Creates Monopoly in the Market: Advertisement leads to promotion and cover mass level of customers at a time. Large firms can bear the advertisement expenditure but not the small firms, due to that it can eliminate the small firms from the market and creates its monopoly authority in the market.
b) Higher the Prices of Product: Investment of money in advertisement leads to increase in the price of goods and services for which consumer has to face high prices and pay for it. Hence, more the advertisement cost- more the product cost.
c) Misleading the consumers: Now days, advertisement misleads the consumers on false representation regarding their goods. Consumer attracts to those goods which are not necessary for them. Thus, advertisement misleads the consumer and sale goods to them.
d) Wasteful Consumption by the Consumers: Advertisement attracts the consumers for wasteful products which are not necessary for consumers. Due to advertisement businessmen takes undue advantage from them. They sale unhealthy and artificial goods to them and exploits consumer emotions.
e) Wastage of National Resources: There will be wastage of national resources, valuable stationary, time and energy used by the people or is ignored by them. Here, Valuable resources that can be used to create new industries are wasted in the production of needless varieties and designs.
4. Discuss the pervasiveness of risk in business. Describe briefly the management of business risks. (10+10)
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5. Comment briefly on the following statements: (4×5)
(a) An entrepreneur is a good judge of which products will sell.
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(b) Stock exchange plays a very important role in the economic development of a country.
Ans: STOCK EXCHANGE: A stock exchange is highly organised financial market where the second hand securities can be bought and sold. Its main functions are to create a link between the buyers and sellers of securities so that investments can change hands in the quickest, cheapest and fairest manner. Under the Securities Contract (Regulation) Act, 1956, the term stock exchange has been defined as “as association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities”.
As the barometer measures the atmospheric pressure, the stock exchange measures the growth of the economy. It performs the following vital functions:
1. Ready market and liquidity: Stock exchange provides a ready and continuous market where investors can convert their money into securities and securities into money easily and quickly. It provides a convenient meeting place for buyers and sellers of securities.
2. Evaluation of securities: Stock exchange helps in determining the prices of various securities that reflect their real worth. The forces of demand and supply act freely in the stock exchange and help in the valuation of securities.
3. Mobilsation of savings: Stock exchange helps in Mobilising surplus funds of individuals and institutions for investment in securities. In the absence of facilities for quick and profitable disposal of securities, such funds may remain idle.
4. Capital formation: Stock exchange not only mobilises the existing savings but also induces the public to save money. It provides avenue for investment in various securities which yield higher returns. It helps in allocation of available funds into the most productive channels.
5. Regulation of corporate sector: Stock exchanges frame their rules and regulations. Every company which wants its securities to be dealt in at the stock exchange has to follow the rules framed by the stock exchange in this regard.
(c) There are various reasons of the government participating in business.
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(d) The government company form of organization suffers from certain limitations.
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