Theories

1. Define at least 5 financial management axioms/principles. Are these axioms still relevant

in light of the current global economic crisis? Explain fully.

10 Axioms of Financial Management

The Foundations of Financial Decision Making

1. The Risk-Return Trade-off

The more risk an investment has, the higher its expected return should be. If you bet on a

horse, you want greater odds on the long shot. If you invest in a risky business

(Semiconductor, oil wells, junk bonds), you should demand a greater return. Every decision

you make should be evaluated for risk

2. The Time Value of Money

A dollar received today is worth more than a dollar received in the future. If you receive a

dollar today, you can invest it and earn more. Because of inflation, a dollar you receive today

will buy more than a dollar you receive in the future. So the sooner you get the money, the

better. The sooner you invest your money, the better (i.e. retirement)

3. Cash is King

You can not spend “profit” or “net income”. These are paper figures only. Cash is what is

received by the firm and can be reinvested or used to pay bills. Cash flow does not equal net

income; there are timing differences in accrual accounting between when you record a

transaction and when you receive or pay the cash

4. Incremental Cash Flows

It’s only the increase or decrease in cash that really counts. It’s the difference between cash

flows if the project is done versus if the project is not done. Consider all related cash flows,
i.e., equip., inventory, etc.

5. Curse of Competitive Markets

It’s hard to find and maintain exceptionally profitable projects. High profits attract

competition. How to keep very profitable projects.

Product differentiation (Kleenex, Xerox)

Low cost (Costco, Honda)

Service and quality (Mercedes, Lexus)

6. Efficient Capital Markets

The markets are quick and the prices are right. Information is incorporated into security

prices at the speed of light!. Assuming the information is correct, then the prices will reflect

all publicly available information regarding the value of the firm

Example: announcing a stock split

7. The Agency Problem

Managers are typically not the owners of a company. Managers may make decisions that are

in their best interests and not in line with the long term best interests of the owners

Example, cutting Research and Development costs on new products to maximize current

income Pay for performance; stock options

8. Taxes Bias Business Decisions

Because cash is king, we must consider the after-tax cash flow on an investment

The tax consequences of a business decision will impact (reduce) cash flow

Companies are given tax incentives by the government to influence their decisions

Examples : investment tax credit and environmental credits reduce taxes; purchase of Prius

9. All Risk is Not Equal

Some risk can be diversified away and some cannot. Don’t put all your eggs in one basket

Diversification creates offsets between good results and bad results

Example: drilling for oil wells

10. Ethical Behavior Means Doing the Right Thing

Ethical Dilemmas are everywhere in finance; just read the news (back date stock options,

Madoff). Unethical behavior eliminates trust, results in loss of public confidence.

Shareholder value suffers and it takes a long time to recover. Social responsibility means

firms have to be responsible to more than just owners.

2. Give at least 5 non-monetary considerations in analyzing investment.

Due diligence is the heart and soul of investment selection. A good due diligence process

objectively whittles down the universe of available funds to just those that meet your high

standards for inclusion in an investment portfolio. Investment due diligence typically begins

on the quantitative side by evaluating funds against set benchmarks and in relation to peers.

The fi360 Fiduciary Score®, for example, is calculated using nine quantitative factors that

we consider to be the minimum due diligence criteria that you should use when evaluating an

investment. But in addition to quantitative analysis, fiduciaries should consider applying

qualitative factors, which can help detect organizational instability. Organizational instability,

over time, usually leads to underperformance.

Here are seven qualitative factors that a fiduciary should consider implementing into their

due diligence process:

1. Manager quality – Does the portfolio manager have the necessary experience to

manage the type and size of portfolio you are investigating? In addition to

credentials, take a look at prior experience. This is especially important if the

manager is new to the firm.

2. Staff turnover –Along with the portfolio manager, you should also look at the

professional staff of the investment company. Has there been significant turnover? If

significant turnover is found, you should dig deeper to find out why.

3. Organizational structure – You should also investigate any structural changes to the

investment company. It’s important to examine the firm’s mergers or acquisitions to

 see if the organization is more focused on “castle building” than managing money. If

they are building the firm, how will it benefit your client?

4. Level of service provided - Does the investment company provide a better level of

service than other firms in the marketplace for a comparable fee? Does the money

manager provide other share classes for a fund or separately managed accounts?

Depending on your client’s situation, you may be able to invest with the same

portfolio manager, but at a lower cost.

5. The quality and timeliness of the money manager’s reports – Registered investment

companies are required to report information to the SEC, but do they do so in a timely

manner? In addition, does the manager provide an adequate amount of information to

make an informed decision? If they do not, what is the cause of delay or omission?

6. Response to requests for information – Like every other service company, the

investment company has customers, primarily advisors and investors. Do they treat

their customers with care? If you request information from the investment company,

do they provide it in a timely manner with a relevant response?

7. Investment education - Does the portfolio manager provide an adequate explanation

of the investment decisions made and the factors considered in making decisions? Is

the portfolio manager able to easily articulate the portfolio mandate, the plan to

follow the mandate, and any problems seen in achieving the mandate?

This is by no means a comprehensive list. Instead, it’s a demonstration of the type of

probing analysis an advisor can use in their selection and monitoring process
.
3. What are the 5 stages of Product Life Cycle (PLC). Cite an example or products that

doesn’t need to follow the 5 stages.

Some of the most important stages through which product life cycle passes are as

follows: (i) Introduction (ii) Growth Stage (iii) Maturity Stage (iv) Saturation Stage (v)

Decline Stage.

(i) Introduction:

The product is developed keeping in view a particular need of a set of consumers, and

introduced in the market by initiating its commercial production.

At this stage product is new in the market, consequently its demand is low and requires

vigorous sales efforts. The promotional costs are, therefore, high at this stage and the

production costs are also not fully recovered due to low volume of sales.

(ii) Growth Stage:

There is a rapid expansion in sales as the cumulative impact of the promotional

expenditure helps in the market acceptance of the product as well as the reputation of the
product gains around. But this rapid expansion can be sustained only by the maintenance

of product quality.

(iii) Maturity Stage:

When the product enters the maturity stage the rate of growth of its sales declines, though

the volume of sales keeps on increasing. This is so because most of the persons needing

the product-had; already adopted it during the growth stage and now when the product

enters its maturity stage, it faces a small and declining number of potential buyers.

Consequently, the firm has to spend relatively increasing amount of sales promotion.

(iv) Saturation Stage:

At this stage, the sales volume of the product ceases to grow. The only additional demand

for the product happens to be its replacement demand.

(v) Decline Stage:

Ultimately the product enters a stage of decline where its sale volume starts shifting

down. The competitors have by then entered the market with substitutes and imitations

and the product distinctiveness starts diminishing. Consequently, the sale of the product

also starts declining.

4. Discuss management theories of Frederic Taylor, Max Weber, McGregor, Henry Fayol,

Abraham Maslow.
5. Discuss electronic commerce? What are the management challenges in electronic

commerce?

Electronic commerce, commonly written as E-Commerce or eCommerce, is the trading

or facilitation of trading in products or services using computer networks, such as the

Internet or online social networks. Electronic commerce draws on technologies such as

mobile commerce, electronic funds transfer, supply chain management, Internet

marketing, online transaction processing, electronic data interchange (EDI), inventory

management systems, and automated data collection systems. Modern electronic

commerce typically uses the World Wide Web for at least one part of the transaction's life

cycle although it may also use other technologies such as e-mail.

E-commerce businesses may employ some or all of the following:

 Online shopping web sites for retail sales direct to consumers

 Providing or participating in online marketplaces, which process third-party

business-to-consumer or consumer-to-consumer sales

 Business-to-business buying and selling

 Gathering and using demographic data through web contacts and social media

 Business-to-business electronic data interchange

 Marketing to prospective and established customers by e-mail or fax (for

example, with newsletters)

 Engaging in pretail for launching new products and services

 Online financial exchanges for currency exchanges or trading purposes

As an industry born out of the Internet revolution, the edges of using technology to

fuel your operations are well known to you. And yet, there is a considerable share of

e-commerce players that haven't completely used technology to top their game. The

e-commerce industry has become so fierce, that surviving has become a matter of

concern. With internet fostering the birth of many newcomers threatening reputed

players, the need for differentiating on service has become as critical as product.

With the proliferation of smartphones and tablets e-commerce volumes have

exponentially increased year-on-year, but so has shopping abandonments. This has

resulted in a huge loss for e-commerce players. The reasons could be a non-

responsive website, unexpected shipping costs, lack of personal assistance when

required, or reaching customers at multiple touch-points. What the players really lack

is a communication technology that bridges the gap between e-commerce sales and

customer service, a technology that can nurture customers at their preferred channel

fostering advocacy at all levels.

But before investing on such a technology, you should understand what good it would

do to you. This blog post will help you doing just that. We will discuss on the major

e-commerce challenges that players face, and how a customer interaction technology

could help in overcoming such challenges.

Challenge #1: Lack of Verification Measures

Once a customer signs up in an e-commerce portal, the portal is unaware about the

customer except the information he/she entered. the credibility of the customer is

questionable. This heightens when the customer issues a Cash-on-Delivery (COD)

purchase because the business is unsure whether the customer is genuine or not.

These have resulted in huge revenue losses for many e-commerce players.

Solution: This challenge can be brought under control by sending out a textual or/and

email message to the customer to validate his/her identity. And when a COD purchase

is issued, an automated call or Interactive Voice Response (IVR) can be dialed out to

the customer and ask him/her to validate the delivery address. This would not send

out the wrong message to the customers that they are being doubted, and it would

fulfil your purpose as well.

Challenge #2: Product Returns and Refunds

When products are returned because customers are unsatisfied with the product, it

scars the business with heavy loss on shipment and reputation. Cost of logistics have

always been an issue for e-commerce players especially for those who deliver for

free.

Solution: This cost of operation can be minimized with proper returns management

with seamless interaction platform with logistic partners and vendors.

Challenge #3: Lack of Integration

Order management system, customer support system, dispatch system, order tracking

system, etc are applications that can streamline the experience of the customer across

the buying journey. But if these systems are disparate it could ruin customer

experience.

Solution: A contact center technology could integrate these multiple disparate

systems seamlessly, synchronizing available information across all systems and

displaying it in a single interface.

Challenge #4: Customer Issues Going Unnoticed

Being in an industry where customers can take their business elsewhere in a blink of

an eye, customer service goes a long way. E-commerce business receives a lot of

inbound interaction with more than 75% being complaints or concerns. When these

concerns go unnoticed, it compromises the standard of quality of your business, and

tarnishes your image.

Solution: With proper ticketing solutions and easy to use interfaces, employees are

able to cater to every customer ticket generated at any channel. The efficiency raises

with prioritization measures assigning level of importance to each ticket, making sure

high priority tickets are handled before anything else.

Challenge #5: Customer Loyalty

E-commerce industry is an industry where the cost of switching is pretty

insignificant. A lot of players have lost customers because their rivals have a better

quality of customer service, or better discounts. Knowing that 86% of clients stop

doing business with a company because of poor customer service, you need to ensure

customer service is always a priority for your online business and part of your

retention strategy. Customers demand consistent and seamless experience across all

channels, and players that refuses to deliver fail to retain customers.

Solution: Customer Interaction Management technology makes sure every customer

is under the radar. With effective customer nurturing technology tools and multimedia
integration improves customer retention scores and are more likely to transform one-

time purchasers to brand advocates.

E-commerce is advancing at a scorching pace, and a lot of e-commerce websites enter

the business daily with a survival rate of less than 10% after the first year. This

industry is brutal and demands businesses to arm themselves with state-of-the-art

solution to differentiate themselves from the crowd.

Our solution, Ameyo has powered over a billion customer interactions through

Flipkart, Myntra, Jabong, etc. These are the biggest e-commerce players in India, and

why do you think they are where they are. They understood the need for superior

customer experience and banked on it.

6. Give factors to consider in entering a global market? Explain?

For many companies, expanding globally is essential to achieve success in the 21st century.

But determining the best strategy can be difficult. And depending on your goals and level of

resources, it may change.

However, by establishing a set of guidelines, selecting the right export markets doesn’t have

to be painful. To make your job easier, consider some of our guidelines below.

Study Economic Indicators

Rank your potential country markets by how much of your product they import from the U.S.

Then rank each by their total demand (domestic production plus world imports) for the

previous three years. From this you can determine market size, its rate of growth, and U.S.

market share.

If total demand for your product is increasing, review the country’s growth rate and per

capita income. If indicators are positive, it’s likely that demand will continue to rise.

Be Competitive and Adapt

Identify each selected market’s trade barriers. If excessive, they may out-price your product.

Know your competitors, their products, prices, distribution methods, consumers, and after-

sale service. If intense competition exists, consider smaller markets that may be unattractive

for multinationals, but big enough for you.

Sensitivity to foreign cultures is not only polite — it’s good business. Study a culture’s wants

and needs. If your product design is not suitable, adapt.

Know Your Risks

Importers with soft currencies or insufficient reserves may find it difficult to pay you.

Understand the risks, buy insurance or choose other markets. If you accept foreign currency,

guard against fluctuations. Keep abreast of political risk. Civil unrest or policy changes may

harm your interests.

Investigate Infrastructure Needs

If your product requires a skilled support staff, make sure it’s available in your target market.

If not, you may be forced to provide costly support from back home. The lack of physical

infrastructure may also curtail exports. The inability to quickly deliver perishables due to

inoperable roads or inaccessibility to refrigerated storage can be a deterrent.

Research Legal Issues

Many countries claim to enforce intellectual property laws, but don’t. Investigate how piracy

is handled. If protection isn’t a priority, you may want to avoid this market.

In some countries, the accused is presumed guilty until proven innocent, and judges may

unfairly favor domestic sales agents or consumers. Assess each country’s legal practices and

investigate safety and environmental regulations.

Welcome Advice and Use It

By acquiring majority interest in a foreign firm, you can dictate policy — but don’t. Respect

and value the input provided by existing managers. A sound acquisition strategy asks what

management thinks of proposed changes and incorporates the input.

Accurately Weigh Your Own Factors

Do your homework. Establish the factors you feel will best help you determine the markets to

pursue — and seriously weigh them. Success is best achieved if you calculate all the costs of
doing business and understand the ramifications of each decision. If not, your efforts may

turn into losses.

7. Why 80% of all new products fail? How to reduce the risks to increase the probability of

success?

Failure to Understand Consumer Needs and Wants

Blinded by their own vision the company ignored negative user feedback right from trials,

and developed a product that failed to meet customers needs and wants.

Targeting the Wrong Market

It’s hard to know how the market will react to a product and marketing messaging. Hence

why it’s crucial to test these things beforehand. Ask potential users for feedback and test their

response to the marketing message. And then, listen to that feedback.

Incorrect Pricing

a high price might suggest too sophisticated product to customer needs. And so, it could force

potential buyers to look for alternatives they’d perceive more relevant to them.

Weak Team and Internal Capabilities

Lack of skills can limit any potential solutions your team can create. Similarly, lack of

resources and internal support can hinder your efforts to produce a product that satisfies

customer needs.

Prolonged Development or Delayed Market Entry

Taking too long to launch may also cause a product to fail. By the time it hits the market,

customer needs could change, the economy could have taken a downturn, or the market

segments may have evolved

Marketing managers responsible for new product decisions are typically very experienced.

They usually have marketing research information about the new products, often of good

quality, and they want new products to succeed. Perhaps it is this very "want" on the part of

managers that partially explains high and constant new product failure rates. Perhaps

managers are not so much failing to understand consumer needs as failing to see just how

many consumers have this need. Indeed, the most common public statements by managers

about new product introductions are those concerning market size. Many times products that

seem to others to be clear niche products are touted by managers as mass-market

breakthroughs. It seems as if managers' views are influenced by their closeness to the

product.

Research in decision making has consistently shown that ego-involvement , selective

perception, wishful thinking and optimism can lead to biases in the direction of wants.

Similar results obtain from studies of vested interest, illusion of control, overconfidence and

risk taking. Thus, marketing managers are predisposed to think in terms of product success,

not product failure. Consequently, marketing managers usually overestimate product demand

because of the way they interpret evidence for the products they care about most. This

tendency provides a partial explanation for high and constant new product failure rates. They

would remain high due to continual overestimation and not to the lack of success of

marketing research techniques.

New products that do not fulfill consumer needs or wants will fail. To reduce the chance of

failure, product managers use tools to help identify consumer attitudes and preferences.

These tools range from simple market surveys to sophisticated conjoint studies and pre-test

market models. Managers can examine the findings from these studies or models before
making a decision to continue with product development, test market a product, or attempt

full-scale commercialization. Since product managers usually have profit and loss

responsibility for new product introductions, they are ego involved. If the product is a pet

project, they have even more ego involvement. In this way, the product is personalized.

So managers are almost always too ego involved with their products, almost always

overestimate demand and almost always—since by definition overestimated demand

increases the chance of product failure—have products that fail more than succeed. (Recall

that about 85% of new consumer packaged goods fail.)

We can see that marketing managers face several obstacles in making good marketing

decisions with respect to new products. It seems facile to say reduce your bias and

oversimplified to say get an outsider's view through third-party counsel—and yet that is

precisely what managers should do.

The most obvious solution to the problem of ego involvement is to have a third party review

the market research data or even the product concept itself. Research has shown that when

this is done the results are more objective. Many times, however, outside consultants add to

the problem because of their own incentives to "please" the client. Where, then, can the

unbiased outside view be obtained?

The first alternative is to use independent third parties, where independence is defined by

lack of remuneration. Universities, for example, are in a very good position to provide

outside views as departmental projects or even class projects. Faculty and students can

examine market research data, with appropriate confidentiality agreements, and give

unbiased opinions. They can even give opinions without knowing the client's identity,

something not possible with traditional paid consulting.

The second alternative is paid consultants who create organizational entities that review

market research data without a direct connection to the client. Under this plan clients may

subscribe to the consultant's services, but not pay directly for each project reviewed.

However, this alternative would require stronger ethical standards than now exist at many

consulting organizations.

The third alternative is for the company to try to create an objective unit within its own

organization. Rather than regarding realists as pessimists, negativists, poor team players or

turncoats, the organization could give credit to those individuals who can see the forest for

the trees. After all, most of the time product mistakes are so "obvious" (in the sense that they

could have been predicted) that a good organization would be better off with product realists

than product champions.

Like the story of the emperor's new clothes, couldn't someone at General Motors have said to

a superior, "OMG, that Aztec's ugly."

Marketing research techniques are getting better and better. But managers' ego involvement

stays just the same. This is the main reason why product fail
8. What are differences between marketing plan and business plan?

When writing a business plan, one tends to visualize and understand their entire

enterprising goal as a whole. The company design and purpose is exposed and therefore

better to implement. But when developing the marketing plan, the intention is to amplify

your salesman or sales woman skills and mission. To further explain the difference

between a business plan and a marketing plan, I will have you envision the grand purpose

of each.

The mission of the business plan is to ensure virtual organization. You, a lender, or

anyone reading the proposition should be able to see how a venture will smoothly operate

and churn out a profit daily, annually or for years to come by merely reading the

document. It is telling the story of the life of your company from obtaining the product to

putting gross profits in the bank. The business plan gives the company life. It transforms

it from a name and words into a tangible entity. This is important because if you are

seeking financial assistance, no lender wants to extend monetary backing without seeing

the success of an institution on paper first.

The basic business plan can be as short and simple as you would like or it can be long

and specialized as needed. The general sections may have different names but they all

have the same objectives. One of the simple outlines is a follows.

o Executive Summary

o Company Description
 o Product or Service

o Market Analysis

o Strategy and Implementation

o Internet Planning Details

o Management

o Financial Analysis

The marketing plan, however, concentrates on one particular section of the business plan.

It can be divided into at least two sections called the objective and the strategy. But its

specific job is to etch out the path of how you will grab the attention of the public and

charm with your “brand”. Overall, it is the biography of survival; internet and physical.

It explains in a nutshell how and when you will get the world to purchase your wares.

To accomplish the marketing plan goal, some questions you may ask are:

o What are my or my company’s Strengths, Weaknesses, Opportunities and

Threats (SWOT)?

o How will I overcome the SWOT or work effectively with them?

o Exactly what is the product or service?

o Who is the target and where will you find them?

o How will I keep customer interested?

o Who or What is the competition?

o What is product pricing?

o What tools will be used to woo potential customers?

 o What soft or hard publications will be used to persuade them?

o What methods are more beneficial than others?

o What is the budget?

o How will the product get from point A to point B on a regular basis and

keep it going like clockwork.

If you are precise with your plot, then you will be consistent in making a profit annually.

Be prepared to change your plans and roll with the economic punches and any other

problems that could arise. In keeping with the standards, the elements of the Marketing

Plan could vary, but the below is the essence of an outline.

o Executive Summary

o Current Standing

o Competitor Analysis

o Marketing Objectives

o Marketing Strategy

o Action

o Budget

o Measures

o Stats, Documents, Data

If you are a small or new business entrepreneur who is bootstrapping your way to

success, then you may not be concerned with big budget productions or producing a

money margin that will impress lenders. So make a marketing plan that concentrates on
the best way to impress and dazzle your customers. Show how you will keep up with

overhead, paying general bills and meeting the salary marker you set for yourself and/or

employees. If you prefer, you can hire a professional business and marketing plan maker.
9. What are the processes used in forecasting sales volume and budgeting expenses?
10. What are the areas a production manager has to decide in setting up a production system?
Production planning is a plan for the future production, in which the facilities needed are

determined and arranged. A production planning is made periodically for a specific time

period, called the planning horizon. It can comprise the following activities:
 Determination of the required product mix and factory load to satisfy customers

needs.
 Matching the required level of production to the existing resources.
 Scheduling and choosing the actual work to be started in the manufacturing

facility
 Setting up and delivering production orders to production facilities.
In order to develop production plans, the production planner or production planning

department needs to work closely together with the marketing department and sales

department. They can provide sales forecasts, or a listing of customer orders. The "work

is usually selected from a variety of product types which may require different resources

and serve different customers. Therefore, the selection must optimize customer-

independent performance measures such as cycle time and customer-dependent

performance measures such as on-time delivery."

A critical factor in production planning is "the accurate estimation of the productive

capacity of available resources, yet this is one of the most difficult tasks to perform well."

Production planning should always take "into account material availability, resource

availability and knowledge of future demand."