Explain the term ‘Trading on Equity’? Why, when and how it can be used by company.
Trading on equity means the use of fixed cost sources of finance such as preference shares, debentures and long-term loans in the capital structure, so as to increase the return on equity shares. This is also known as financial leverage. It is advisable to use trading on equity when the rate of return on investment is more than the rate of interest payable on debentures and loans. The use of more debt along with equity increases Earning per share(EPS). Let us take an example of companies A and B.
Company A | Company B | |
---|---|---|
Share capital (100 each) Loan @ 15% p.a. |
₹ 10,00,000 | ₹ 4,00,000 |
- | ₹ 6,00,000 | |
Total Capital | ₹ 10,00,000 | ₹ 10.00.000 |
Profit Before Interest and Tax (30% ROI) (-) Interest (15% of ₹ 6,00,000) Profit Before Tax (-) Tax @ 50% |
₹ 3,00,000 | ₹ 3,00,000 |
Nil | ₹ 90,000 | |
₹ 3,00,000 | ₹ 2,10,000 | |
₹ 1,50,000 | ₹ 1,05,000 | |
Profit After Tax | ₹ 1,50,000 | ₹ 1,05,000 |
Earning per Share (EPS) = Profit After Tax ÷ Number of Equity Shares
A = 150000 ÷ 10000 = ₹ 15
B= 105000 ÷ 4000 = ₹ 26.25
Thus, from the above example, it is clear that shareholders of company B receive higher EPS than the shareholders of company A due to more debt in the total capital of company B.
What are the steps taken by management in the planning process?
Why is management considered to be a multi-dimensional concept?
Explain the procedure for selection of employees.
How would you characterize the business environment? Explain with examples, the difference between general and specific environment.
The government of India announced Demonetization of ₹ 500 and ₹ 1,000 currency notes with effect from the midnight of November 8, 2016. As a result, the existing ₹ 500 and ₹ 1,000 currency notes ceased to be legal tender from that date. New currency notes of the denomination of ₹ 500 and ₹ 2,000 were issued by Reserve Bank of India after the announcement.
This step resulted in a substantial increase in the awareness about and use of Point of Sale machines, e-wallets, digital cash and other modes of cashless transactions. Also, increased transparency in monetary transactions and disclosure led to a rise in government revenue in the form of tax collection.
a. Enumerate the dimensions of the business environment highlighted above.
b. State the features of Demonetization.
Indian Railways has launched a new broad gauge solar power train which is going to be a path breaking leap towards making trains greener and more environment friendly. The solar power DEMU (Diesel Electric Multiple Unit) has 6 trailer coaches and is expected to save about 21,000 liters of diesel and ensure a cost saving of Rs 12, 00,000 per year. Name the objectives of management achieved by Indian Railways in the above case.
Define scientific management. State any three of its principles.
Explain the qualities of a good leader? Do the qualities alone ensure leadership success?
Discuss the relevance of Taylor and Fayol’s contribution in the contemporary business environment.
Management is a series of continuous interrelated functions. Comment.
Discuss the relationship between planning and controlling.
A marketer of colour TV having 20% of the current market share of the country aims at enhancing the market share to 50 per cent in next three years. For achieving this objective he specified an action programme. Name the function of marketing being discussed above. (Ans. Marketing planning.)
The workers of a factory remain idle because of lack of knowledge of hi-tech machines. Frequent visit of engineer is made which causes high overhead charges. How can this problem be removed. (vestibule training)
An auto company C Ltd. is facing a problem of declining market share due to increased competition from other new and existing players in the market. Its competitors are introducing lower priced models for mass consumers who are price sensitive. C Ltd. realized that it needs to take steps immediately to improve its market standing in the future. For quality conscious consumers, C Limited plans to introduce new models with added features and new technological advancements. The company has formed a team with representatives from all the levels of management. This team will brainstorm and will determine the steps that will be adopted by the organisation for implementing the above strategy. Explain the features of Planning highlighted in the situation given below. (Hint: Planning is pervasive, Planning is futuristic and Planning is a mental exercise).
Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose the company needs additional ₹ 80,00,000 for replacing machines with modern machinery of higher production capacity. The company wishes to raise the required funds by issuing debentures. The debt can be issued at an estimated cost of 10%. The EBIT for the previous year of the company was ₹ 8,00,000 and total capital investment was ₹ 1,00,00,000. Suggest whether issue of debenture would be considered a rational decision by the company. Give reason to justify your answer. (Ans. No, Cost of Debt (10%) is more than ROI which is 8%).
If planning involves working out details for the future, why does it not ensure success?
Distinguish between centralisation and decentralisation.
Name the principle that is an extension of the ‘harmony, not discord’.
“Money Market is essentially a Market for short term funds.” Discuss.
Decentralisation is extending delegation to the lowest level. Comment.