MGT601 Final Term Subjective

MGT601-SMEs Mangement Lecture Wise Questions and Answers

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Topic : Types of Collaterals /guarantees /assets and pledge techniques for security

Collateral Security.

Collateral Security is a form of secondary protection sometimes required by a bank and intended to guarantee a borrower's performance on a debt obligation. The primary security on a substantial business loan is typically the thing that is being financed, such as a factory, company car or shipment, but secondary or collateral security might also be requested by a bank to help assure that the loan will be repaid.

Characteristics of A+ insurance company.

A+ is a rating scale which represents insurance company is secure and superior in the financial strength and issuing of credit ratings ofother insurance companies. The characteristics of A+ insurance company are financial strength and issuing of credit in which companies are superior, secure very strong. The examples of a+ insurance company are Companion Life Insurance Co. - Affiliate of Mutual of Omaha (only available to residents of NYS), First MetLife Inv. IC - Affiliate of MetLife Investors (only available to residents of NYS), North American Co. for Life and Health (NACOLAH) - Affiliate of Sammons Financial etc. You can also visit the following link where insurance companies’ ratings are available.

Is that right that the initial equity capital is used to start a new venture or business?

Yes, it is right that the initial equity capital is used to start a new venture or business. Equity capital is invested money that, in contrast of debt capital,is not repaid to the investors in the normal course of business.

Explain me a borrower give refrence Only for lender's satisfaction or for verification of assetes that borrower present.

Yes, lender or bank officials ask from referee for verification and also for satisfaction of assets.

Defferntiate b/w franchise, enterprise, Branch and firm with example.. Franchise is a business method that involves licensing of trademarks and methods of doing business. A franchise is privately owned. A fee is paid for the "franchise" and usually all supplies are purchased from the original franchiser. You could buy and own a franchise, such as pizza, chicken, or burgers. It's your business that you are successful or not. Such as: McDonalds, KFC, etc. Branch is part of the original organization. Such as banks (HBL, ABL etc) and these are branches and part of the original bank Enterprise is an organization/company engaged in the trade of goods, services provide customers. In an enterprise owners can be one, two or more. Enterprises 100% owned by owners and their self they are responsible for profit or loss.

Topic : Aspects of Financial Management-I

Explain Aspects of Financial Management:

i)Winning the Cash Flow War. ii) Understanding the Nature of Profit. iii) Breaking Even. iv) Working Capital Management.

Differentiate between Business Plan and Feasibility Study.

Between business plan and feasibility study Business plan is a written and orderly description of the plans and decisions of a business entity and covering all important aspects of the enterprise. Feasibility study aims to objectively and rationally uncover the strengths and weaknesses of the existing business, opportunities and threats as presented by the environment, the resources required to carry through, and ultimately the prospects for success. Or feasibility study is an analytical tool that is used to determine if a particular business concept is viable and is heavily weighted towards market research and analysis. A feasibility study is not a business plan. Thebusiness plan provides a planning function that outlines the actions needed to take the proposal from “idea” to “reality.” The feasibility study outlines and analyzes several alternatives or methods of achieving business success. So the feasibility study helps to narrow the scope of the project to identify the best business model. The business plandeals with only one alternative or model. The feasibility study must narrow the scope of the project to identify and define two or three scenarios or alternatives. The consultant conducting the feasibility study may work with the group to identify the “best” alternative for their situation. This becomes the basis of the business plan. In second question you have pointed out business plan and feasibility study use simultaneously or individually and in third one where business plan and feasibility study use. I have defined your both questions in an answer, the feasibility studies are conducted before the business plan. A business plan is prepared only after the business venture has been deem to be feasible. If a proposed business venture is considered to be feasible, then a business plan constructed that provides a “roadmap” of how the business will be created and developed. The business plan provides the “blueprint” for project implementation. If the venture is believed not to be feasible, efforts may be made to correct its deficiencies, other alternatives may be explored, or the idea is dropped.

Explain what is mean by blue chip.

Blue-chip (other name of Blue-chip is stock market) isstock or capital stock (represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is different from the property and the assets of a business which may fluctuate in quantity and value) in a corporation/company/firm with a national reputation for quality, reliability and the ability to operate profitably in good times and bad.

Formula:

Stock used over a period = Opening stock + purchases – Ending Stock.

Breakeven Point formula.

Fixed Costs = Selling Price–Unit Variable Cost Breakeven Point = Fixed Costs / (Selling Price–Unit Variable Cost) Breakeven Point = 10,000 / (5-3) = 5,000 units.

Breakeven Profit Point Formula = Fixed costs + Profit Objective / Selling Price Unit variable Cost

Topic : Aspects of Financial Management-II