14 Principles of Management - Henri Fayol

MGT-503

14 Principles of Management - Henri Fayol

Fayol was the first to identify the four functions of management: planning, organizing, directing, and controlling, as known today.
His original definition of management comprised of five elements: forecast & plan, organise, command, coordinate, and control.
His 14 principles are:

1-Division of work -
specialisation provides the individual to build up experience, continuous improvement in skills, and thereby be more productive. 

Top 10 New Manager Mistakes

Top 10 New Manager Mistakes

By F. John Reh, About.com Guide

Managing can be a little difficult at first. A recent poll found that more than 50% of managers received NO training before starting the job. Here is a list of the most common mistakes new managers make so you can avoid making them too. (If you think I missed one, use the "Readers Respond" link at the bottom to add a new one.)

1. Think you know everything.

If you were just promoted to Production Manager, you may feel you know everything about production. Even if that were true, and it isn't, you sure don't know everything about the most important part of your new job, managing people. Listen to the people around you. Ask for their input when appropriate. Keep an open mind.

Manager Mistakes MGT-503

MGT-503
Manager's Mistakes

1. Putting policies ahead of people.

The smaller the organization, the larger the mistake this is. Policies are made to be followed, within reason. Some flexibility with employees, particularly in a small company, is important. An even bigger mistake is standing behind policies at the expense of losing loyal customers. Weigh the significance of standing behind your policy in each situation. If it is a matter of physical safety or security, policies must be upheld. However, in many other instances, there are reasonable solutions that will not alienate the customer or create a strained relationship with your employee(s).

Online 45 MCQz of MGT -402

 Online 45 MCQz of MGT -402
Question # 1
Which of the following is considered as basic systems of remunerating labor?
  i)  Time rate system
ii)   Piece rate system
iii)  Halsey Premium plan
iv)  Both time rate and piece rate system

Question # 2
A method by which the first goods to be received are said to be the first to by sold

i)LIFO
ii)AVCO
iii)FIFO
iv)WASH

What is Accounting

[What is Accounting]

What is the relationship between cost accounting financial accounting and managerial accounting?

Financial accounting relates to the information presented based on past events and records.

Cost and managerial accounting is the presentation of financial information to the management to be used in decision making while in managerial accounting projections are made based on past trends.

Financial accounting relates to the information presented based on past events and records.

Cost and managerial accounting is the presentation of financial information to the management to be used in decision making while in managerial accounting projections are made based on past trends.

MGT201(Financial Management) All formulas

PV IF = 1 - (1+i)^-n = (1-(1+i)^-n)/i (to use in Excel worksheet)

i

FV IF = (1+i)^n - 1 = (1+i)^(n) -1 )/i

i

FV = PV*(1+i)^n PV = FV/(1+i)^n i = (Future Payment/Present Value)^1/n - 1 1. Fundamental Accounting Equation and Double Entry Principle. • Assets +Expense = Liabilities + Shareholders’ Equity + Revenue Liabilities = Equity = Net Worth Revenue – Expense = Income Statement of Retained Earnings or Shareholders’ Equity Statement Total Equity = Common Par Stock Issued + Paid In Capital + Retained Earnings Current Ratio: = Current Assets / Current Liabilities Quick/Acid Test ratio: = (Current Assets – Inventory) / Current Liabilities Average Collection Period: = Average Accounts Receivable /(Annual Sales/360) PROFITABILITY RATIOS: Profit Margin (on sales): = [Net Income / Sales] X 100 Return on Assets: = [Net Income / Total Assets] X 100 Return on equity: = [Net Income/Common Equity] 6. ASSET MANAGEMENT RATIOS Inventory Turnover: = Sales / inventories Total Assets Turnover: = Sales / Total Assets DEBT (OR CAPITAL STRUCTURE) RATIOS: Debt-Assets: = Total Debt / Total Assets Debt-Equity: = Total Debt / Total Equity Times-Interest-Earned: = EBIT / Interest Charges Market Value Ratios: Price Earning Ratio: = Market Price per share / *Earnings per share Market /Book Ratio: = Market Price per share / Book Value per share *Earning Per Share (EPS): = Net Income / Average Number of Common Shares Outstanding M.V.A (Market Value Added): MVA (Rupees) = Market Value of Equity – Book Value of Equity Capital E.V.A (Economic Value Added): EVA (Rupees) = EBIT (or Operating Profit) – Cost of Total Capital Interest Theory: • Economic Theory: i = iRF + g + DR + MR + LP + SR – i is the nominal interest rate generally quoted in papers. The “real” interest rate = i – g Here i = market interest rate g = rate of inflation DR = Default risk premium MR = Maturity risk premium LP = Liquidity preference SR = Sovereign Risk The explanation of these determinants of interest rates is given as under: Market Segmentation: Simple Interest (or Straight Line): F V = PV + (PV x i x n) Discrete Compound Interest: Annual (yearly) compounding: F V = PV x (1 + i) n Monthly compounding: F V = PV x (1 + (i / m) m x n Continuous (or Exponential) Compound Interest: F V (Continuous compounding) = PV x e i x n Estimated current assets for the next year = [Current assets for the current year/Current sales] x Estimated sales for the next year Expected Estimated retained earnings = estimated sales x profit margin x plowback ratio Estimated discretionary financing = estimated total assets – estimated total liabilities –estimated total equity G (Desired Growth Rate) = return on equity x (1- pay out ratio) CASH FLOW STATEMENT Net Income Add Depreciation Expense Subtract Increase in Current Assets: Increase in Cash Increase in Inventory Add Increase in Current Liabilities: Increase in A/c Payable Cash Flow from Operations Cash Flow from Investments Cash Flow from Financing Net Cash Flow from All Activities Interest Rates for Discounting Calculations • Nominal (or APR) Interest Rate = i nom • Periodic Interest Rate = i per It is defined as iper = ( i nominal Interest rate) / m Where m = no. of times compounding takes place in 1 year i.e. If semi-annual compounding then m = 2 • Effective Interest Rate = i eff i eff = [1 + ( i nom / m )]m – 1 Calculating the NPV of the Café Business for 1st Year: NPV = Net Present Value (taking Investment outflows into account) NPV = −Initial Investment + Sum of Net Cash Flows from Each Future Year. NPV = − Io +PV (CF1) + PV (CF2) + PV (CF3) + PV (CF4) + ...+ ∞ Annual Compounding (at end of every year): FV = CCF (1 + i) n – 1 Annual Compounding (at end of every year) PV =FV / (1 + i ) n . n = life of Annuity in number of years Multiple Compounding: Future Value of annuity =CCF (constant cash flow)*(1+ (i/m) m*n-1/i/n Multiple Compounding: PV =FV / [1 + (i/m)] mxn Future value of perpetuity: =constant cash flow/interest rate Future value by using annuity formula FV =CCF [(1+i) n - 1]/ i Return on Investments: ROI= (ΣCF/n)/ IO Net Present Value (NPV): NPV= -IO+ΣCFt/ (1+i) t Detail NPV = -Io + CFt / (1+i)t = -Io + CF1/(1+i) + CF2/(1+i) ^2 + CF` /(1+i)^3 +.. -IO= Initial cash outflow i=discount /interest rate t=year in which the cash flow takes place Probability Index: PI = [Σ CFt / (1+ i) t ]/ IO Internal Rate Of Return(IRR) Equation: NPV= -IO +CF1/ (1+IRR) + CF2/ (1+IRR) ^2...... Internal Rate of Return or IRR: The formula is similar to NPV NPV = 0 = -Io + CFt / (1+IRR)t = -Io + CF1/(1+IRR) + CF2/(1+IRR) ^2 + .. Modified IRR (MIRR): (1+MIRR) n = Future Value of All Cash Inflows…. Present Value of All Cash Outflows (1+MIRR) n = CF in * (1+k) n-t CF out / (1+k) t Equivalent Annual Annuity Approach: EAA FACTOR = (1+ i)^ n / [(1+i)^ n -1] Where n = life of project & i=discount rate BONDS’ VALUATION The relationship between present value and net present value NPV = -Io + PV Present Value formula for the bond: n PV= Σ CFt / (1+rD)t =CF1/(1+rD)+CFn/(1+rD)2 +..+CFn/ (1+rD) n +PAR/ (1+rD) ^n t =1 In this formula PV = Intrinsic Value of Bond or Fair Price (in rupees) paid to invest in the bond. It is the Expected or Theoretical Price and NOT the actual Market Price. rD = it is very important term which you should understand it care fully. It is Bondholder’s (or Investor’s) Required Rate of Return for investing in Bond (Debt).As conservative you can choose minimum interest rate. It is derived from Macroeconomic or Market Interest Rate. Different from the Coupon Rate! Recall Macroeconomic or Market Interest Theory: i = iRF + g + DR + MR + LP + SR CF = cash flow = Coupon Receipt Value (in Rupees) = Coupon Interest Rate x Par Value. Represents cash receipts (or in-flow) for Bondholder (Investor). Often times an ANNUITY pattern Coupon Rate derived from Macroeconomic or Market Interest Rate. The Future Cash Flows from a bond are simply the regular Coupon Receipt cash in-flows over the life of the Bond. But, at Maturity Date there are 2 Cash In-flows: (1) the Coupon Receipt and (2) the Recovered Par or Face Value (or Principal) n = Maturity or Life of Bond (in years) In the next lectures, you would study that how the required rate of return is related to market rate of return Calculate the PV of Coupons from the FV Formula for Annuities (with multiple compounding within 1 year): FV = CCF (1 + rD/m )nxm - 1/rD/m Use Monthly Basis for this example. n = 1 year m = 12 months CCF = Constant Cash Flow = Rs 1,000 = Monthly Coupon rD = Annual Nominal Required Rate of Return for investment in Bond (Debt) = 10% pa. Periodic Monthly Required Rate of Return is rD/m = 10/12 = 0.833 % = 0.00833 p.m. m = 12 months YTM =Total or Overall Yield: = Interest Yield + Capital Gains Yield Interest Yield or Current Yield: = Coupon / Market Price Capital Gains Yield: = YTM - Interest Yield FV=CCF[(1+rD/m)n*m-1]/rD/m N=1 year ,m= no. of intervals in a year =12 CCF=constant cash flow n = Maturity or Life of Bond (in years) Call: =par value +I, year copoun receipts Another thing to keep in mind is that YTM has two components first is YTM: =interest yield on bond +capital gain yield on bond 1. INTEREST YIELD =annual copoun interest /market price 2. CAPITAL YIELD =YTM –INTEREST YIELD Perpetual Investment in Preferred Stock – PV = DIV 1 / r PE Perpetual Investment in Common Stock: PV = DIV1/(1+rCE) +DIV2/(1+rCE)2 +…..+ DIVn/(1+rCE)n + Pn/(1+rCE)n PV = Po* = Expected or Fair Price = Present Value of Share, DIV1= Forecasted Future Dividend at end of Year 1, DIV 2 = Expected Future Dividend at end of Year 2, …, Pn = Expected Future Selling Price, rCE = Minimum Required Rate of Return for Investment in the Common Stock for you (the investor). Note that Dividends are uncertain and n = infinity PV (Share Price) = Dividend Value + Capital Gain. Dividend Value is derived from Dividend Cash Stream and Capital Gain / Loss from Difference between Buying & Selling Price. Simplified Formula (Pn term removed from the equation for large investment durations i.e. n = infinity): PV = DIV1/ (1+rE) + DIV2/ (1+rE) 2 + … DIVn/(1+rE)n = DIVt / (1+ rE) t. t = year. Sum from t =1 to n Fair Value. Dynamic Equilibrium. If Market Price > Fair Value then Stock is Over Valued Share Price Valuation -Perpetual Investment in Common Stock: Zero Growth Dividends Model: DIV1 = DIV 2 = DIV3 The Formula for common stock PV = Po*= DIV1 / (1+ rCE) + DIV1 / (1+ rCE) 2 + DIV1 / (1+ rCE) 3 + ... +... = DIV 1 / rCE Dividends Cash Flow Stream grows according to the Discrete Compound Growth Formula DIVt+1 = DIVt x (1 + g) t. t = time in years. Zero Growth Model Pricing PV = Po* = DIV1 / rCE Constant Growth Model Pricing PV = Po* = DIV1 / (rCE -g) Dividends Pricing Models: Zero Growth: Po*=DIV1 / rCE (Po* is being estimated) rCE*= DIV1 / Po (rCE* is being estimated) Similarly, Constant Growth: Po*= DI V1/ (rCE -g) rCE*= ( DIV 1 / Po) + g use this formula to calculate the required rate of return. Gordon’s Formula: rCE*= (DIV 1 / Po) + g In this the first part (DIV 1 / Po) is the dividend yield g is the Capital gain yield. Earning per Share (EPS) Approach: PV = Po* = EPS 1 / rCE + PVGO Po = Estimated Present Fair Price, EPS 1 = Forecasted Earnings per Share in the next year (i.e. Year 1), rCE = Required Rate of Return on Investment in Common Stock Equity. PVGO = Present Value of Growth Opportunities. It means the Present Value of Potential Growth in Business from Reinvestments in New Positive NPV Projects and Investments PVGO is perpetuity formula. The formula is PVGO = NPV 1 / (rCE - g) = [-Io + (C/rCE)] / (rCE -g) In this PVGO Model: Constant Growth “g”. It is the growth in NPV of new Reinvestment Projects (or Investment).g= plowback x ROE Perpetual Net Cash Flows (C) from each Project (or reinvestment). Io = Value of Reinvestment (Not paid to share holders) = Pb x EPS Where Pb= Plough back = 1 – Payout ratio Payout ration = (DIV/EPS) and EPS Earnings per Share= (NI - DIV) / # Shares of Common Stock Outstanding Where NI = Net Income from P/L Statement and DIV = Dividend, RE1= REo+ NI1+ DIV1 ROE = Net income /# Shares of Common Stock Outstanding. NPV 1 = [-Io + (C/rCE)] / (rCE -g) If we compare it with the traditional NPV formula -Io = Value of initial investment (C/rCE) = present value formula for perpetuities where you assume that you are generating the net cash inflow of C every year. C = Forecasted Net Cash Inflow from Reinvestment = Io x ROE Where ROE = Return on Equity = NI / Book Equity of Common Stock Outstanding Range of Possible Outcomes, Expected Return: Overall Return on Stock = Dividend Yield + Capital Gains Yield (Gordon’s Formula) Expected ROR = <> = pi ri Where pi represents the Probability of Outcome “i” taking place and ri represents the Rate of Return (ROR) if Outcome “i” takes place. The Probability gives weight age to the return. The Expected or Most Likely ROR is the SUM of the weighted returns for ALL possible Outcomes. Stand Alone Risk of Single Stock Investment: Risk = Std Dev = ( r i - <> )2 p i . = Summed over each possible outcome “ i ” with return “r i ” and probability of occurrence “p i .” <> is the Expected (or weighted average) Return Possible Outcomes Example Continued: Measuring Stand Alone Risk for Single Stock Investment Std Dev = δ = √ Σ (r i - <>) 2 p i. Coefficient of Variation (CV): = Standard Deviation / Expected Return. CV = σ/ <>. <> = Exp or Weighted Avg ROR = pi ri Risk Basics Risk = Std Dev = σ = √ ( r i - <> )2 p i . = “Sigma” Types of Risks for a Stock: Types of Stock-related Risks which cause Uncertainty in future possible Returns & Cash Flows: Total Stock Risk = Diversifiable Risk + Market Risk Portfolio Rate of Return Portfolio Expected ROR Formula: rP * = r1 x1 + r2 x2 + r3 x3 + … + rn xn . Stock (Investment) Portfolio Risk Formula: p = √ XA2 σ A 2 +XB2 σ B 2 + 2 (XA XB σ A σ B AB) Efficient Portfolios: rP * = xA rA + xB rB + xC rC