Commerce & Accountancy

Process, Procedures and Appraisal Methods:

• Process: Idea generation, screening, evaluation, selection, implementation, review.
• Appraisal Methods:
  • Non-Discounting: Payback Period, Accounting Rate of Return (ARR).
  • Discounting: Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI).

Risk and Uncertainty Analysis and Methods:

• Techniques like Sensitivity Analysis, Scenario Analysis, Simulation (Monte Carlo), Decision Tree Analysis, Certainty Equivalent Approach, Risk-Adjusted Discount Rate.

Concept, Computation of Specific Costs and Weighted Average Cost of Capital (WACC):

• Concept: Minimum rate of return a firm must earn on its investments to maintain its market value.
• Specific Costs: Cost of Debt (Kd), Cost of Preference Shares (Kp), Cost of Equity (Ke - using D/P ratio, E/P ratio, Dividend Growth Model, CAPM), Cost of Retained Earnings (Kr).
• WACC: Average of specific costs weighted by their proportion in the capital structure.

CAPM as a Tool of Determining Cost of Equity Capital:

Capital Asset Pricing Model: Ke = Rf + β (Rm - Rf), where Rf = Risk-free rate, β = Beta (systematic risk), Rm = Market return.

Theories of Capital Structure:

• Net Income (NI) Approach: Capital structure affects firm value; optimal structure by maximizing debt.
• Net Operating Income (NOI) Approach: Capital structure is irrelevant to firm value.
• MM Approach (Modigliani-Miller):
  • Without taxes: Irrelevance.
  • With taxes: Value of levered firm > Value of unlevered firm due to tax shield on debt interest.
• Traditional Approach: Optimal capital structure exists where WACC is minimized by judicious mix of debt and equity.

Designing of Capital Structure: Types of Leverages, EBIT-EPS Analysis, and other Factors:

• Leverages: Operating Leverage (fixed operating costs), Financial Leverage (fixed financial costs like interest), Combined Leverage.
• EBIT-EPS Analysis: Examines impact of financing alternatives on Earnings Per Share at different EBIT levels; indifference points.
• Other Factors: Cost, Risk (financial distress), Control, Flexibility, Timing, Regulatory framework, Nature of industry.

Walter’s Model:

Dividend policy affects firm value. Depends on relationship between firm's internal rate of return (r) and cost of capital/required rate of return (k). P = (D + (E-D)r/k) / k.

Gordon’s Model (Bird-in-Hand):

Investors prefer current dividends (certainty) over future capital gains (uncertainty). P0 = E1(1-b) / (ke - br), where b is retention ratio.

MM Thesis (Dividend Irrelevance):

Under perfect market assumptions, dividend policy is irrelevant to firm value. Value depends on earning power and investment policy.

Lintner’s Model:

Descriptive model. Firms set target payout ratios and adjust dividends gradually towards target, considering current earnings and past dividends. Dt = a + c(EPSt)(1-L) + L(Dt-1).

Factors Affecting Dividend Policy:

Legal restrictions, liquidity, access to capital markets, shareholder expectations, investment opportunities, inflation, taxation policy, control objectives.

Planning of Working Capital:

Estimating current assets and current liabilities to determine net working capital needs. Operating cycle concept. Conservative vs. Aggressive approaches.

Determinants of Working Capital:

Nature of business, scale of operations, production policy, credit policy, growth and expansion, seasonal variations, market conditions.

Components of Working Capital—Cash, Inventory and Receivables:

• Cash Management: Motives for holding cash (transaction, precautionary, speculative). Cash budgeting, optimal cash balance (Baumol, Miller-Orr models).
• Inventory Management: Objectives (minimize costs, ensure availability). Techniques like EOQ, ABC analysis, JIT, inventory turnover ratios.
• Receivables Management: Credit policy (credit standards, credit period, cash discount). Credit evaluation, collection efforts. Factoring and forfaiting.

Participants:

RBI, Commercial Banks, Co-operative Banks, Financial Institutions (LIC, GIC, UTI), NBFCs, Corporates, Primary Dealers.

Structure:

Organized (banks, FIs) and Unorganized sectors. Call/Notice money market, Treasury bill market, Commercial Paper market, Certificate of Deposit market, Repo/Reverse Repo market.

Instruments:

Call/Notice Money, Treasury Bills (T-Bills), Commercial Paper (CP), Certificates of Deposit (CD), Repurchase Agreements (Repo) and Reverse Repos, Bankers' Acceptances, Commercial Bills.

Commercial Banks:

Functions (accepting deposits, lending, agency services, general utility services). Types (Public sector, Private sector, Foreign, Regional Rural Banks).

Reforms in Banking Sector:

Post-1991 reforms (Narasimham Committee recommendations): Prudential norms (capital adequacy-Basel Accords, NPA recognition & provisioning, income recognition), interest rate deregulation, increased competition, entry of new private banks, technology adoption (Core Banking Solution), financial inclusion (PMJDY), Prompt Corrective Action (PCA) framework, consolidation of banks.

Monetary and Credit Policy of RBI:

Objectives (price stability, growth, financial stability). Instruments:

• Quantitative: Bank Rate, CRR, SLR, Repo Rate, Reverse Repo Rate, MSF, Open Market Operations (OMO).
• Qualitative/Selective: Margin requirements, credit rationing, moral suasion.

RBI as a Regulator:

Regulates and supervises commercial banks, NBFCs, payment systems. Issues licenses, conducts inspections, formulates policies to ensure stability and efficiency of the banking system. Banker to government and banks, lender of last resort, manages foreign exchange reserves (FERA/FEMA).

Primary and Secondary Market:

• Primary Market: Market for new issues of securities (IPOs, FPOs, Rights Issues, Private Placements). Facilitates capital formation.
• Secondary Market: Market for trading existing securities (Stock Exchanges like NSE, BSE). Provides liquidity and price discovery.

Financial Market Instruments and Innovative Debt Instruments:

• Instruments: Equity Shares, Preference Shares, Debentures/Bonds, Derivatives (Futures, Options, Swaps).
• Innovative Debt Instruments: Zero Coupon Bonds, Deep Discount Bonds, Floating Rate Bonds, Securitized Debt (Pass-Through Certificates, Pay-Through Certificates), Infrastructure Bonds, Green Bonds, Masala Bonds.

SEBI as a Regulator:

Securities and Exchange Board of India. Objectives: Protect investor interests, promote development of securities market, regulate securities market. Functions: Regulatory (rule-making), Developmental (training, research), Protective (prohibiting unfair trade practices).

Mutual Funds:

Pool money from investors to invest in diversified portfolio of securities. Types (Equity, Debt, Hybrid; Open-ended, Close-ended). Advantages (diversification, professional management, liquidity). Regulated by SEBI.

Venture Capital:

Financing for startups and small businesses with high growth potential, typically in exchange for equity. Stages (seed, early, growth). Role in innovation and entrepreneurship.

Credit Rating Agencies:

Assess creditworthiness of debt issuers and instruments (e.g., CRISIL, ICRA, CARE). Provide credit ratings that help investors make informed decisions.

Insurance and IRDA:

Insurance: Mechanism for risk transfer. Types (Life, General - Health, Motor, Fire etc.).
IRDAI (Insurance Regulatory and Development Authority of India): Regulates and develops the insurance industry in India. Protects policyholder interests, promotes orderly growth.

Nature and Concept of Organisation:

A consciously coordinated social unit, composed of two or more people, that functions on a relatively continuous basis to achieve a common goal or set of goals. Key elements: social entity, goal-directed, deliberately structured, identifiable boundary.

External Environment of Organisation:

Factors outside the organization that affect its performance and survival.

• Technological: Automation, R&D, innovation rate.
• Social: Cultural values, demographics, lifestyle changes, education levels.
• Political: Government stability, political ideology, regulations, international relations.
• Economical: GDP, inflation, interest rates, unemployment, economic cycles.
• Legal: Laws related to business, employment, environment, competition.

Organizational Goals:

• Primary Goals: Official goals, overall mission (e.g., profitability, market share, social welfare for NPOs).
• Secondary Goals (Operative Goals): Specific, measurable, achievable, relevant, time-bound (SMART) objectives that guide day-to-day activities and help achieve primary goals.
• Single and Multiple Goals: Organizations often pursue multiple, sometimes conflicting, goals. Goal hierarchy.

Management by Objectives (MBO):

A process where superiors and subordinates jointly define common goals, define each individual's major areas of responsibility in terms of expected results, and use these measures as guides for operating the unit and assessing the contribution of each member. Emphasizes participative goal setting, feedback, and performance evaluation.

Organisational Design:

The process of creating or changing an organization's structure to achieve its goals. Involves making decisions about specialization, departmentalization, chain of command, span of control, centralization/decentralization, and formalization.

Organisational Structure:

The formal arrangement of jobs within an organization. Defines how tasks are divided, grouped, and coordinated. Depicted by an organization chart.

Organisational Culture:

A system of shared meaning (values, beliefs, norms, assumptions) held by members that distinguishes the organization from others. "The way we do things around here." Influences employee behavior and performance.

Basic Challenges:

Balancing differentiation and integration, managing complexity, adapting to environmental uncertainty, achieving efficiency and flexibility.

Differentiation and Integration Process:

• Differentiation: Degree to which tasks are divided into separate jobs (specialization) and units. Horizontal (departmentalization), Vertical (hierarchy), Spatial (geographical dispersion).
• Integration: Degree to which various parts of the organization are coordinated to work together towards common goals. Mechanisms: rules, procedures, hierarchy, liaison roles, task forces, teams.

Centralization and Decentralization Process:

• Centralization: Degree to which decision-making authority is concentrated at higher levels.
• Decentralization: Degree to which decision-making authority is pushed down to lower levels.

Standardization/Formalization and Mutual Adjustment:

• Standardization/Formalization: Degree to which jobs and procedures are standardized and governed by rules and regulations. High formalization means less discretion.
• Mutual Adjustment: Coordination through informal communication and direct interaction among employees. Common in simple or very complex, non-routine tasks.

Coordinating Formal and Informal Organizations:

Recognizing and leveraging the informal organization (social networks, grapevines) to support formal goals, improve communication, and foster collaboration.

Mechanistic and Organic Structures:

• Mechanistic: Highly specialized, rigid departmentalization, clear chain of command, narrow spans of control, centralization, high formalization. Suited for stable environments. (Bureaucratic)
• Organic: Cross-functional teams, cross-hierarchical teams, free flow of information, wide spans of control, decentralization, low formalization. Suited for dynamic environments. (Adaptive)

Authority and Control:

• Authority: The rights inherent in a managerial position to give orders and expect them to be obeyed. (Line, Staff, Functional authority)
• Control: Process of monitoring activities to ensure they are being accomplished as planned and correcting any significant deviations. Span of control.

Line and Staff Functions:

• Line Functions: Directly contribute to achieving organizational goals (e.g., production, sales). Managers have direct authority.
• Staff Functions: Support line functions by providing advice, assistance, and specialized services (e.g., HR, finance, legal). Managers have advisory authority.

Specialization and Coordination:

Balancing the benefits of task division (specialization) with the need for integrated effort (coordination) towards organizational goals.

Types of Organization Structure:

• Functional Structure: Groups jobs by functions performed (e.g., marketing, finance, HR). Promotes specialization but can lead to silos.
• Matrix Structure: Assigns specialists from different functional departments to work on one or more projects led by project managers. Dual chain of command. Combines functional and product departmentalization.
• Project Structure: Employees continuously work on projects. Flexible and adaptive but can lack clear career paths and create resource allocation conflicts.

Nature and Basis of Power, Sources of Power, Power Structure and Politics:

• Nature of Power: The capacity to influence the behavior of others. Not necessarily tied to formal authority.
• Basis/Sources of Power (French & Raven):
  • Formal: Legitimate (positional), Reward, Coercive.
  • Personal: Expert (skills/knowledge), Referent (charisma/respect).
• Power Structure: The pattern of power distribution within an organization.
• Politics (Organizational Politics): Activities not required as part of one's formal role but that influence, or attempt to influence, the distribution of advantages and disadvantages within the organization.

Impact of Information Technology on Organizational Design and Structure:

Facilitates flatter structures, wider spans of control, decentralization, improved communication and coordination (e.g., virtual teams, remote work), enhanced information processing, potential for disintermediation.

Managing Organizational Culture:

Understanding existing culture (artifacts, values, assumptions). Creating/sustaining desired culture through selection, top management behavior, socialization, stories, rituals, symbols, language. Changing culture is a long-term effort.

Personality: Theories, and Determinants:

• Personality: Sum total of ways in which an individual reacts to and interacts with others. Relatively stable patterns of behavior, thoughts, and emotions.
• Theories:
  • Trait Theories (e.g., Big Five Model - Openness, Conscientiousness, Extraversion, Agreeableness, Neuroticism; MBTI).
  • Psychoanalytic Theory (Freud - id, ego, superego).
  • Social Learning Theory (Bandura - observational learning, self-efficacy).
  • Humanistic Theories (Rogers, Maslow - self-actualization).
• Determinants: Heredity (genetics), Environment (culture, family, social groups), Situation.

Perception: Meaning and Process:

• Meaning: Process by which individuals organize and interpret their sensory impressions to give meaning to their environment. Subjective and can differ from objective reality.
• Process: Sensory inputs -> Selection -> Organization (e.g., figure-ground, grouping) -> Interpretation -> Response.
• Factors influencing perception: Perceiver (attitudes, motives, experience), Target (novelty, motion, size), Situation (time, work setting, social setting). Attribution theory. Perceptual errors (stereotyping, halo effect, projection).

Concepts:

The processes that account for an individual’s intensity, direction, and persistence of effort toward attaining a goal. Intrinsic vs. Extrinsic motivation.

Theories:

• Early Theories:
  • Maslow's Hierarchy of Needs (Physiological, Safety, Social, Esteem, Self-Actualization).
  • McGregor's Theory X and Theory Y.
  • Herzberg's Two-Factor Theory (Motivators & Hygiene factors).
  • McClelland's Theory of Needs (Achievement, Power, Affiliation).
• Contemporary Theories:
  • Goal-Setting Theory (Locke - specific, difficult goals with feedback).
  • Self-Efficacy Theory (Bandura - belief in one's ability to perform a task).
  • Reinforcement Theory (Skinner - behavior is a function of its consequences).
  • Equity Theory (Adams - individuals compare their job inputs/outcomes with others).
  • Expectancy Theory (Vroom - Expectancy, Instrumentality, Valence).

Applications:

Job design (job rotation, enlargement, enrichment), employee involvement programs (participative management, representative participation), variable pay programs (piece-rate, merit-based, bonuses, profit sharing, ESOPs), flexible benefits, recognition programs.

Theories:

• Trait Theories: Focus on personal qualities and characteristics of leaders.
• Behavioral Theories: Focus on specific behaviors differentiating leaders from non-leaders. (e.g., Ohio State Studies - Initiating Structure & Consideration; Michigan Studies - Employee-oriented & Production-oriented; Managerial Grid - Blake & Mouton).
• Contingency Theories: Leader effectiveness depends on the situation. (e.g., Fiedler Model, Hersey & Blanchard's Situational Leadership Theory, Path-Goal Theory - House, Leader-Member Exchange (LMX) Theory).
• Contemporary Theories: Charismatic Leadership, Transformational Leadership, Transactional Leadership, Authentic Leadership, Servant Leadership.

Styles:

Autocratic, Democratic (Participative), Laissez-faire. Task-oriented vs. People-oriented.

Conflict: Process that begins when one party perceives that another party has negatively affected, or is about to negatively affect, something that the first party cares about.
Views: Traditional (all conflict is bad), Human Relations (conflict is natural), Interactionist (some conflict is necessary for effectiveness - functional vs. dysfunctional).
Types: Task, Relationship, Process conflict.
Conflict Process: Potential opposition -> Cognition & Personalization -> Intentions (competing, collaborating, avoiding, accommodating, compromising) -> Behavior -> Outcomes.
Resolution Techniques: Problem solving, superordinate goals, expansion of resources, avoidance, smoothing, compromise, authoritative command, altering human/structural variables, negotiation.

Human Resource Planning (HRP):

Process of forecasting an organization's future demand for, and supply of, the right type of people in the right number. (Demand forecasting, supply forecasting, balancing).

Job Analysis, Job Description, Job Specification:

• Job Analysis: Process of studying and collecting information relating to the operations and responsibilities of a specific job. Includes Job Description and Job Specification.
• Job Description (JD): Organized, factual statement of job contents in terms of duties, responsibilities, reporting relationships, working conditions.
• Job Specification (JS): Statement of minimum acceptable human qualities (knowledge, skills, abilities - KSAs, experience, personality) necessary to perform a job properly.

Recruitment Process:

Process of searching for prospective employees and stimulating them to apply for jobs in an organization. (Sources: Internal - promotions, transfers; External - advertisements, employment agencies, campus recruitment, employee referrals, online portals).

Selection Process:

Process of choosing the most suitable candidates from those who apply for jobs. (Steps: Preliminary screening, application blank, selection tests - aptitude, achievement, personality, interest; employment interview, reference checks, medical examination, final selection).

Orientation and Placement:

• Orientation (Induction): Introducing new employees to the organization, their job, colleagues, and work environment.
• Placement: Assigning a specific job to each of the selected candidates. Matching employee skills with job requirements.

Training and Development Process:

• Training: Imparting specific skills and knowledge to perform a particular job. (Methods: On-the-job - coaching, job rotation; Off-the-job - lectures, case studies, simulations).
• Development: Focuses on growth of individuals in all respects, preparing them for future roles and responsibilities.

Performance Appraisal and 360° Feed Back:

• Performance Appraisal: Systematic evaluation of an employee's job performance and potential for development. (Methods: Traditional - ranking, paired comparison, graphic rating scales; Modern - MBO, BARS, 360-degree feedback).
• 360° Feedback: Performance information collected from multiple sources - supervisors, peers, subordinates, self, customers.

Salary and Wage Administration, Job Evaluation:

• Salary and Wage Administration: Process of determining and implementing policies and procedures for employee compensation. (Components: basic pay, allowances, incentives, benefits).
• Job Evaluation: Systematic process of determining the relative worth of jobs in an organization to establish equitable pay structures. (Methods: Ranking, Grading, Point method, Factor comparison).

Employee Welfare:

Measures to promote physical, psychological, and social well-being of employees. (Statutory and non-statutory; e.g., canteens, restrooms, medical facilities, recreation, housing, transport).

Promotions, Transfers and Separations:

• Promotions: Upward movement of an employee in the organization's hierarchy, with higher status, responsibilities, and pay.
• Transfers: Horizontal movement of an employee from one job/department/location to another, usually without significant change in status or pay.
• Separations: Cessation of employment. (Types: Resignation, retirement, layoff, retrenchment, dismissal/discharge).

Formation of Trade Union:

Voluntary association of workers formed to protect and promote their economic, social, and political interests through collective action. Governed by Trade Unions Act, 1926 in India.

Trade Union Legislation:

Primarily the Trade Unions Act, 1926, which provides for registration of trade unions, rights and liabilities of registered unions, immunities from civil and criminal conspiracy.

Trade Union Movement in India:

Historical evolution from early philanthropic efforts to organized, politically affiliated national federations. Phases: Pre-WWI, Post-WWI, Post-Independence.

Recognition of Trade Unions:

Process by which an employer acknowledges a trade union as the representative of its employees for collective bargaining. Criteria (e.g., membership verification, secret ballot) and code of discipline.

Problems of Trade Unions in India:

Multiplicity of unions, inter-union rivalry, weak financial position, political affiliation and interference, small size, lack of dedicated leadership, limited membership.

Impact of Liberalization on Trade Union Movement:

Decline in traditional union power, shift from industry-wide bargaining to enterprise-level, focus on productivity and flexibility, emergence of independent/enterprise unions, challenges from unorganized sector.

Strikes and Lockouts:

• Strike: Concerted cessation of work by a body of persons employed in any industry acting in combination, or a concerted refusal to continue to work or to accept employment. (Types: Economic, Sympathetic, General, Stay-in, Go-slow).
• Lockout: Temporary closing of a place of employment, or the suspension of work, or the refusal by an employer to continue to employ any number of persons employed by him. Employer's weapon.

Causes of Disputes:

Economic (wages, bonus, allowances), Non-economic (working conditions, hours, leave, discipline, recognition of unions, victimization, retrenchment).

Prevention and Settlement of Disputes:

• Prevention: Works Committees, Joint Management Councils, Grievance Procedure, Code of Discipline, Collective Bargaining.
• Settlement (Industrial Disputes Act, 1947): Conciliation (Conciliation Officer, Board of Conciliation), Court of Inquiry, Voluntary Arbitration, Adjudication (Labour Courts, Industrial Tribunals, National Tribunals).

Philosophy:

Industrial democracy, sharing decision-making power with workers, fostering a sense of belonging and commitment.

Rationale:

Improve productivity, quality, employee morale, reduce disputes, utilize worker's knowledge and experience, promote mutual understanding.

Present Day Status and Future Prospects:

Various schemes in India (Works Committees, Joint Management Councils, representation on Board of Directors in some PSUs). Limited success due to various factors. Future prospects depend on genuine commitment, changing mindsets, and supportive legal framework.

Levels of Participation:

Informative, Consultative, Associative, Administrative, Decisive.