What are the causes and remedies for over capitalization and under capitalization? – MB0029 Assignment

Financial Management MBA Assignments for SMU MB0029

Question - What are the causes and remedies for over capitalization and under capitalization?

Answer – Overcapitalization

A company is said to be overcapitalized, when its total capital (both equity and debt) exceeds the true value of its assets. It is wrong to identify overcapitalization with exess of capital because most of the overcapitalized firms suffer from the problems of liquidity.

Causes of overcapitalization:

1. Decline in the earnings of the company.
2. Fall in dividend rates.
3. Market value of company’s share falls, and company loses investors confidence.
4. Company may collapse at any time because of anemic financial conditions – it will affect its employees, society, consumers and its shareholders.


Remedies for overcapitalization

Restructuring the firm is to be executed avoid the situation of company becoming sick.

It involves

1. Reduction of debt burden
2. Negotiation with term lending institutions for reduction in interest obligation.
3. Redemption of preference share through a scheme of capital reduction.
4. Reducing the face value and paid-up value of equity shares.
5. Initiating merger with well managed profit making companies interested in talking over ailing company.

Undercapitalization

Under-capitalization is just the reverse of over-capitalization. A company is considered to be under-capitalized when its actual capitalization is lower than its proper capitalization as warranted by its earning capacity.

Causes of under- capitalization

1. Under estimation of future earnings of the time of promotion of the company.
2. Abnormal increase in earnings from new economic and business environment.
3. Under estimation of total funds requirements.
4. Maintaining very high efficiency through improved means of production of goods or rendering of services.
5. Companies which are set up during recession start making higher earning capacity as soon as the recession is over.
6. Use of low capitalized rate.
7. Companies which follow conservative dividend policy will achieve a process of gradually rising profits.
8. Purchase of assets at exceptionally low prices during recession.

Remedies of undercapitalization

1. Splitting up at the shares – This will reduce the dividend per share
2. Issue of bonus share: this will reduce both the dividend per share and earning per share.
3. Both over-capitalization and under – capitalization are detrimental to the interests of the society.

Wealth Maximization & Functions of Finance – Financial Management Assignment of MB0029

MBA assignments of Financial Management for MB0029:

Offer your arguments in favor of wealth maximization of one of the goals of financial Management and Functions of Finance.

Wealth Maximization:

Wealth maximization has been accepted by the finance managers, because it overcomes the limitations of profit maximization. Wealth maximization means maximizing the net wealth of the company’s share holders. Wealth maximization is possible only when the company pursues policies that would increase the market value of shares of the company.

There are some arguments which are superior in wealth maximization:

Wealth maximization is based on the concept of cash flows. Cash flows are a reality and not based on any subjective interpretation. On the other hand there are many subjective elements in the concept of profit maximization.

It considers time value of money translates cash flows occurring of different periods into a comparable value of cash flows is considered critically in all decisions as it incorporates the risk associated with the cash flow stream.

An example of Wealth maximization:

X LTD is listed company engaged in the business of FMCG (fast moving consumer goods). Listed means the company’s share are allowed to be traded the officially on the portals of the stock exchange, the board of directors of X LTD.

Take a decision in one of the bond meeting to enter into the business of power generation. When the company informs the stock exchange of the conclusion of the meeting of the decision taken the stock market reacts unfavorably with result that the next days’ closing of quotation was 30% less than of the previous day.

The question now is why the market reacted in this manner. Investors in this FMCG Company might have thought that the risk profile of the new business (power) that the company wants to take up is higher compared to the risk profile of the existing FMCG business as X LTD. when they want a higher return, market value of company’s share declines. Therefore the risk profile of the company gets translated into a time value factor. The time value factor so translated becomes the required rate of return. Required rate of return is the return that the investors want for making investment in that sector.

Any project which generates positive net present value creates wealth to the company. When a company creates wealth from a course of action it has initiated the share holders benefit because such a course of action will increase the market value of the company’s share.

Goals of financial Management:

Goals means - financial objective of a firm. Experts in financial management have endorsed the view that the goal of financial management of a firm is maximization of economic welfare of its shareholders. Maximization of economics welfare means - maximization of wealth of its shareholders. Shareholders’ wealth maximization is reflected in the market value of the firms’ shares. A firm’s contribution to the society is maximized when it maximizes its value. There are two versions of the goals of financial management of the firm which are profit maximization and wealth maximization.

Functions of finance:

Finance functions are closely related to financial decisions. The functions performed by a finance manager are known of finance functions. In the course of performing these functions finance manager takes the following decisions:

Financial decision:

To survive and grow, all organizations must be innovative. Innovation demands managerial proactive actions. Projective organizations continuously search for innovative ways of performing the activities of the organization. Innovation is wider in nature.

Investment decision:

Investment decisions are also know as capital budgeting decisions. Capital budgeting decisions lead to investment in real assets.

Dividend Decisions:

Dividend yield is an important of an investor’s attitude towards the security (stock) in his portfolio management decisions. But dividend decision is a major decision made by a fiancé manager. Dividend policy influences the dividend yield on shares. Since company’s range in the capital market have a major impact on its ability to procure funds by issuing securities in the capital markets, dividend policy.

Liquidity Decision:

Liquidity decisions are concerned with working capital management. It is concerned with the day-to-day financial operation that involves current assets and current liabilities.

The important element of liquidity decisions are:

Formulation of inventory policy
Policies an receivable management
Formulation of cash management strategies
Policies on utilization of spontaneous finance effectively

Thus, wealth maximizations are primary goal of any firm.

What are the Seven Principles of SCM? – Assignment-2 of MB0028

In the previous posts we have already dealt about various phases in project management for those students who are preparing the MBA assignments of MB0028. Now, to proceed with that chapter we are going to publish one more assignment questions which will deal about principle of SCM. Below is the question:

Question.4. What are the seven principles of SCM?

Answer: Seven principles of SCM are:

Group customer by needs- Effective SCM groups, customer by distinct service needs, regardless of industry and then tailors services to this particular segment.

Customize the logistic network- In designing their logistics network; companies need to focus on the service requirement and profit of the customer segments identified.

Listen to signals of market demand and plan accordingly- Sales and operations planners must monitor the entire supply chain to detect early warning signals of changing customer demand and needs. This demand driven approach leads to more consistent forecast and optimal resource allocation.

Differentiate the product closer to the customer- companies today no longer can afford to stock pile inventory to compensate for possible forecasting errors. Instead, they need to postpone product differentiation in the manufacturing process closer to actual consumer demand. This strategy allows the supply chain to respond quickly and cost effectively to change in customer needs.

Strategically manage the sources of supply- by working closely with their key suppliers to reduce the overall costs of owning materials and services; SCM maximizes profit margins both for themselves and their suppliers.

Develop a supply chain wide technology strategy- as one of the cornerstones of successful SCM information technology must be able to support multiple levels of decision making. It also should afford a clear view and ability to measure the flow of products, services and information.

Adopt channel spanning chain performance measures- Excellent supply chain performance measurement system do more than just monitor internal functions. They apply performance criteria to every link in the supply chain-criteria that embrace both service and financial metrics.

Various phases in project management life cycle – MB0028 Assignment-2

Question-3. Explain the various phases in project management life cycle?

Answer: This is the initial phase of any project. In this phase information is collected from the customer pertaining to the project and the requirements are analyzed. The entire project has to be planned and it should be done in a strategic manner. The project manager conducts the analysis of the problem and submits a detailed report to the top project justification, details on what the problem is a method of solving the problem, list of the objectives to be achieved, project budget and the success rate of completing the project. The report must also contain information and the project feasibility, and the risks involved in the project.

Project management life cycle is the integrated part of management. It is attach with project responsibility or failure of a project. For the MBA assignments it is the most valuable chapter in production management.

The important tasks of this phase are as follows:

Specification Requirements Analysis (SRA): It has to be conducted to determine the essential requirements of a project in order to achieve the target.

Feasibility study: To analyze whether the project is technically, economically and practically feasible to be undertaken.

Trade off analysis: To understand and examine the various alternatives which could be considered.

Estimation: To estimate the project cost, effort requires for the project and functionality of various process in the project.

System design: Choose a general design that can fusil the requirements.

Project evolution: Evaluate the project in terms of expected profit, cost and risks involved marketing phase.

A project proposal is prepared by a group of people including the project manager. This proposal has to contain the strategies adopted to market the product to the customers.

Design phase: This phase involves the study of inputs and outputs of the various project stages.

Execution phase: In this phase the project manager and the teams members work on the project objectives as per the plan. At every stage during the execution reports are prepared.

Control – Inspecting, Testing and Delivery phase during this phase. The project team works under the guidance of the project manager. The project manager has to ensure that the team working under his, implements the project designs accurately, the project manager has to ensure ways of managing the customer, perform quality control work.

Closure and post completion analysis phase upon satisfactory completion and delivery of the intended product or service the staff performance has to be evaluated. Document the lessons from the project. Prepare the reports on project feedback analysis followed by the project execution report.

The phase which involve in the above are:

The preparation stage involves the preparation and approval of project outline, project plan and project budget.

The next stage involves selecting and briefing the project team about the proposals followed by discussions on the roles and responsibility of the project member and the organization.

The project management life cycle:

A Life cycle of a project consists of the following:

Understanding the scope of the project

Establishing objectives of the project

Formulating and planning various activities

Project execution and

Monitor and control the project resources

What are the Reasons for Failure of a Project? – Assignment 2 of MB 00228

The assignment is also from the Production and operations Management MBA book (MB 0028). It is for 2nd semester also. The chapter has great importance from examination point of view also like material flow chapter which has been already mentioned previously.

Question.2. what are the reasons for failure of a project? Give suitable examples.

Answer: Before knowing the reasons of failure we have to know about project.
Project is a set of activities which are networked in order and aimed towards achieving goal of a project.

Now, the reasons are project failure:

Incidence of Project failure
Projects being initiated of random at all levels
Project objective not in line with business objective
Project management not observed
Project manager with no prior experience in the related project
Non- dedicated team
Lack of complete support from clients

Factors contributing to project success not emphasized:

Project objective in alignment with business objective
Working within the framework of project management methodology
Effective scoping planning, estimation, execution, controls and reviews, project bottlenecks
Communication and managing expectations effectively with clients, team merits and stake holders
Prior expectance of PM in a similar project

Overview of information and communication Technologies (ICT) project:

Involve information and communication technologies such as the word wide web, e-mail, fiber-optics satellites
Enable societies to produce, access, adapt and apply information in greater amount, more rapidly and at reduce casts
Offer enormous opportunities for enhancing business and economic viability
Common problems encountered during projects
No prioritization of project activity from an organizational position
One or more of the stages in the project mishandled
Less qualified non-dedicated manpower
Absence of smooth flow of communication between the involved parties

These basic reasons lead a project to failures. In the project failures business management and project management is directly involved. From the management point of view it is basic things to care above topics to success of a project. Project is the core business of a company. In the MBA assignment its role has been defined from the management prospective.

Explain how material flow information: Q-1 of Assignment-2 from MB 0028

Now, in the SMU MBA assignment blog you will get 2nd assignment of MB 0028. In the 1st assignment total questions were 6 which have been finished now. Each book contains 6 questions for the assignment in SMU MBA. From my point of view 1st question and 2nd questions of the MBA assignment were most important. Below is 1st question from the assignment-2 of MB 0028 (Production and operations Management).

Question.1. Explain how material flow information helps in work center decision. Consider the example of a shopping center to illustrate your answer.

Answer: The decision which involves during uses of material flow information has below-

A work center is a production facility comprising of one or more machines and one or more workmen considered as a single unit for purposes of estimation of capacity. This unit may have a single operation or a number of them conducted on the input items. In the pipeline of production, each work center’s contribution is vital as materials are scheduled, routed and loads to be sent to it.

In most organization, they are even considered as cash centers. Location trust means relative position of different centers so as to minimize the movement of materials, meet technological sequences, to reduce congestion, maximize throughput, improve part tracking ability and avoid repetitive movements. In addition another consideration is to provide for expansion of production.

Each work center receives information along with material that enter it the material also leaves the word center with information. The route sheet contains information about the material, process, quantities, and inspection procedures. Etc. the drawings or instructions tell the condition of the malarial of entry and the required condition at exit.

In this sense every operation consists of material transformation occurring on the basis of information. Activities conducted are on the basis of information that flows with material. Different locations have to accommodate the constraints of the basis of darning maximums benefit of the information that is available. Basically, each location is determined on the basis of from and to: where does it receive material goes. Some centers have to close as a matter of necessity, some need not to be and some need to be as for away as possible.

This aspect has been given a rating scale in terms of alphabets as under:

Absolutely necessary to be close
Essential to be close
Ordinary closeness
Ordinary closeness
Unimportant that they are close or not
Not desirable that the centers are close

It can be seen that this is only a guide for Indian location as the work centers as there will many competing factors that have to be accommodated.

Question-6 of MB 0028 Book for MBA Assignment-1

I think we all have submitted our MBA assignment however I am publishing the assignment for those students who are participating in 2nd semester this year. The assignment will lead them to prepare their examination also. The assignment has been written by me for the purpose of 2nd semester examination.

Question.6 - What are the steps involves in SCM implementation?

Answer- There is many steps which involved in SCM implementation are- Business Process, sales and marketing. Logistics, costing, demand planning, trade- off analysis, environmental requirement, process stability, integrated supply, supplier management, product design, suppiers, customers, material specifications, etc.

Some important aspect of SCM-

The level of competition existing in the market and the impact of competitive forces on the product development.

Designing and working on a strategic logic for better growth through value invention.
Working out new value curve in the product development along with necessary break point.

Using it to analyses markets and the economies in product design. Tine, customer, quality of product and the concept of survival of fittest.

Steps of SCM principals:

Group customer by need: Effective SCM groups, customer by tietinct service meeds those particular segment.

Customize the logistics networks: In designing their logistics network, companies need to focus on the service requirement and profit potential of the customer segments identified.

Listen to signals of market demand and plan accordingly- sales and operations planners must monitor the entire supply chain to detect early warning signals of changing customer demand and needs.

Differentiate the product closer to the customer-companies today no longer can afford to stock pile inventory to compensate for possible forecasting errors, instead, they need to postpone product differentiation in the manufacturing. Process closer to actual customer demand.

Strategically manage the source of supply-by working closely with their key suppliers to reduce the overall casts of owning materials and services; SCM maximizes profit margins both for themselves, and their supplies.

Develop a supply chain wide technology strategy- as one of the cornerstones of successful SCM information technology must be able to support multiple levels of decision making.

Adopt channel spanning performance measures- Excellent supply performance measurement systems do more than just monitor internal functions. They apply performance criteria that embrace bathe service and financial metrics, including as such as each accounts true profitability.

Question-5 of SMU Assignment-1 from the MB 0028 Book

Hi to all! I am going to publish question 5 which is the from MB 0028 assignment. I have already published question 4 in my previous post. I think it will also help you in the understanding of SCM in MBA.

Question 5. Explain the necessity and objectives a SCM?

Answer. SCM is the abbreviation of supply chain Management. It is considered by many express worldwide as the ultimate solution towards efficient enterprise management.

Now, we explain the necessity and objectives of SCM-

SCM is required by and enterprise as a tow to enhance management effectiveness with a following organizational objective:

Reduction of inventory

Enactment in functional effectiveness of existing systems like ERP, Accounting. Software and Documentation like financial reports statements ISO 9000 Documents etc.

Enhancement of participation level and empowerment level

Effective integration of multiple systems like ERP, communication systems, documentation system and secure, Design R&D systems etc.

Better utilization of resources- men, material, equipment and money.

Optimization of money flow cycle within the organization as well as to and from external agencies.

Enhancement of value of products, operations and services and consequently, enhancements of profitability.

Enhancement of satisfaction level of customer and clients, supporting institutions, statutory control agencies, supporting institutions, statutory control agencies, suppliers and vendors, employees and executives.

Enhancement of flexibility in the organization to help in easy implementation of schemes involving modernization, expansion and divestment, merges and acquisitions.

Enhancement of coverage and accuracy of management information systems.
With the objectives of SCM its implementation are required. Implementation is in the form of various functional blocks of an organization interpenetrated through which a smooth flow of the product development is possible.

A relatively new SCM option involves web based software with a browser interface. Several electronic marketplaces for buying and selling goods and materials.