Untitled Quiz

Entrepreneurship

• The word entrepreneurship originates from the French word entreprendre, meaning "to undertake."
• Entrepreneurship is the key to innovation, productivity, and effective competition.
• When a person recognizes their ability, puts it to practical use, and creates a new business unit, this action is called entrepreneurship.

Concept of Entrepreneurship

• Entrepreneurship is an innovative function, focused on leadership rather than ownership.
• Innovation can manifest as introducing new products, using new production methods, creating new markets, or securing new raw material sources.
• Joseph A. Schumpeter is associated with defining entrepreneurship as an innovative function.

Traditional vs. Modern Concepts

• Traditional: Ability and aptitude to bear various types of business risks and uncertainties.
• Modern: Ability to establish new enterprises and implement improvements within them.

Risk Bearing Capacity

• Risk refers to the variability of outcomes or returns.
• Entrepreneurs are "risk-takers" who don't fear business uncertainties.
• Entrepreneurship involves taking risks and making investments under uncertain conditions.

Organization Building Ability

• Entrepreneurship involves connecting and coordinating productive resources to organize a venture and enterprise.
• It entails bringing together the factors of production and organizing them.
• Entrepreneurs make decisions about resource allocation.

Managerial and Leadership Skills

• Entrepreneurship involves combining creative and innovative ideas with management and leadership skills.
• Skills are used to mobilize people, money, and resources to build wealth.
• Entrepreneurs translate ideas into action with management and leadership skills.

Innovative Function

• Innovation is the core function of entrepreneurship.
• Entrepreneurs create new wealth-producing resources or enhance the potential of existing resources.
• Joseph Schumpeter highlighted the innovative function of entrepreneurship.

High Level Need for Achievement

• Individuals driven by a high need for achievement exhibit high levels of entrepreneurial activity.
• These individuals desire success in competitive situations.

Search for Profitable Opportunities

• Entrepreneurship involves actively searching for opportunities to do new things or create new ways of doing existing things for profitable business.
• Potential entrepreneurs always look for unique opportunities to meet needs and wants.

Wealth Creation

• Entrepreneurs are economic agents who transform demand into supply and resources into goods and services.
• This process leads to wealth creation and industrial growth.

Change Agent

• Entrepreneurship is a modern concept.
• Entrepreneurs act as change agents, transforming resources into useful goods and services, often leading to industrial growth and adapting their circumstances.

Process of Creating New Values

• This is a modern concept of entrepreneurship.
• Through entrepreneurship, new products, services, transactions, market approaches, and resources create value for communities and marketplaces.
• Value creation happens when resources transform into outputs like products and services.

Subject/Discipline

• Entrepreneurship education is a growing field in colleges and universities.
• Universities conduct research on entrepreneurship, leading to training courses.
• Many entrepreneurial schools have opened due to the growing subject.

Definition of Entrepreneurship

• Definitions can be classified based on: Establishment of new enterprises Function based Combination based Decision-making based Innovation based

Establishment of New Enterprises Based

• Entrepreneurship is the act of inventing and risking time, money, and effort to start a business.
• Entrepreneurship is a general trend of setting up new enterprises in society.
• These definitions don't specify the functions and activities needed to establish and run successful businesses.

Function Based

• Entrepreneurship is an innovative function, focused on leadership rather than ownership.
• It encompasses identifying economic opportunities and organizing production resources and techniques.

Combination Based

• Many scholars view entrepreneurship as a combination of functions, activities, and organization.
• Entrepreneurship involves a composite of inventions, innovation, and adaptations.

Decision Making Based

• Entrepreneurship is a form of social decision-making that is performed by economic innovations.
• This type of view focuses on business's social responsibilities.
• It does not focus on innovation within society itself.

Innovation Based

• Entrepreneurship can be described as a creative and innovative response to the environment.
• Entrepreneurship connects businesses with society and the environment.

Components/Elements of Entrepreneurship

• Entrepreneur
• Pursuit of Opportunities
• Innovation
• Organization Creation
• Creating Values
• Profit or Non-profit
• Growth
• Uniqueness
• Process

Characteristics of Entrepreneurship

• Innovation
• Risk-Bearing Capacity
• Creative Decision Making
• Creating and Managing Resources
• Managerial Skills and Leadership
• Gap-Filling Function
• Business-Oriented Tendency
• Economic Activity
• Producing Results
• Life Style

Concept of an Entrepreneur

• Person
• Creator
• Organizer
• Decision Maker
• Initiator
• Leader
• Motivator
• Risk-Taker

Wage Employment vs. Entrepreneurship

• Wage Employment: Working for others, following instructions, fixed income, does not create wealth;
• Entrepreneurship: Owning one's business, creating plans, creative activity, can be negative or generate surplus, contributes to GDP, industry, trade, or service enterprise.

Who is an Entrepreneur?

• An entrepreneur is an individual who starts and manages a business venture and bears responsibility for its development.
• An individual who faces risk and uncertainty when operating a business.
• An individual who organizes, manages, and assumes the risks of a business or enterprise.

Characteristics of an Entrepreneur

• Mental Ability (creative thinking, change analysis)
• Business Secrecy
• Clear Objectives
• Human Relations (good customer/employee relations, emotional stability, tactfulness, and consideration)
• Communication Ability (sender/receiver understanding of messages)
• Technical Knowledge

Importance of Entrepreneurship

• Reduces poverty
• Increases employment
• Fulfills the needs of people
• Develops the economic condition of a country

Causes of Entrepreneurship Failure

• Lack of Visible Concept
• Lack of Market Knowledge
• Lack of Technical Skill
• Lack of Seed Capital
• Lack of Business Knowledge
• Lack of Motivation
• Time Pressure and Distractions
• Legal Constraints and Regulations
• Monopoly and Protectionism

Entrepreneurs (examples)

• Dhirubhai Ambani (Reliance Company, India's largest private sector company)
• Rahul Bajaj (Bajaj Group, distinguished business leader)
• Steve Jobs (Apple Computer, Pixar, Next)

Entrepreneur vs. Entrepreneurship (Table)

• Entrepreneur: Person, Visualizer, Creator, Organizer, Innovator, Planner, Leader
• Entrepreneurship: Process, Vision, Creation, Organization, Innovation, Planning, Leadership

Types of Entrepreneurship (by Nature, Activity, Ownership, Size, Social Basis, Numbers)

Other Types of Entrepreneurship

• Social Entrepreneurship
• Women Entrepreneurs
• Agripreneurship
• Technopreneurship
• Netpreneurship
• Portfoliopreneurship
• Intrapreneurship

Role & Importance of Entrepreneurship

• Pivot of Economic Development
• Basis of Business
• Organizer of Society's Productive Resources
• Contribution in Production of New Products
• Development of New Production Techniques
• Helpful in Capital Formation
• Development of New Market
• Establishment of New Industrial Enterprises
• Contribution in Development & Expansion of Existing Enterprises

Role & Importance of Entrepreneurship (cont'd)

• Bring changes in Social Framework
• Contribution to the formation of Industrial Climate to Generate Employment Opportunities
• Raise the Standard of Living
• Help in removing Regional Disparities
• Encouragement to Investigation and Research

Business Life Cycle

Introduction Stage

• Product available in the market
• Slow sales, low profits, losses possible
• High promotional costs, generally high prices, minimal competition

Growth Stage

• Rapidly rising sales
• Expansion of production scale
• Rising profits, lower unit cost
• Increasing competition

Maturity Stage

• Saturation point in demand, severe competition
• Extensive distribution, average cost decrease, maximum profits
• Low competition, brand diversification in benefits

Saturation Stage

• No growth in sales
• Tough competition, falling prices, declining profits
• Supply may exceed demand
• Product modification is necessary

Decline Stage

• Rapid fall in sales
• Significant decline in prices
• Removal of promotional expense
• Reduction in distribution networks
• Product technology obsolescence

Business Outside Business Life Cycle:

• Fads
• Styles
• Fashion

Business Finance

Objectives of Business Finance

• Defining business finance
• Understanding the role of business finance
• Recognizing the risks in financial decision-making
• Pinpointing the connection between business finance and other disciplines like accounting.

Business Finance (definition)

• The study of financing and investment decisions in business.
• Making decisions on which investments a business should make (using theory to practice).
• Managing money and other valuable assets.

Role of Business Finance

• Financing: Bringing money into the organization; Business finance will help in financing and investment decisions.

Methods of Financing

• Debt (taking on debt, credit arrangements, investments in real and financial assets)
• The success and failure of a business depend upon this field.

BUS. FIN. and Accounting

• Accountants and financial managers maintain financial records, generate reports;
• Financial managers make decisions relating to finance.
• Within small businesses, the roles of accountant and financial manager can combine in one person.

Financial Management

• It starts with a plan.
• Having cash and resources alone is insufficient.
• It’s critical in business.
• Making decisions intended to maximize shareholder wealth involves planning, controlling and directing financial activities, including procurement and asset utilization.
• Stocks are forms of ownership in a corporation.

Scope of Financial Management

• Investment decisions (fixed and current assets, capital budgeting, working capital decisions).
• Financing decisions (raising finance from different resources).
• Dividend decisions (related to net profit distribution, dividends for shareholders, retained profits).

Objectives of Financial Management

• Ensure regular and sufficient funds.
• Ensure shareholders receive adequate returns.
• Ensure optimum fund utilization.
• Ensure investment safety to achieve adequate returns.
• Plan a sound capital structure balancing debt to equity capital.

Function of Financial Management

• Estimating capital requirements (expected costs, profits, future programs).

• Determining capital composition (capital structure). Debt-to-Equity Analysis

• Ratio measuring the debt level a company uses for funding its business (also called gearing, risk, or leverage).

• High ratios suggest higher risk of defaulting on debt payments.

Choice of Fund Sources

• Issuing shares and debentures (unsecured debt instruments, backed by creditworthiness).
• Loans from banks and financial institutions (with various interest rate implications).
• Public deposits from bonds (with regulatory oversight).

Disposal of Surplus / Net Profit Disposal

• Dividend declaration.
• Retained profits for expansion, innovation, and diversification planning.
• Cash management (administrative & distributional costs).
• Financial control.

Business Valuation

Contents:

• Introduction
• Key Drivers of Valuation
• Concepts of Value
• Golden Rules of Valuation
• Valuation Methods
• Valuation of Shares
• Goodwill & Brand Valuation

Introduction to Business Valuation

• Liberalization of economy, emphasis on core competence, and relaxation of tax laws have led to a surge in mergers, takeovers, acquisitions and de-mergers.
• Aligning business activities to maximizing shareholder wealth has driven large organizations toward strategic decisions, which all involve business valuations.
• Value means 'economic value' expressed in monetary terms to be paid in exchange for an asset or right.

Valuation Dynamics

• Total economic environment
• Potential of asset use
• Timing of estimate
• Location of the asset
• Relative scarcity
• Availability of substitutes
• Extent of ownership
• Liquidity of the asset
• Physical condition of asset

Key Drivers of Valuation

• Purpose of valuation (Buyer vs. Seller, Acquisition vs. Investment, Legal vs. Commercial)
• Macro factors (Economic scenario, Investment patterns in sector, Role of Government, Functioning of Financial Institutions, Banks)
• Micro factors (Nature of product/service, Business life cycles, Seasonal nature, Growth vs. Maturity)
• Industry and sector (Economy - Boom vs. Gloom, Emerging vs. Dying Sector, Manufacturing vs. Service, Structured vs. Traditional)

Concepts of Value

• Fair Market-Value
• Investment Value
• Book Value
• Intrinsic Value
• Going Concern Value
• Replacement Value
• Goodwill / Brand Value
• Liquidation Value
• Benchmark Value
• Salvage Value

Golden Rules of Valuation

• Valuation is more art than science.
• Valuation is subjective.
• Valuation is time-dependent; perceptions vary.
• Value is in the eyes of the payer (the deal/price), not in the eyes of the valuer.
• Valuation is critical in strategic decision-making.
• Valuation applies theory to practice.

Business Valuation Methods

• Historical cost
• Current cost
• Economic valuation
• Asset valuation
• Market valuation

Historical Cost Valuation

• Assets valued at historical costs.
• Goodwill is added to asset costs.

Current Cost Valuation

• Valuation based on current replacement costs.
• Tangible assets (current replacement price)
• Investments (current market prices, unquoted investments at their cost)
• Inventory (based on current market prices)
• Debtors (net collection/realizable amount)
• Intangibles (current acquisition prices)

Economic Valuation (Income-Based)

• Business value is determined by its profitability and cash generation.
• Capitalization method (past profits capitalized at an industry-relevant rate of return, adjustments for extraordinary items, taxation, etc.)
• Profit Earning Capacity Value (similar to capitalization but considers future, maintainable profits.)
• Discounted Cash Flow (present value of future cash flows, using WACC–weighted average cost of capital – as discount factor).

Market Valuation

• Applicable for publicly traded companies.
• Average share price from market forces used for valuation purposes.

Asset-Based Valuation

• Used in combination with profitability/market value methods.
• Value calculated by dividing total assets into operating and non-operating assets.
• Non-operating assets valued at realizable value.
• Operating assets are valued at their book value.
• Comparing parameters of similar companies for valuation.

Valuation of Shares

• Share valuation techniques.
• Share valuation is driven by valuation purposes (e.g., compensation, taxation, etc.)
• Key considerations are the interests, advantages, and risks of involved parties.

Valuation of Shares–Purpose

• Purchase of a block of shares (possibly for controlling interest).
• Scheme formulation (amalgamation, absorption, merger, acquisition).
• Acquiring dissenting shareholders’ interests.
• Government compensation for nationalization.
• Securing shares for loans.
• Valuations under wealth tax acts.
• Converting debts to equity shares.

Valuation of Shares

• Share prices quoted on exchanges are often the basis.
• Stock exchange price driven by demand-supply cycles and market sentiment (not always an accurate reflection of intrinsic value), and other considerations (e.g. inflation, crude oil, political turmoil, speculation).
• Two key factors are assets employed and earning capacity.

Share Valuation Methods (Net Assets Basis)

• Net assets available to equity shareholders
• Relevant factors, including goodwill

Share Valuation Methods (cont'd)

• Short-term and long-term liabilities deducted from total assets,
• Preference capital, dividends/distributions deducted
• Adequate provisions for taxes and liabilities

Share Valuation Methods (Yield Basis)

• Earnings and return-centric
• Considering dividend to arrive at total value if only a small block of shares is being valued

Valuation of Goodwill / Brand

• Intangible asset contributing to profit-earning capacity.
• Value is the difference between company value and the value of its separable assets. (UK accounting standard)

Goodwill / Brand Creation Characteristics

• Steady/growing profitability
• Minimal risk exposure
• Superior management
• High-quality products
• Exceptional sales section
• Secret/patent processes
• Effective advertising
• Outstanding credit ratings
• Cost savings
• Technology advantages
• Firm capital base
• Good public image
• Strategic location
• Favourable government policies
• Good labor relations
• Social commitments
• Weak competitors
• Economies of scale

Goodwill / Brand Valuation Methods

• Simple Profit Method (average profits x years purchase)
• Super Profit Method (future profits – capital employed * normal rate x years maintained)
• Capitalization Method (future maintainable profits capitalized using a normal rate of return to find the normal capital employed; goodwill as excess of normal capital over actual capital employed)

Entrepreneurship Failure

Concept of Entrepreneurship Failure

• 80% of new startups disappear within the first 18 months.
• 95% cease to exist after three years.
• Failure is an attitude ("experiment going wrong"), characterized by inaction/pitying oneself.

Reasons for Failure

• Survival-driven approach
• Low business IQ
• Lack of focus
• Fear of failure
• Shortsightedness
• Poor money management
• Insecurity

Issues Regarding Failure

• Psychological issues
• Political issues
• Personological (personal/behavioral traits) orientation
• Motivational approach
• Cognitive judgment

Steps to Solve Problems

• Learn and move on.
• Listen to the market.
• Research
• Outsource/Leverage effective technology
• Find a niche among competitors.