, Business and Finance, ICAB

1. Business & Finance
Chapter # 1
Introduction to business
Q-1) What is organization?
Q-2) Why do organizations exist?
Q-3) How do organizations differ?
Q-4) Define a not-for-profit organization. [MJ10] 3
Q-5) Is the ICAB a not-for-profit organization? [MJ10] 2
Q-6) What does organizations do?
Q-7) What is business?
Q-8) What is Stakeholder?
Q-9) Types of stake holder and their stake.
Q-10) Suppose you are the finance manager of XYZ Company Ltd. Being one of the stakeholders
what might be your stake and what would be your expectation from the company? [MQ10]
Q-11) What expectations would the local community have of a company operating a coal-fired power
station within two miles of a medium-sized town?[IQ1]
Q-12) What are wider areas of social responsibility in which the business must take account?
Q-13) What are the business’s objectives?
Q-14) Is wealth maximization always the primary objective?
Q-15) What are the secondary objectives of business?
Q-16) What are the multiple objectives of business?
Q-17) What is Mission?
Q-18) What are the Elements of mission?
Q-19) What is Goal?
Q-20) Define organizational goals. [MJ10]3
Q-21) Types of goals.
Q-22) Most organizations establish quantifiable operational goals. Give reasons why non operational
goal goals might be still important. [MJ10]5
Q-23) Characteristics of operational goal (objectives):
Q-24) What are Purposes of setting operational objectives in a business?
Q-25) What is plan?
Q-26) Type of standard
Q-27) What is productivity?
Q-28) Niko ltd has revenue of Taka 1,600,000, cost of sales Taka 9,00,000 and expenses of Taka
350,000.
calculate the GP margin, net margin, and Mark-up on cost of sale. [MJ10] 3
Q-29) What is economy?
Q-30) What is effectiveness?
Q-31) What is efficiency?
Q-32) What is Critical Success Factor (CFSs)?

2. Business & Finance
Chapter # 1: Introduction to business
Q-1) What is organization?
Organization is a social arrangement for
the controlled performance of collective
goals, which has a boundary separating it
from its environment.
Profit-oriented – A multinational car
manufacture, An accounting firm,
Not-for-profit – A charity, A trade union, A
local Authority, An army, A club,
Q-2) Why do organizations exist?
Organizations exist because they:
 Overcome people’s individual
limitation,
 Enable people to specialize
 Save time
 Accumulate and share knowledge
 Enable people to pool their expertise
 Enable synergy
In brief, organizations enable people to be
more productive.
Q-3) How do organizations differ?
Organizations differ in many ways.
1) Ownership
- Private : owned by the private
investors/shareholders.
- Public : owned by the nation
and managed by the
government.
2) Control
- By the owners themselves,
- By the people working on their
behalf or
- Indirectly by the government-
sponsored regulators
3) Activity
- Manufacturing, healthcare,
services (and so on)
4) Profit or non-profit orientation
- business exist to make a profit
- an army, or a charity on the
other hand are not profit
oriented.
5) Size
- small business to
- multinational companies.
6) Legal status
- company, or
- unicorporated body such as
club, association, partnership
and sole trader
7) Sources of finance
- borrowing,
- government funding
- share issues
8) Technology
- high use of technology (eg
computer firms)
- low use (eg. Corner shop)
Q-4) Define a not-for-profit
organization. [MJ10] 3
A not-for-profit organization is an
organization that is being operated to
earn profit and does not distribute its
surplus funds to the owners but instead
uses them to help pursue goals.
Examples of NPOs include charities,
trade unions, clubs and associations
etc.
Q-5) Is the ICAB a not-for-profit
organization? [MJ10] 2
Since ICAB is engaged in the
development and regulation of
accountancy profession in Bangladesh
where there is no profit motive, ICAB
may be termed as a not-for-profit
organization.
Q-6) What does organizations do?
Differences in what organizations do:
Organizations do many different types of work:
1) Agriculture
2) Manufacturing
3) Extractive/raw material
4) Energy
5) Retailing/distribution
6) Intellectual production
7) Service industries
Q-7) What is business?
An organization (however small) that is
oriented towards making a profit for its
owners so as to maximize their wealth and
that can be regarded an entity separate
from its owners.
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3. Business & Finance
Chapter # 1: Introduction to business
Q-8) What is Stakeholder?
Literally, a person or group of persons who
has a stake in the business. This means that
they have an interest in respect of what the
organization does and how it performs.
Q-9) Types of stake holder and their stake.
STAKE-
HOLDE
R
Stake holder in a
business
What is stake?
What do they typically expect of
the business?
P
R
I
M
A
R
Y
Shareholder Money invested
A return on their investment so that
their wealth increases:
• steady, growing profits paid out
by the business
• growth in capital value of their
share of the business
S
E
C
O
N
D
A
R
Y
Directors/Managers,
Employee and Trade
union
Livelihood, careers and
reputations
Fair and growing remuneration
Career progression
Safe working environment
Training
Pension
Customers Their customs Products/services that are good
quality and value
Fair terms of trade
Continuity of supply
Suppliers and other
business partners
The items they supply Fair terms of trade
Prompt payment
Continuity of custom
Lenders Money lent A return on their investment
• interest
• repayment of capital
Government and its
agencies
National infrastructure
used by business
The welfare of employees
Tax revenue
Reasonable employment and other
business practices
Steady or rising stream of tax
revenue
The local community
and the public at
large
National infrastructure
used by business
The welfare of employees
Reasonable employment and other
business practices
The natural
environment
The environment shared
by all
Reasonable environmental and
other business practice
Q-10) Suppose you are the finance
manager of XYZ Company Ltd.
Being one of the stakeholders what
might be your stake and what
would be your expectation from
the company? [MQ10]
The stake includes among others livelihoods,
careers and reputations.
My expectations from the company would be:
(i) To have a fair and growing
remuneration
(ii) Career progression
(iii) Good working environment
(iv) Training scope
(v) Pension/ recruitment benefit
Q-11) What expectations would the local
community have of a company
operating a coal-fired power
station within two miles of a
medium-sized town?[IQ1]
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4. Business & Finance
Chapter # 1: Introduction to business
Q-12) What are wider areas of social
responsibility in which the
business must take account?
There are wider areas of social responsibility
of which the must take account:
 The impact of its operations on the
natural environment
 Its human resource management
policy
 Non-reliance on contract with adverse
political cononations
 Charitable support and activity
 Above-minimum (legal) standards of
workplace health or safety
Q-13) What are the business’s
objectives?
Every business has a hierarchy of objectives,
from its primary objective down to its
supporting objectives. Together these form
multiple objectives.
In fact, however, there is hierarchy of
objectives, with one primary objective and
series of secondary subordinate objective
which should combine to ensure the
achievement of the primary objective.
Primary Objective
Profit
For a business the primary objective is
the financial objective of profit
maximization so as to increase
shareholder wealth.
Q-14) What are the secondary objectives
of business?
Secondary Objectives
- Market Position
- Product Development
- Technology
- Employee and management
Q-15) Is wealth maximization always the
primary objective?
1) Profit Satisficing
2) Revenue maximization
3) Multiple objectives
- Market Standing
- Innovation
- Productivity
- Physical and financial
resources
- Profitability
- Manager performance and
development
- Worker performance and
attitude
- Social responsibility
4) Constraints theory
- Staff relations or
environmental protection
- To satisfy customers
Q-16) What are the multiple objectives of
business?
(a) Market standing,
(b) Innovation,
(c) Productivity,
(d) Physical and financial resources,
(e) Profitability,
(f) Manager performance and
development,
(g) Worker performance and attitude,
(h) Social responsibility,
Q-17) What is Mission?
‘The business’s basic function in society’, is
expressed in terms of how it satisfies its
stakeholders.
Q-18) What are the Elements of mission?
Elements of mission:
1) Purpose
2) Strategy
3) Policies and standards of behavior
4) values
Q-19) What is Goal?
‘The intentions behind decisions or actions’ or
‘a desired end result’. Goals give flesh to the
mission.
Q-20) Define organizational goals.
[MJ10]3
Goals means broad, fairly timeless statement
of what the organization wants to achieve.
Goals are developed in the strategic planning
process and they are usually stated without
reference to a particular time period. The long
term of an organization may be to be an
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5. Business & Finance
Chapter # 1: Introduction to business
industry leader or to earn sufficient profit for
the maximization of shareholders’ wealth.
Q-21) Types of goals.
There are two types of goals:
1) Non-operational, qualitative goals
(aims)
2) Operational, quantitative (objectives)
Q-22) Most organizations establish
quantifiable operational goals. Give
reasons why non operational goal
goals might be still important.
[IQ2, MJ10]5
Some of the organizational goals are
quantifiable in pure monetary terms like return
on investment, earning per share growth in
turnover etc. But for a healthy and sustainable
future these quantifiable goals are not
themselves enough. Some non quantifiable
goals i.e. employee satisfaction, customer
satisfaction, social image are as important as
quantifiable goals. Therefore, while setting
goals management must consider the
phenomenon and must develop appropriate
system to measure and control both
quantifiable and non-quantifiable goals.
Q-23) Characteristics of operational goal
(objectives):
Objectives should be SMART
S – Specific
M – Measurable
A - Achievable
R - Reasonable
T - Time-bound
Q-24) What are Purposes of setting
operational objectives in a
business?
Objectives should enable management to:
 Implement the mission
 Publicize the direction to managers and
staff,
 Appraise the validity of decisions,
 Assess and control actual performance,
Q-25) What is plan?
Plan is a state what should be done to
achieve the operational objectives.
Q-26) Type of standard
Standard and targets specify a desired
level of performance.
(i) Physical Standard
(ii) Cost Standard
(iii) Quality Standard
Q-27) What is productivity?
This is the quantity of service or
product produced in relation to
resources put in.
Q-28) Niko ltd has revenue of Taka 1,600,000, cost of sales Taka 9,00,000 and expenses of
Taka 350,000.
Calculate the GP margin, net margin, and Mark-up on cost of sale. [IQ3, MJ10] 3
Gross Margin: (1,6,000,00 – 900,000) /1,600,00 X 100% = 43.75%
Net margin: (1,600,000 – 900,000 – 350,000) / 1,600,000 X 100 % = 21.87%
Markup on cost of sale: (1,600,000 - 900,000) / 900,000 X 100 % = 77.78%
Q-29) What is economy?
Economy is the reduction or
containment of cost; this can be
measured against targets.
Q-30) What is effectiveness?
Effectiveness is the measure of
achievement and is assessed by
reference to objectives, such as
whether the target profit has been
attained.
Q-31) What is efficiency?
Efficiency means being effective at
minimum cost or controlling cost
without losing operational
effectiveness. Efficiency is therefore a
combination of effectiveness and
economy.
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6. Business & Finance
Chapter # 1: Introduction to business
Q-32) What is Critical Success Factor
(CFSs)?
CFS is those product features that are
particularly valued by a group of
customers and therefore where the
organization must excel to outperform
the competition.
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7. Business & Finance
Chapter # 1: Introduction to business
Q-32) What is Critical Success Factor
(CFSs)?
CFS is those product features that are
particularly valued by a group of
customers and therefore where the
organization must excel to outperform
the competition.
6