MOOC on Entrepreneurship Management

MODULE 02

Entrepreneurship Building

Analysing Marketing Opportunities- Part –A

(Macro Economic Factors)

Glossary

1) Entrepreneurship : The art of setting up one’s own business, big or

small, traditional or new age start-up. It starts with some promising
ideas which need to be translated into a successful business model by
bringing together different resources like land, labour, capital and
organization. It is a risk-bearing activity and it is done with the objective
of starting something new which will be profitable and will grow over
time.

2) Environmental Scanning : Environment here refers to a large canvas in

which there are several variables which can and will affect all businesses,
directly or indirectly, in a major or in an insignificant way. A careful
ongoing study of these variables or factors which are ever changing is
called Environmental Scanning.

3) Marketing Opportunity : Business has a profit motive. Profits can be

made by selling products and/or services to customers with a margin.
When products and services can be profitably sold to a set of customers
by satisfying their needs and desires, the business is said to be marketing
their offerings successfully. This is the ultimate goal of all entrepreneurs.
Such opportunities are Marketing Opportunities.

4) Macro Environmental Factors : The factors or variables in the external

environment which have major impacts on businesses of all kinds. All
 kinds of businesses are affected or influenced by them to different
degrees. The impact of these cannot be avoided by any business.

5) Demographic factors : Demographic factors are factors pertaining to the

human population – factors like the age distribution, income , gender,
occupation, education, place of residence, population density, etc. These
are parameters by which a certain population can be described and
studied.

6) Economic Factors : These are indicators of the state of an economy –

factors like income levels, income distribution, personal disposable
incomes, market rate of interest, rate of employment, rate of inflation,
etc. Which determine the prospects of economic transactions which are
central to any business.

7) Political Factors : Politics and business are closely related. Political

parties run governments. Governments enact laws and administer them.
They have enough powers to influence all kinds of businesses through
their interference, attitude, administration. The approach of political
parties towards businesses and political stability are crucial to the
success of business.

8) Legal Factors : These are factors closely linked with political factors.
Political parties running governments enact and enforce laws that
govern businesses. These laws can be labour laws, company laws,
regulatory mechanisms that can help or inhibit business practices.

9) Social Factors : Business is also a social entity. It exists in and operates

within society. It is therefore subject to social norms & social changes.
The way people live and socialize keep changing and such social changes
give rise to possible new business opportunities.

10)Cultural Factors : Culture is a very diverse fabric that is woven around

human society. Culture is a basket that consists of language, food & dress
habits, rituals, customs, festivals, heritage, traditions, values, etc. Human
societies are proud of their individual cultural values. Since marketing and
business deal with humans, it is important to understand cultural values
and changes happening in culture.
 MOOC on Entrepreneurship Management

MODULE 03

Entrepreneurship Building

Analysing Marketing Opportunities- Part –B

(Micro Economic Factors-1)

Glossary:

1. Macro-environmental factors: Factors prevalent in the wider

ecosystem that affect all participants. In the context of the
module, this would include factors such as demographic
factors, technological factors, economic factors, politico-legal
factors and socio-cultural factors.

2. Micro-environmental factors: Factors prevalent in the

ecosystem that directly affect the specific organization or
individual entrepreneur. In the context of the module, this
would include factors like customers, competitors, suppliers
and the firm’s internal environment.

3. SWOT: SWOT analysis (or SWOT matrix) is a strategic planning

technique used to identify strengths, weaknesses,
opportunities, and threats related to business competition or
project planning.

4. Opportunity Matrix: An extension of the SWOT analysis, the

Opportunity Matrix is used to evaluate the viability of an
identified opportunity to assess its potential for a business.
5. Distribution Effectiveness: Distribution effectiveness seeks to
evaluate the convenience delivered to the customers while
providing them with a product, in terms of availability, access
and support.

6. Promotion Effectiveness: Promotion effectiveness (or

promotional effectiveness) is a measure of how effective the
company’s sales promotion measures are, evaluating the rise in
sales vis-a-vis the cost incurred in achieving such growth.

7. Selling Effectiveness: Selling effectiveness is a broad measure

for evaluating the sales-focused activities of the organization,
comparing the revenues generated with the cost of selling
during a period.

8. Intensity of Coverage of Distribution: Intensity of coverage of

distribution measures the degree of availability of the product
being offered, including such determinants like geographical
coverage, ease of access, and on-shelf availability.

9. Strategic Marketing: Strategic Marketing involves planning,

developing and implementing measures to obtain and maintain
a competitive edge in the chosen segment. This process
outlines and simplifies a direct map of the company's objectives
and how to achieve them.

10. Benchmarking: Benchmarking is the process of comparing

business processes and performance metrics to industry best
practices from other companies, usually direct competitors.
 MOOC on Entrepreneurship Management

MODULE 04

Entrepreneurship Building

Analysing Marketing Opportunities- Part –C

(Micro Economic Factors-2)

Glossary
1. Opportunity: A positive development in the external
environment that can offer good business prospects or growth
possibilities to an entrepreneur.

2. Threat: An unfavourable development in the external

environment that can have a damaging effect on the
entrepreneur’s business plans.

3. Matrix: A tabular presentation using rows and columns that can

cross-classify some parameters of interest to reveal certain
interesting insights.

4. Forward/backward Integration: When a firm assumes control

of its distribution channel members, it is a case of forward
integration. When the firm assumes control over its supply chain
channel members, it is a case of backward integration.

5. Alliances: When a firm enters into some kind of an agreement

with another firm for purposes of mutual benefit, it is termed as
an alliance.
6. Joint-Ventures: When a firm becomes a partner with another
firm by way of equity participation where both the firms
maintain their respective distinct identities while creating a third
entity, this third entity is called a joint-venture.

7. Contingency Plan: A contingency plan is a fall-back option

when the original plan would not work out for some reasons. It
is an alternative plan and not the preferred plan of action.

8. Speculative Business: A business that has a fair share of

attractiveness (promise of high returns) but also a fair share of
threats (risks of failure) is termed as a speculative business.

9. Mature Business: A mature business is one that is an

established business that has run most of its course and which
does not hold too many future prospects of interest but neither
does it entail much of a risk.

10. Troubled Business: A troubled business is one that is

endangered because of the presence of high threats to its
existence and fails to offer any future attractions.
 MOOC on Entrepreneurship Management

MODULE 05

Entrepreneurship Building

Analysing Marketing Opportunities- Part –D

(Vision)

Glossary
1. Strategy : A game plan adopted by someone to reach one’s goals
by overcoming hurdles and by banking on one’s strengths.

2. Strategic Intent : The urge to chart out a clear roadmap to reach

one’s cherished goals by taking into account one’s evolving
environment and by a careful study of one’s own strengths and
weaknesses.

3. Vision : Vision is foresight – the ability of an individual to

dream and the passion to translate one’s dream into reality. It is
a quality which is the driving force behind the success of an
entrepreneurial venture.

4. Mission : It is the zeal and the energy that one brings into play
in the pursuit of one’s dream or vision. In case of a firm, it is a
more detailed description of the entrepreneur’s vision and is an
inspirational statement that depicts what the firm aspires to be
and how. It serves as the binding force that holds the different
stakeholders of an organization together and inspires them to
work together towards achievement of their common goal.
5. Business Definition : It is a description of how the firm sees its
business.

6. Product-oriented business definition : It is how a firm sees itself

as a producer of certain products of some specifications.

7. Market-oriented business definition : It is how a firm describes

its business as a customer’s need satisfying process. It is a
departure from the product-oriented business definition.

8. Myopia : Short-sightedness.

9. Marketing Myopia: This is the title of a famous article authored

by Theodore Levitt, a renowned management thinker.
Marketing Myopia, first expressed in an article by Theodore
Levitt in Harvard Business Review, is a short-sighted and
inward looking approach to marketing which focuses on
fulfilment of immediate needs of the company rather than
focusing on marketing from consumers' point of view
 MOOC on Entrepreneurship Management

MODULE 06

Entrepreneurship Building

Ansoff’s Grid

Glossary
1. Product/ Market Expansion Grid : The Product/ Market
Expansion Grid or Matrix was proposed by H. Igor Ansoff as a
framework for exploring business growth opportunities. It
classifies a firm’s products as existing products & new products
and its markets as existing markets & new markets. This gives
rise to 4 groups of growth strategies – Market Penetration,
Market Development, Product Development and Diversification
Strategies.

2. Intensive Growth Strategies : The 3 groups of growth strategies,

namely Market Penetration, Market Development and Product
Development strategies are collectively referred to as Intensive
Growth Strategies.

3. Market Penetration Strategy : The strategy of selling a firm’s

existing products more aggressively to its existing markets by
encouraging them to buy more, on more occasions, by
encouraging non-users to become users or by trying to convert
competitors’ customers to switch to the firm’s products.

4. Sales Promotion : Some short term time-bound marketing

activities like offering price discounts, gifts, coupons, free items
to customers at the time of purchase or offering trade-oriented
 schemes and incentives to resellers for pushing sales more
aggressively.

5. Distribution : The act of moving goods from the point of

production to the point of consumption or making the goods
available to customers at locations from where they can
conveniently purchase them.

6. Market Development Strategy : The strategy of selling the

firm’s existing products to new market segments within its
domestic market or by expanding regionally or even
internationally by making some minor & cosmetic changes to
the product or its packaging and thus appealing to a different
group of users.

7. Product Development Strategy: The strategy of introducing new

products by the firm to its existing markets. The new product
can be addition of features, attributes, style or quality
improvements or other innovations to its existing products and it
also be a new introduction in an already existing line of
products.

8. Line Extension : The strategy of introducing “new” products to

a firm’s existing line of products. This could mean addition of a
new colour, flavour, shape, size, package or form innovation of
an existing product or addition of a new brand to an existing
category of products.

9. New Product : All new additions to a firm’s basket of products

including but not restricted to addition/modification of
incremental features or attributes to existing
products/packaging, all intrinsic or extrinsic changes made to
 existing products , adopting a product that is new to the firm or
introducing a product that is completely new to the world.

10. Diversification : The strategy of introducing a new product

by the firm to a new market. This is the most challenging of
growth strategies as both the product and the market are new
and the firm has little knowledge or experience of both. If
executed correctly, it can be a highly profitable strategy as it can
open new and hitherto uncharted avenues of growth for the firm.
 MOOC on Entrepreneurship Management

MODULE 07

Entrepreneurship Building

Market Survey Techniques

Glossary

1. Respondent is a person who responds to questions posed by an

interviewer in the course of a survey and whose responses are recorded
by the interviewer.

2. Questionnaire is an instrument of field data collection. It is a body of

questions constructed by the market researcher using easily understood
language trying to gather specific information from respondents in a
field survey.

3. Open-ended questions are direct questions asked by an interviewer of a

respondent where the respondent is free to answer the way s/he
desires, without having to choose an answer from among some offered
alternative answers.
4. Dichotomous questions are a type of closed-ended questions for which
there are 2 alternative answers suggested by the interviewer and the
respondent is expected to choose any one of them as his response to
that question.

5. Multiple Choice questions are a form of closed-ended questions in

which the respondent is offered more than 2 but usually not more than
5/6 alternative answers along with the question from which the
respondent is expected to choose one or more suggested alternatives as
his response to that question.
6. Bias is an error in a response given by a respondent in reply to a
question. Bias can be deliberate or involuntary. Bias can be introduced
by the respondent or by the interviewer.

7. Projective Techniques are a body of specialized indirect interviewing

techniques where the respondent is presented with an ambiguous
situation and s/he is asked to describe the situation in her/his own way
by projecting her or his thoughts, emotions, drives, attitudes and beliefs
in trying to explain the situation.

8. Focus Group is a format of group interaction among a chosen group of

8-12 willing respondents on a topic or an idea described by the
moderator who conducts the group proceedings.

9. Ambiguity is a lack of clarity about a situation which can be interpreted

differently by different individuals.

10.Panel is a group of individuals or families or firms or outlets who are

recruited as willing members from whom some specific information
about some specific issues is sought repeatedly on an ongoing basis. The
members of the panel can be geographically scattered. Panels can be
used to obtain information regarding product/brand purchase details or
media habits or business parameters depending upon the purpose of the
panel.
 MOOC on Entrepreneurship Management

MODULE 08

Entrepreneurship Building

Project formulation-I

Glossary
1. Project Formulation:

Project Formulation is a systematic development of a project

idea for the eventual objective of arriving at an investing
decision.

2. SWOT Analysis:
SWOT Analysis is a unique technique for evaluating the likely
chances of success for a particular business opportunity. This
aims to identify the four aspects of a venture in terms of its
Strengths, Weaknesses, Opportunities and Threats (SWOT). The
strengths and weaknesses relate to the internal dimensions of an
organisation whereas the opportunities and threats relate with
the external environment of the organisation.
3. Feasibility Analysis :

Feasibility Analysis outlines and analyses several alternatives or

methods of achieving success and helps to narrow the scope of
the project to identify the best business scenario(s). The business
plan deals with only one alternative or scenario. The feasibility
analysis is conducted before the business plan.

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4. Pre – Feasibility Analysis :

Pre–feasibility analysis is an early stage / preliminary study of a

potential project. It is conducted by a small team and is designed
to give company stakeholders the basic information they need to
green light a project or choose between potential investments /
best business scenarios. A pre-feasibility study should be
viewed as an intermediate stage between a project opportunity
study and a detailed feasibility study, the difference being
primarily the extent of details of the information obtained.

5. Project Engineering:

It speaks about what kind of technology would be considered to

make a particular product and where from the technology could
be sourced or what are the likely overheads to be incurred to
manufacture the product, etc.

6. Plant Location :

Location of the plant is a very important decision for production

function. Plant location is actually where the plant and
machinery should be situated or installed. Plant should be
located in a place where sourcing of all raw materials and other
inputs as well as distribution of finished products to end user
markets will be facilitated.

7. Detailed Feasibility Study :

After having done Pre-Feasibility Study, the entrepreneur has to
do a Detailed Feasibility Study. This encompasses more detailed
analysis of different location possibilities, availability of inputs

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 and its economic, technical, managerial, organisational,
commercial and financial feasibilities.

8. Techno-Economic Analysis :

Techno-Economic Analysis involves the identification of two

things, one is a Projected Demand and the Optimal Technology
that needs to be adopted in trying to satisfy that kind of demand
potential.

9. Project Design and Network Analysis :

This would basically involve identification of what are the

various activities in a project and its sequences. Some kind of
network planning also has to be developed. In this respect
Critical Path Method and Program Evaluation and Review
Technique are two very important and popular methods of
Network Analysis.

10. Project Appraisal :

The method of appraising capital expenditure proposals can be

made in two broad ways i.e., Discounted Cash Flow Methods
and Non Discounting Cash Flow Methods. By these two
methods, projects are evaluated for its right implementation.

3
 MOOC on Entrepreneurship Management

MODULE 09

Entrepreneurship Building

Project formulation-II

Glossary
1. Input Analysis :

Input Analysis deals with Identification, quantity, quality, price and

availability of all types of inputs i.e., materials, manpower, technology,
equipment, etc.

2. Financial Analysis :
It denotes how much cost is involved and what revenues the proposed
business can generate. In other words, it is the analysis of Outflow of
Costs and Inflow of Revenues.
3. Social Cost Benefit Analysis :
It is the analysis of cost to be incurred by the organisation and what
benefits will be available to the society from such business. This may be
in the form of generating employment for local people, development of
local infrastructure, setting up of civic amenities for the local population,
etc.
4. Feasibility Report :

It is the report to justify the rationality of the project. In this report, the
entrepreneur has to explain the logical reasons to show that the project
is financially and technically viable.

5. Detailed Project Report :

In this report, the entrepreneur attempts to forecast the future course

of the proposed business with realistic data pertaining to estimated
production, total cost, total revenue, projected sales volumes and
1
 profitability over time. It shows a clear roadmap for the project and
helps the entrepreneur to obtain various statutory clearances from
government agencies and funds from banks & financial institutions.

6. Project Appraisal :

Projects are appraised by the entrepreneur himself and approving

authorities. All of these parties need to appraise the project from a
techno-commercial standpoint. Such appraisals are needed by financial
institutions to be convinced about the project’s short-term and long-
term viability so that loans extended to the entrepreneur can be
recovered over a reasonable period of time.

7. Payback Period :
It is the length of time required to recover the initial cash outlay made
on the project by the entrepreneur.
8. Average Rate of Return :
Average rate of return is a financial ratio used in Capital Budgeting.

9. Net Present Value :

Net present value is the difference between the present value of future
cash inflows and the present value of future cash outflows over the life
of the project.

10. Internal Rate of Return :

Internal rate of return is a method of calculating an investment’s rate of

return. It is that rate of return at which the Net Present Value is zero.

2
 MOOC on Entrepreneurship Management

MODULE 10

Entrepreneurship Building

Project Appraisal-I

Glossary

1. Financial Feasibility :
It is the explanation of logical reasons about the financial
viability and rationality of the project. It addresses the
fundamental question: Will the returns justify the investments
to be made.

2. Discounted Cash Flow Techniques :

Discounted cash flow (DCF) is a valuation method used to

estimate the worth of an investment based on its expected
future cash flows. DCF analysis techniques attempt to figure
out the value of an investment today, based on projections
of how much money it will generate in the future.

3. Net Present Value :

The surplus of the present value of all future cash inflows or

benefits over all present and future cash outflows or cash
outlays.

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4. Conventional Investment :
It is an investment that the entrepreneur makes as a one-
time investment at the base period.

5. Non conventional Investment :

It is an investment plan where the entrepreneur makes
investments at different points in time resulting in cash
outflows that happen over different periods of time.

6. Time Value of Money :

It is the value of money relating to a particular time period. It
takes into account the interest that a sum of money would
generate over a given period of time.

7. Internal Rate of Return :

It is a rate of return which equates the aggregate discounted

benefits with the aggregate discounted costs.

8. Cost of Capital :
Costs or expenses incurred for bringing in capital into the
business.

9. Method of interpolation :
Interpolation is the process by which an unknown data can
be calculated from 2 known data values. The unknown data
value lies between the 2 known data points.

2
10. Optimum Rate of Return :
It is something like a break even where one can find out at
what rate of return one can would neither make losses nor
make profits.

3
 MOOC on Entrepreneurship Management

MODULE 11

Entrepreneurship Building

Project Appraisal-II

Glossary
1. Risk and Uncertainty:
Unforeseen situation about business. In a business there could
be profit or loss which is difficult to predict. These
unpredictable factors are insulated by risk and uncertainty
analysis.

2. Inflation :
The term is used in economics which is defined as “Too much
money chasing too few goods”. Under the influence of inflation,
commodities become dearer and the value of money decreases.
3. Marketing Research :
Entrepreneurs need to attract customers and it is important when
setting up a business that sufficient research is undertaken to
assess the demand situation. A market research analysis is a
documented investigation of a market that is used to inform
about sales forecasting, market conditions and marketing
strategy.

4. Operations Research :

1
 Operations research (OR) is an analytical method of problem-
solving and decision-making that is useful in the management of
organizations. In operations research, problems are broken down
into basic components and then solved in defined steps by
mathematical analysis.

5. Network Analysis :

It involves a group of techniques which are used for presenting

information about the time and resources involved in the project
so as to assist in the planning, scheduling and controlling of the
project. The information usually represented by a network
includes the sequences, interdependencies, interrelationships
and critical activities of the project.

6. Ratio Analysis :

Ratio analysis is a method of studying the financial health of an

organization. Ratio analysis is used to evaluate a number of
issues with an entity, such as its liquidity, efficiency of
operations, and profitability.

7. Shorter Payback Period :

It is defined as quick recovery of investment made into the
business. This happens because of the entrepreneur being risk
averse does not want his investment to remain unpaid over a
longer gestation period.

8. Risk Adjusted Discount Rate:

2
 In case of Net Present Value or Internal Rate of Return, the
entrepreneur works with a particular rate of discounting all
future revenues or all future cash outflows. Now that rate of
interest is something that the entrepreneur himself has to decide,
how he can build in a buffer for risk in that rate itself, he might
decide a cut off rate, it is possible the entrepreneur raises the cut
off rate by adding a Risk Premium to it and that cut off rate plus
the Risk Premium rate is termed as Risk Adjusted Discount
Rate.

9. Decision Tree Analysis :

A decision is to do with handling of alternative courses of

action. First, the entrepreneur collects information, generates
alternative courses of action, evaluates each of these alternative
courses of action depending on its probability of occurrence and
the resultant payoff and finally chooses one particular
alternative course of action that maximizes value.

10. Expected Value of Particular Branch :

Product of Net Present Value and probability for that branch is

called the Expected Value for that particular branch.

3
 MOOC on Entrepreneurship Management

MODULE 12

Entrepreneurship Building

Project Appraisal-III

Glossary
1. Projected Capital Cost Estimates:

Capital Cost Estimates which are to be incurred even before the

plant starts producing anything commercially. It has not yet
become operational. Projected Capital Cost Estimates are to be
incurred before the project actually gets off the ground. Capital
cost is usually only a one time expenditure. As for example, cost
incurred on account of plant and machinery, land, buildings etc.,
will come within the ambit of Capital Cost Estimates.

2. Provision for Escalation :

Escalation means enhancement. All estimates are projected
estimates and it will always be uncertain as to what are going to
be the actual amounts going to be spent on any of these items of
expenditure. Therefore, there has to be provision for escalation,
for each of these items of expenditure, e.g., escalation on
account of land costs, etc.
3. Projected Operating Cost Estimates:
Once the plant is up and running, then to operate that plant a lot
of expenditure has to be incurred. These expenses are variable in
nature. So, for example, cost of raw materials or the labour cost

1
 or the energy cost are variable costs and these are to be
included in Operating Cost Estimates.

4. Projected Revenue Estimates :

It will cover preparation of Proforma Profit and Loss Account.

Matching of operating revenues and the operating costs of a
project over a period of time will result in operating profits or
losses for the enterprise. It is a forecast or reasonable estimates
of what are going to be Gross Revenue, Net Revenue, Cost of
goods sold, the Gross Margin, Operating Profits and Profits
before Tax and Profits After Tax and these are what an
entrepreneur would like to foresee.

5. Proforma Profit and Loss Statement :

It is an attempt to strike a balance between the Operating Cost

Estimates and the Operating Revenue Estimates. It is not the
actual Profit & Loss Statement but a projected P&L statement.

6. Proforma Balance Sheet :

Proforma Balance Sheet is made on the basis of projected

inflows and outflows of resources. The validity and the
authenticity of the Balance Sheet will to a large extent depend
on the validity and accuracy of the Proforma Operating Cost
Estimates, the Operating Revenue Estimates, and the Proforma
Profit and Loss Statement. This is a projected Balance Sheet and
not the actual one.

7. Balance Sheet :

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 It is a very important financial statement. It is basically a
balance between Assets held by the firm and the Liabilities of
the firm. So Assets and Liabilities are what the entrepreneur is
going to look at and how they are balanced in the company.

8. Current Assets:

Cash in hand, Bank balance, Marketable Securities, Sundry

Debtors, Inventories or Pre-paid expenses are all added to get
the total of Current Assets. These assets could be turned into
liquid assets (cash) over a short period of time.

9. Current Liabilities:

Current Liabilities mean those liabilities of the firm which will

have to be met/ honoured over a short period of time. It will
cover Sundry Creditors, Taxes Payable, Outstanding Expenses,
Bills Payable.

10. Total Capital Stock :

Different kinds of stocks or equity that are held by the

organisation, i.e., Common Stock and Preferred Stock - when
these are added, it becomes Total Capital Stock which is the
Capital Structure of the organisation.

11. Total Debts :

The firm borrows money from other sources like Financial

Institutions. There are Secured Loans and Unsecured Loans and

3
when these are added, Total Debts of the organisation is
obtained.

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 MOOC on Entrepreneurship Management

MODULE 13

Entrepreneurship Building

Financial Management: Part-A

Glossary
1. Fixed Capital :

Fixed Capital means the funds that are required in order to

procure fixed assets like land, building, major machinery which
are going to convert raw material into finished product.

2. Working Capital :
Working Capital means the funds that are required to sustain
day to day operations of the organisation. In fact, this is varying
in nature i.e., Cash and Bank Balances, Raw Materials, finished
goods, work-in-progress, etc.
3. Lease Financing :

In simple terms, it is a contractual arrangement (lease

agreement) in which a party owning asset / equipment (Lessor)
allows its use (transfer the right to use the equipment) to another
party (lessee) for an agreed period of time for the consideration
of periodic payment (lease rentals) with or without a further
payment (premium). At the end of the period of contract (lease
period), the leased asset / equipment reverts back to the lessor,
provided there is no provision for the renewal of the lease
agreement.

1
4. Sub Contract :

Sub contract is an agreement of contracting out part of jobs like

components of the main product etc. It is actually outsourcing
the particular job for reducing cost of production. Once the
components are obtained from the sub-contractor, the
organisation may do its assembly function to manufacture a
complete product.

5. Retained Earnings :

Retained earnings are the firm’s profits of the yesteryears.

6. Equity Shares :

Long term finance is obtained by issuing shares. ‘Shares’ are the

smallest units of the capital of a company. The investors
subscribing to such shares are termed as ‘Shareholders’ of the
company. Now, these equity shares are the main source of
finance of a company contributed by the owners of the
company. Equity shareholders are really the owners of the
company.

7. Debt – Equity Ratio:

The financial structure of the organisation is normally composed
of two things – one is Equity capital and the other is Debt
capital and their ratio is commonly referred to Debt-to-Equity
Ratio. Suppose, the Debt-Equity Ratio is , say, 2:1, which means
for every unit of equity that the company has raised, it has got
within its capital structure 2 units of debt and these debts are
outside of equity. They are a different kinds of capital that the

2
 company has taken on and they are not part of the equity. This
ratio is closely monitored by the owner of the organisation.

8. Preference Shares:

Preference shares confer on Preference Shareholders the right to

be paid dividend at a fixed rate first and whatever will remain
thereafter is going to be distributed among the Non Preference
Equity Shareholders. Preference Share Holders can also get
back their capital on priority basis if they want to withdraw from
the company. It is a special kind of share, and holders of these
shares enjoy preferential rights over equity shareholders.

9. Debentures :

A debenture is an instrument through which an Indian Public

Limited Company can raise funds from the market. A debenture
is signed by the company with its seal, to acknowledge the debt
of the person(s). Debenture holders are, therefore, creditors of the
company.

10. Term Loans :

Term loans are loans procured for the acquisition of fixed assets
and working capital margins and are repayable over a long
period of time, generally ranging between one year and ten
years. Term loans are extended by banks and other financial
institutions set up for the purpose of extending term finance.

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 MOOC on Entrepreneurship Management

MODULE 14

Entrepreneurship Building

Financial Management: Part-B

Glossary
1. Working Capital :

It is defined as excess of current assets over current liabilities.

Current assets are like cash & bank balance, accounts receivable
and inventory, whereas current liabilities are creditors, bills
payable, etc.

2. Operating Cycle:

When cash gets reconverted back to cash through a number of

processes over a certain period of time, this period is called the
Operating Cycle.

3. Seasonality:

There are peak seasons and there are off seasons for many
products and many businesses. During peak seasons, products
sell very fast and a lot of money can be recovered. During off
season the demand becomes slack and large volume of money is
blocked.

4. Cyclical Factors :

Every business goes through cycles of boom and recession.

Businesses flourish at times and businesses go into recession at
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 times. Therefore, it is the economic fluctuations or the cyclical
turns in the business of the organisation which are going to play
a role in deciding the working capital requirement.

5. Unsecured Non – Bank Short Term Sources :

There are private loans on which the businessmen could fall

back on during crisis of finance. Many a time when there are
very big customers with whom a long standing relationship is
enjoyed, they can help the business owners tide over a crisis in
working capital management. They may even give an interest
free advance as well.

6. Pledging :
There are Accounts Receivables in the business. Accounts
Receivables are money that are due from others and the
businessmen are going to recover that money from debtors.
There is time needed to recover the money but, in the meantime,
the account receivable can be pledged to another company.
Accounts receivables can be converted to cash very quickly and
they can become an attractive collateral for many commercial
banks.

7. Factoring :
Factoring is a process under which invoices representing
commercial ‘accounts receivables’ are sold to another buyer called
‘Factor’ at a discount to get instant cash. May be a bank buys out
or a financial institution buys out accounts receivables and they are
going to recover those invoices / bills from the suppliers of the
business persons.

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8. Bank Credit :

Bank credit is a major source of financing for working capital,

because banks offer both secured and unsecured loans such as
cash and credit. They also extend overdraft facilities depending
on relationship. Banks also do purchasing and discounting of
bills.

9. Unsecured Public Deposits :

A company can borrow up to a certain amount from the public

and maturity period would vary between 6 months to 5 years.
Nowadays, there are rules according to which entrepreneurs
cannot go beyond certain limits in terms of taking public
deposits and entrepreneurs have to stick to repayment terms and
repayment interest rates, which are monitored by the
government.

10. Inter – Company Deposits

Inter-Company Deposits are deposits made by one company in
another and normally this would come for a period of up to 6
months. These are Short Term Deposits.