Sunday, February 8, 2009
PERFECT COMPETITION
PERFECT COMPETITION
It is an industry in which
(a) Many firms sell identical products to many buyers.
(b) There are no restrictions on entry into the industry.
(c) Established firms have no advantage over new ones.
(d) Sellers and buyers are well informed about prices.
Price takers
Firms in perfect competition are price takers.
A price taker is a firm that cannot influence the market price and that sets its own price at the market price.
Saturday, February 7, 2009
CAPITAL MARKET VS MONEY MARKET
CAPITAL MARKET
These are the markets for the long term debt & corporate stocks.
Stock Exchange:
A stock exchange is a place where the listed shares, Term finance certificates (TFC)
and national investment trust units (NIT) are exchanged and traded between buyers and
sellers.
Long term bonds:
Long term government & corporate bonds are also traded in capital markets.
Money Markets
IT is a market where there is buying and selling of short term liquid debt instruments. (Short term means one year or less). Liquid means something which iseasily en-cashable; an instrument that can be easily exchanged for cash.
Following financial instruments are traded in money markets.
Short term Bonds
o Government of Pakistan: Federal Investment Bonds (FIB), Treasury-Bills (TBills)
o Private Sector: Corporate Bonds, Debentures
Call Money, Inter-bank short-term and overnight lending & borrowing
Loans, Leases, Insurance policies, Certificate of Deposits (CD’s)
These are the markets for the long term debt & corporate stocks.
Stock Exchange:
A stock exchange is a place where the listed shares, Term finance certificates (TFC)
and national investment trust units (NIT) are exchanged and traded between buyers and
sellers.
Long term bonds:
Long term government & corporate bonds are also traded in capital markets.
Money Markets
IT is a market where there is buying and selling of short term liquid debt instruments. (Short term means one year or less). Liquid means something which iseasily en-cashable; an instrument that can be easily exchanged for cash.
Following financial instruments are traded in money markets.
Short term Bonds
o Government of Pakistan: Federal Investment Bonds (FIB), Treasury-Bills (TBills)
o Private Sector: Corporate Bonds, Debentures
Call Money, Inter-bank short-term and overnight lending & borrowing
Loans, Leases, Insurance policies, Certificate of Deposits (CD’s)
SYSTEM DEVELOPMENT LIFE CYCLE
SYSTEM DEVELOPMENT LIFE CYCLE
It is a logical process used by system analyst to develop an information system including requirements, validation, training, and user ownership.
PHASES OF SYSTEM DEVELOPMENT LIFE CYCLE:
INITIATION:
Identification of need or oppurtunity copncept.
SYSTEM CONCEPT DEVELOPMENT
Define scope.
Cost benefit analysis.
Feasibility study.
Risk management plan
PLAN
Develope project management plan.
REQUIREMENT ANALYSIS
Demonstrate that developed information system conforms to requirements as specified into functional design documents.
DESIGN
Trasform requirements into system design documents.
DEVELOPMENT
Convert design into complete information system including:
acquring & installing systems environment.
crating & testing databases.
preparing test case procedures ETC.
INTEGRATION & TEST
Demonstrate that developed system conforms to requirements as specified into functional requirements documents.
IMPLEMENTATION
Implement into production requirements & resolution of problems.
OPERATIONS & MAINTENANCE
Describe task to operate & maintain information system into production environment.
DISPOSITION
Describe end of system activities.
It is a logical process used by system analyst to develop an information system including requirements, validation, training, and user ownership.
PHASES OF SYSTEM DEVELOPMENT LIFE CYCLE:
INITIATION:
Identification of need or oppurtunity copncept.
SYSTEM CONCEPT DEVELOPMENT
Define scope.
Cost benefit analysis.
Feasibility study.
Risk management plan
PLAN
Develope project management plan.
REQUIREMENT ANALYSIS
Demonstrate that developed information system conforms to requirements as specified into functional design documents.
DESIGN
Trasform requirements into system design documents.
DEVELOPMENT
Convert design into complete information system including:
acquring & installing systems environment.
crating & testing databases.
preparing test case procedures ETC.
INTEGRATION & TEST
Demonstrate that developed system conforms to requirements as specified into functional requirements documents.
IMPLEMENTATION
Implement into production requirements & resolution of problems.
OPERATIONS & MAINTENANCE
Describe task to operate & maintain information system into production environment.
DISPOSITION
Describe end of system activities.
DATA VS INFORMATION & INFORMATION SYSTEM
DATA VS INFORMATION
Data represents facts of any kind. In the process of recording important particulars of any event, it is the discretion of the management, what should be recorded and how it should be presented.
However when this data is processed or reformatted, it becomes information. Information is a subset of data which adds to the knowledge.
Information Systems
Interrelated components working together to collect, process, store and disseminate information to support decision making, coordination control, analysis and visualization in an organization.
Friday, February 6, 2009
DIVIDEND & DIVIDEND POLICY INTRODUCTION
DIVIDEND & DIVIDEND POLICY:
CASH DIVIDENDS:
These are the cash payments from a company to shareholders .They can come in the form of regular, special or liquidating dividends. It reduces the value of the company's assets & the market value of equity.
STOCK DIVIDENDS:
These are new share distributions rather than cash dividends. The effect of stock dividend is to increase number of shares , EPS declines & the market price per share drops. The ownership & wealth position of the shareholders remain the same.
STOCK SPLITS:
IT divides each existing share into multiple shares thus creating more shares but there is no change in the owners wealth.
The result is no. of shares outstanding increases but the stock price,EPS & dividend per share decrease by proportional amount. The dividend yield, P/E ratio & Market value of firm remains the same.
SHARE REPURCHASE:
It is a transaction in which the company buy back its own shares.It has the same impact on the shareholders wealth as the cash dividend payment of the same.
CASH DIVIDENDS:
These are the cash payments from a company to shareholders .They can come in the form of regular, special or liquidating dividends. It reduces the value of the company's assets & the market value of equity.
STOCK DIVIDENDS:
These are new share distributions rather than cash dividends. The effect of stock dividend is to increase number of shares , EPS declines & the market price per share drops. The ownership & wealth position of the shareholders remain the same.
STOCK SPLITS:
IT divides each existing share into multiple shares thus creating more shares but there is no change in the owners wealth.
The result is no. of shares outstanding increases but the stock price,EPS & dividend per share decrease by proportional amount. The dividend yield, P/E ratio & Market value of firm remains the same.
SHARE REPURCHASE:
It is a transaction in which the company buy back its own shares.It has the same impact on the shareholders wealth as the cash dividend payment of the same.
Thursday, February 5, 2009
INTERNATIONAL MONETARY FUND (IMF) INTRODUCTION
INTERNATIONAL MONETARY FUND (IMF) INTRODUCTION
The International Monetary Fund (IMF) is an organization of 185 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
The IMF works to foster global growth and economic stability. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.
TO SEE MORE AbOUT IMF'S HISTORY,HOW IT WORK & ORGANIZATION please visit at
http://www.imf.org/external/about.htm
The International Monetary Fund (IMF) is an organization of 185 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
The IMF works to foster global growth and economic stability. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.
TO SEE MORE AbOUT IMF'S HISTORY,HOW IT WORK & ORGANIZATION please visit at
http://www.imf.org/external/about.htm
Wednesday, February 4, 2009
FINANCIAL STATEMENT ANALYSIS (Liquidity ratios)
FINANCIAL STATEMENT ANALYSIS
RATIO ANALYSIS
Financial statements report both on a firm’s position at a point in time and on its operations over some past period. However, the real value of financial statements lies in the fact that they can be used to help predict future earnings and dividends.
From an investor’s standpoint, predicting the future is what financial statement analysis is all about, while from management’s standpoint, financial statement analysis is useful both to help anticipate future conditions and, more important,as a starting point for planning actions that will improve the firm’s future performance.
Liquidity Ratios
Liquid Asset
An asset that can be converted to cash quickly.
Liquidity Ratios
RATIO ANALYSIS
Financial statements report both on a firm’s position at a point in time and on its operations over some past period. However, the real value of financial statements lies in the fact that they can be used to help predict future earnings and dividends.
From an investor’s standpoint, predicting the future is what financial statement analysis is all about, while from management’s standpoint, financial statement analysis is useful both to help anticipate future conditions and, more important,as a starting point for planning actions that will improve the firm’s future performance.
Liquidity Ratios
Liquid Asset
An asset that can be converted to cash quickly.
Liquidity Ratios
Ratios that show the relationship of a firm’s cash and other current assets to its current liabilities.
Current Ratio
Current ratio =Current assets/Current liabilities
Current ratio =xxx times
It indicates the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future.
Current assets normally include cash, marketable securities, accounts receivable,and inventories. Current liabilities consist of accounts payable, short-term notes payable, current maturities of long-term debt, accrued taxes, and other accrued expenses (principally wages).
Quick (Acid Test) Ratio
Quick, or acid test, ratio =(Current assets - Inventories)/Current liabilities
Quick, or acid test, ratio =xxx times
Inventories are typically the least liquid of a firm’s current assets, hence they are the assets on which losses are most likely to occur in the event of liquidation.Therefore, a measure of the firm’s ability to pay off short-term obligations without relying on the sale of inventories is important.
Reference:Fundamentals of Financial Management, Concise - Brigham-Houston
ECONOMICS (ELASTICITY OF DEMAND INTRODUCTION)
PRICE ELASTICITY OF DEMAND
PRICE ELASTICITY OF DEMAND measures the change in the quantity demanded in response to a change in market price.
PRICE ELASTICITY OF DEMAND = % age change in QTY Demanded/%age change in price
It is determined by three factors:
1)THE RELATIVE ATTRACTIVENESS OF SUBSTITUTES GOODS
2)THE RELATIVE PROPORTION OF INCOME SPENT ON THE GOODS
3)THE TIME THAT HAS BEEN PASSED SINCE THE PRICE CHANGED OCCURRED.
Example:If the price of a product A increases from Rs. 100 to Rs. 150 and the demand is decreased from 2000 units to 1200 units. calculate price elasticity of demand.
Solution
PRICE ELASTICITY OF DEMAND = % age change in QTY Demanded/%age change in price
% age change in QTY Demanded=((1200-2000)/(1200+2000)/2)=-.5i-e -50%
%age change in price=((150-100)/(150+100)/2)=.4 i-e 40%
PRICE ELASTICITY OF DEMAND =-50/40=-1.25 i-e 1.25
In this case price elasticity of demand is elastic
If PRICE ELASTICITY OF DEMAND <1
it is inelastic
If PRICE ELASTICITY OF DEMAND =1 it is unit elastic
If PRICE ELASTICITY OF DEMAND > 1 it is elastic.
CROSS ELASTICITY OF DEMAND
It measures the change in the demand for a good in response to a change in the price of another good.
CROSS ELASTICITY OF DEMAND = % age change in QTY Demanded/%age change in price of substitute or complement
Cross elasticity is positive for substitue and negative for complement.
INCOME ELASTICITY OF DEMAND
It measures the senstivity of the quantity demanded to an icrease or decrease in a consumer income.
INCOME ELASTICITY OF DEMAND = % age change in QTY Demanded/%age change in income
It is negative for inferior goods and positive for normal goods.
PRICE ELASTICITY OF SUPPLY
It is measure of the responsiveness of the quantity supplied to changes in price.
PRICE ELASTICITY OF SUPPLY = % age change in QTY Supplied/%age change in price
PRICE ELASTICITY OF DEMAND measures the change in the quantity demanded in response to a change in market price.
PRICE ELASTICITY OF DEMAND = % age change in QTY Demanded/%age change in price
It is determined by three factors:
1)THE RELATIVE ATTRACTIVENESS OF SUBSTITUTES GOODS
2)THE RELATIVE PROPORTION OF INCOME SPENT ON THE GOODS
3)THE TIME THAT HAS BEEN PASSED SINCE THE PRICE CHANGED OCCURRED.
Example:If the price of a product A increases from Rs. 100 to Rs. 150 and the demand is decreased from 2000 units to 1200 units. calculate price elasticity of demand.
Solution
PRICE ELASTICITY OF DEMAND = % age change in QTY Demanded/%age change in price
% age change in QTY Demanded=((1200-2000)/(1200+2000)/2)=-.5i-e -50%
%age change in price=((150-100)/(150+100)/2)=.4 i-e 40%
PRICE ELASTICITY OF DEMAND =-50/40=-1.25 i-e 1.25
In this case price elasticity of demand is elastic
If PRICE ELASTICITY OF DEMAND <1
it is inelastic
If PRICE ELASTICITY OF DEMAND =1 it is unit elastic
If PRICE ELASTICITY OF DEMAND > 1 it is elastic.
CROSS ELASTICITY OF DEMAND
It measures the change in the demand for a good in response to a change in the price of another good.
CROSS ELASTICITY OF DEMAND = % age change in QTY Demanded/%age change in price of substitute or complement
Cross elasticity is positive for substitue and negative for complement.
INCOME ELASTICITY OF DEMAND
It measures the senstivity of the quantity demanded to an icrease or decrease in a consumer income.
INCOME ELASTICITY OF DEMAND = % age change in QTY Demanded/%age change in income
It is negative for inferior goods and positive for normal goods.
PRICE ELASTICITY OF SUPPLY
It is measure of the responsiveness of the quantity supplied to changes in price.
PRICE ELASTICITY OF SUPPLY = % age change in QTY Supplied/%age change in price
Tuesday, February 3, 2009
systematic & unsystematic risk introduction
Total Risk=systematic risk + unsystematic risk
Unsystematic risk
it is unique Or company risk & can be diversified away. Specific risk is the risk associated with individual assets - within a portfolio these risks can be reduced through diversification (specific risks "cancel out").
Systematic risk
It is market risk & cannot be diversified away. only it is relevant in portfolios. Systematic risk, or market risk, refers to the risk common to all securities.
Unsystematic risk
it is unique Or company risk & can be diversified away. Specific risk is the risk associated with individual assets - within a portfolio these risks can be reduced through diversification (specific risks "cancel out").
Systematic risk
It is market risk & cannot be diversified away. only it is relevant in portfolios. Systematic risk, or market risk, refers to the risk common to all securities.
Monday, February 2, 2009
Annuities & perpetuity
Annuities are equally spaced similar payments of cash flows.
Example
If a loan is for ten years equal monthly payments, it would result in 120 equal payments.
If these payments lasts forever it is called perpetuity.
Present value of perpetuity= cash payments/interest rate
| ordinary annuity | annuity due |
| payment at end | payment immediately |
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