Factors of Production (Introduction)

Factors of Production

Factors of production are the resources that are used to produce goods and services

1. Natural resources:

The things created by acts of nature such as land, water, mineral, oil and gas deposits, renewable and nonrenewable resources.

2. Labor:

The human effort, physical and mental, used by workers in the production of goods and services.

3. Physical capital.

All the machines, buildings, equipment, roads and other objects made by human beings to produce goods and services.

4. Human capital:

The knowledge and skills acquired by a worker through education and experience.

5. Entrepreneurship:

The effort to coordinate the production and sale of goods and services. Entrepreneurs take risk and commit time and money to a business without any guarantee of profit.

IMF Completes First Review Under Stand-By Arrangement with Pakistan and Approves US$847.1 Million Disbursement

IMF Completes First Review Under Stand-By Arrangement with Pakistan and Approves US$847.1 Million Disbursement

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Pakistan's economic performance under a program supported by a 23-month Stand-By Arrangement (SBA). The completion of the review enables the immediate disbursement of an amount equivalent to SDR 568.5 million (about US$ 847.1 million), bringing total disbursements under the program to an amount equivalent to SDR 2.64 billion (about US$3.93 billion).

For press release from IMF

BOND INDENTURE INTRODUCTION

BOND INDENTURE INTRODUCTION

The contract that specifies all the rights and obligations of the issuer and the owners of a fixed income security is called the bond indenture. The indenture defines the obligations of and restrictions on the borrowed and forms the basis for tall future transactions between the bondholder and the issuer. These contract provisions are known as covenants and include both negative covenant (prohibitions on the borrower) and affirmative covenants(actions that the borrower promises to perform) sections.

Negative covenants include restrictions on asset sales ( the company can't sell assets that have been pledged as collateral), negative pledge of collateral (the company can't claim that the same assets back several debt issues simultaneously), and restrictions on additional borrowings (the company can't borrow additional money unless certain financial conditions are met).

Affirmative covenants include the maintenance of certain financial ratios and the timely payment of principal and interest. For example, the borrower might promise to maintain the company's current ratio at a value of two or higher. If this value of the current ratio is not maintained, then the bonds could be considered to be in (technical) default.

Difference between equity security and fixed income security

Difference between equity security and fixed income security


Equity Securities

The most important equity security is common stock. Stock represents ownership interest in
a corporation. Equity securities may pay dividends from the company’s earnings, although
the company has no legal obligation to do so. Most companies do pay dividends, and most
companies try to increase these dividends on a regular basis.
Unlike fixed-income securities, equity securities represent an ownership interest in a corporation. These securities provide a residual claim—after payment of all obligations to fixed-income claims on the income and assets of a corporation

Fixed Income Securities

A fixed income security usually provides a known cash flow with no growth in the income stream. Bonds are the most important fixed income securities.A bond is a legal obligation to repay a loan’s principal and interest, but carries no obligation to pay more than this. Interest is the cost of borrowing money. Most preferred stocks pay a fixed annual dividend that does not change overtime consequently. For investment purposes, preferred stock is considered a fixed income security.

Canadian official projects 8.5% contraction in Q1 GDP

Canadian official projects 8.5% contraction in Q1 GDP

Canada's GDP is headed toward a first-quarter contraction of 8.5%, said Kevin Page, the Canadian Parliament's independent budget officer. If Page's projections are correct, Canada will suffer this year its worst economic conditions since the end of World War II, a finance critic from the Liberal Party said. Page said he was handicapped by the government's refusal to give him some of the data he needed. Financial Post (Canada)/Reuters .

Break Even Analysis

Break Even Analysis

It is the point at which total variable and fixed costs are compared with sales revenue in order to determine the level of sales volume, sales value or production at which the business makes neither a profit nor a loss.

One of the most common tools used in evaluating the economic feasibility of a new enterprise or product is the break-even analysis. The break-even point is the point at which revenue is exactly equal to costs. At this point, no profit is made and no losses are incurred. The break-even point can be expressed in terms of unit sales or dollar sales. That is, the break-even units indicate the level of sales that are required to cover costs. Sales above that number result in profit and sales below that number result in a loss. The break-even sales indicates the dollars of gross sales required to break-even.

Break even point (for output) = fixed cost / contribution per unit

Contribution per unit= selling price (p.u) - variable cost (p.u)

Break even point (for sales) = fixed cost / contribution (pu) * Selling price (pu)

Fixed Costs

Fixed costs are those business costs that are not directly related to the level of production or output. i-e, even if the business has a zero output or high output, the level of fixed costs will remain broadly the same.

Examples are;

Admin expenses
Rent of office building
Marketing and research cost
etc.

Variable Costs

Variable costs are those costs which vary directly with the level of output.

Examples are;

Manufacturing expenses i-e labour cost, raw material cost etc

Assumptions are:

It assumes that fixed costs (FC) are constant.
It assumes average variable costs are constant per unit of output, at least in the range of likely quantities of sales.
It assumes that the quantity of goods produced is equal to the quantity of goods sold

Illustration

Abc limited has following monthly data. calculate break even point.

Average Selling price per unit $ 10
Average Variable cost per unit $ 6
Fixed cost (Estimated) $ 20,000

Break Even analysis

Monthly Sales (units) 5,000
Monthly Sales ($) 50,000

Therefore, no profits are made from the sale of this product until more than 5,000 units are sold or more than $ 50,000 in gross sales is generated.

Break-even analysis can be very helpful in the evaluation of a new venture. In most instances, success takes time.Many new enterprises and products actually operate at a loss (at a point below break-even) in the early stages of development. Knowing the price or volume necessary to break-even is critical to evaluating the time-frame in which losses are permissible. The break-even is also an excellent benchmark by which a company’s short-termgoals can be measured/tracked. Break-even analysis mandates that costs be analyzed. It also keeps a focus
connection between production and marketing.

SYSTEM SOFTWARE & APPLICATION SOFTWARE

SYSTEM SOFTWARE & APPLICATION SOFTWARE


The system software controls the computer. It communicates with computer’s hardware(key board, mouse, modem, sound card etc) and controls different aspects of operations.

It includes following sub categories:

o Operating system
o Device drivers
o Utilities

Operating system

An operating system is the program that manages all the other programs in a computer. It is a integrated collection of routines that service the sequencing and processing of programs by a computer.
So it is the the software responsible for controlling the allocation and usage of hardware resources such as memory, central processing unit (CPU) time, disk space, and peripheral devices.

Device driver

The device driver software is used to communicate between the devices and the computer. We have monitor, keyboard and mouse attached to almost all PC’s; if we look at the properties of these devices we will see that the operating system has installed special software to control these devices. This piece of software is called device driver software. When we attach a new device with the computer, we need software to communicate with this device. These kinds of software are known as device drivers e.g.CD Rom driver, Sound Card driver and Modem driver.

Utility Software

Utility software is a program that performs a very specific task, usually related to managing system resources. You would have noticed a utility of Disk Compression.Whenever you write a file and save it to the disk, Compression Utility compresses the file (reduce the file size) and write it to the disk and when you request this file from the disk, the compression utility uncompressed the file and shows its contents. Similarly there is another utility, Disk Defragmentation which is used to defragment the disk. The data is stored on the disks in chunks, so if we are using several files and are making changes to these files then the different portions of file are saved on different locations on the disk. These chunks are linked and the operating system knows how to read the contents of file from the disk combining all the chunks. Similarly when we delete a file then the place where that file was stored on the disk is emptied and is available now to store other files. As the time goes on, we have a lot of empty and used pieces on the disk. In such situation we say that the disk is fragmented now. If we remove this fragmentation the chunks of data on the disk will be stored close to each other and thus reading of data will be faster.For the purpose of removing fragmentation on the disk the Defragmentation utility is used.

Application software

A program or group of programs designed for end users. For example a program for Accounting, Payroll, Inventory Control System, and guided system for planes. GPS (global positioning system), another application software, is being used in vehicles, which through satellite determines the geographical position of the vehicle.

Most Popular Application Software Categories are:

Web browsers
Email clients
Word processors

The Global Information Technology Report 2008-2009

The Global Information Technology Report 2008-2009

The Report stresses the importance of ICT as a catalyst for growth in the current global turmoil

Denmark and Sweden once again lead the rankings of The Global Information Technology Report 2008-2009, released for the eighth consecutive year by the World Economic Forum. The United States follows suit, up one position from last year, thus confirming its pre-eminence in networked readiness in the current times of economic slowdown. Singapore (4), Switzerland (5) and the other Nordic countries together with the Netherlands and Canada complete the top 10.
The Report underlines that good education fundamentals and high levels of technological readiness and innovation are essential engines of growth needed to overcome the current economic crisis. Under the theme “Mobility in a Networked World”, this year’s Report places a particular focus on the relationship and interrelations between mobility and ICT.
With record coverage of 134 economies worldwide, the Report remains the world’s most comprehensive and authoritative international assessment of the impact of ICT on the development process and the competitiveness of nations.
The Report is produced by the World Economic Forum in cooperation with INSEAD, the leading international business school, and is sponsored by Cisco Systems.

For more details

The Global Information Technology Report 2008-2009

Decision Making and Quantitative and Qualitative Factors in Decision Making:

Decision Making

Decision making is the cognitive (outcome of mental process) process of selecting a course of action from among multiple alternatives.

Quantitative and Qualitative Factors in Decision Making:

The Quantitative Factors are:

Investment appraisal
Break-even analysis
Sales forecasting
Critical path analysis
Decision trees etc.

The Qualitative Factors are

Stakeholder analysis
SWOT( Strengths , Weaknesses, Opportunities and Threats )
etc.

Decision-making process

A) Intelligence

It is Identifying the problems occurring in an organization. MIS is the major source for the
managers to be aware of problems.

B) Design

It is the inventing, developing, and analyzing possible courses of action.

C )Choice

It is selecting a course of action from those available i-e what kind of strategies there are.

D) Implementation

It is implementing the selected course of action & its proper communication to all.

E) Monitoring

It is checking the consequences of the decision made after its implementation (qualitative as well as quantitative).


Type of Decisions

1) Structured decisions

Where problem is recurring and repetitive, the common factors can be identified in order to identify a course of action. Due to which defined set of procedure can be devised for their solution. So it leads to clearly specified inputs and outputs & objectives.

2) Un-structured decisions

When problems are non routine, critical and novel in nature, they require individual judgment, evaluation and insight varying on case-to-case basis. There is no well defined procedure for treat these problems. For such situations, predefined policy cannot be devised. However, once the problem has been figured out, a policy may be devised to handle the problem in future.

3) Semi-structured Decisions

The term is used to refer to the grey area of decisions which lie between the two extremes. Some (but not all) structured phases and often solved using standardized solution procedures and human judgment.
Similarly problems are also categorized as structured, Semi structured & unstructured.
Nature of problem determines the approach to decision making to be followed to solve it

DECISION TIME FRAMES


To study the relationship between a firm’s output decision and its costs, we distinguish between two decision’s time frames:

(1) The Short Run

It is the time frame in which the Qty of at least one factor of production is fixed. For most firms, capital, land and entrepreneurship are fixed factors of production and labor is the variable factor of production. We call the fixed factors of production, the firm’s plant. In the short run, a firm’s plant is fixed.

(2)The Long Run

It is the time frame in which the quantities of all factors of production can be varied. I.e. the long run is a period in which the firm can change its plant. To increase output in the long run, a firm is able to choose whether to change its plant as well as the quantity labor it lines.

FLOAT,DISBURSEMENT FLOAT AND COLLECTION FLOAT

FLOAT,DISBURSEMENT FLOAT AND COLLECTION FLOAT

FLOAT

The difference between bank cash and book cash, representing the net effect of
cheques in the process of clearing is called float.

DISBURSEMENT FLOAT

Cheques written by a firm generate disbursement float, causing a decrease in the
firm’s book balance but no change in its available balance.

ABC LTD has $150,000 on deposit with its bank.
• On June 15, it buys some raw material and pays with a cheque for $150,000. reducing
the book balance by $150,000 immediately.
• ABC’s bank is unaware of this activity until the cheque is presented, say June 29 and
the firm’s available balance is greater than it’s book balance by $150,000.
• Before June 15, the ABC’s float is zero:
Float = Firm’s available balance –Firm’s book balance
= $150,000 – 150,000 = 0
• Form June 15 to June 29, the position is:
Disbursement Float = Firm’s available balance –Firm’s book balance
= $150,000 – 0 = 150,000

COLLECTION FLOAT

Cheques collected by the firm create collection float, which increases book balances
but does not immediately change available balance.

NET FLOAT

In general, the firm’s payment activities generate disbursement float and its collection
activities generate collection float.

• The net effect, the sum of both floats is the net float, equal to the overall difference
between the firm’s available balance and its book balance.

• If net float is positive, then the firm’s disbursement float exceeds its collection float
and its available balance exceeds its book balance, and vice versa.

• Suppose you have $50,000 on deposit.
• One day, you write a cheque for $10,000 and deposit $20,000.
• What are your disbursement, collection and net floats?
• After writing the cheque, you show a balance of $40,000 on your books, but bank
shows $50,000 while the cheque is clearing. So you have a disbursement float of
$10,000
• Depositing $20,000 increases the book balance to $60,000, but the available balance
remains the same until the cheque clears. So collection float is -$20,000.
• Net float = $10000 + (-20,000) = -$10,000