Schem of Evaluation Financial Analysis and Project Management-Key

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1A) Branches of Accounting

Augmented level of business operations has made management purpose more difficult. This has
given rise to particular branches in accounting. The key branches of accounting are Financial
Accounting, Cost Accounting and Management Accounting. (1M)

Financial Accounting: Financial Accounting is based on a methodical system of recording

transactions of any business according to the accounting principles. It is apprehensive with
recording business transactions in the books of accounts in such a way that operating result of a
exacting period and financial situation on a exacting date can be known. (2M)

Cost Accounting: Cost accounting deals with evaluating the cost of a product or service offered.
It relates to collection, classification and ascertainment of the cost of production or job
undertaken by the firm. The purpose of cost accounting is to facilitate the management in fixing
the prices and controlling the cost of production. (2M)

Management Accounting: This branch of accounting provides information to management for

improved management of the business. It relates to the use of accounting data collected with the
help of financial accounting and cost accounting for the reason of policy formulation, planning,
control and decision making by the management. (2M)

1B) Profitability Ratios

What Are Profitability Ratios?

Profitability ratios are a class of financial metrics that are used to assess a business's ability to
generate earnings relative to its revenue, operating costs, balance sheet assets, or shareholders'
equity over time, using data from a specific point in time. (1M)

Types of Profitability Ratios(6M)

The following types of profitability ratios are discussed for the students of Class 12 Accountancy
as per the new syllabus prescribed by CBSE:
1. Gross Profit Ratio
2. Operating Ratio
3. Operating Profit Ratio
4. Net Profit Ratio
5. Return on Investment (ROI)
6. Return on Net Worth
7. Earnings per share
8. Book Value per share
9. Dividend Payout Ratio
10. Price Earning Ratio
3A) Advantages and Limitations of profit maximization

Profit maximization is the ability of a business or company to earn maximum profit with low

cost which is considered as the main goal of any business and also considered as one of the
objectives of financial management. Profit maximization is a short term objective of the firm and
is necessary for the survival and growth of the enterprise. (1M)

The advantages of Profit Maximization are as follows: –(3M)

 Economic Existence: – The foundation of profit maximization theory is profit and profit is
essential for the economic survival of any company or business.
 Performance Standard: – Profit determines the standard of performance of any business or
company. When a business is unable to earn profit, it fails to fulfill its main goal and creates a
risk to its existence.
 Economic and Social Welfare : – Profit maximization theory plays a role in economic and
social welfare indirectly. When a business makes a profit, it makes proper use and allocation
of resources that result in capital, fixed assets, labor and payments for the organization. Thus,
economic and social welfare is done.
The disadvantages of Profit Maximization are as follows: –(3M)
 Ambiguity of Benefit Concept: – The concept of profit is uncertain as different people may
have a different idea about profit, such as profit may be EPS, gross profit, net profit, profit
before interest and tax, profit ratio etc. In particular, no fixed profit-maximizing rule or
method actually exists.
 Does Not Consider Time Value of Money : – The profit maximization principle simply
states that the higher the profit, the better the performance of the business. The theory
considers only profit without considering the time value of money. The concept of time value
of money states that a certain unit of money today will not be equal to the same unit of money
a year later.
 Does Not Consider the Risk : – Any business decision considering only the profit
maximization model ignores the risk factor involved which may be detrimental to the survival
of the business in the long run. Because if the business is unable to handle the high risk, its
existence will be in question.

4A) NPV Advantages and Disadvantages (7M for total Explanation )

4B) What is Wealth Maximisation?

The idea of wealth maximisation has its roots in the economics of cash flows. Profit is a key part
of wealth maximisation, so decision-making is based on cash flows. If the project is profitable,
its net present value will exceed the expected rate of return. (1M)

This process of wealth maximisation allows investors to predict the net present value of the
investment accurately and identify the underlying cause for its success. (1M)

This article highlights the definition, examples of wealth maximisation from business,
advantages and a few intricacies. (1M)

Did you Know? (4M)

Value of shareholders is a commercial term that is sometimes referred to in the context of the
"shareholder value" or "maximisation of shareholder value" model, meaning that the sole
measure of the success of a business is beneficial to investors. It was popularised in the 1980s
and 1990s in conjunction with the management concept of value-based decision making.

5A) What is Wealth Maximization?

What Is Cost of Capital?

Cost of capital is a company's calculation of the minimum return that would be necessary in
order to justify undertaking a capital budgeting project, such as building a new factory. (1M)

The term cost of capital is used by analysts and investors, but it is always an evaluation of
whether a projected decision can be justified by its cost. Investors may also use the term to refer
to an evaluation of an investment's potential return in relation to its cost and its risks. (1M)

Many companies use a combination of debt and equity to finance business expansion. For such
companies, the overall cost of capital is derived from the weighted average cost of all capital
sources. This is known as the weighted average cost of capital (WACC). (1M)

Understanding Cost of Capital

The concept of the cost of capital is key information used to determine a project's hurdle rate. A
company embarking on a major project must know how much money the project will have to
generate in order to offset the cost of undertaking it and then continue to generate profits for the
company. (1M)

Cost of capital, from the perspective of an investor, is an assessment of the return that can be
expected from the acquisition of stock shares or any other investment. This is an estimate and
might include best- and worst-case scenarios. An investor might look at the volatility (beta) of a
company's financial results to determine whether a stock's cost is justified by its potential
return. (1M)

Weighted Average Cost of Capital (WACC)

A firm's cost of capital is typically calculated using the weighted average cost of capital formula
that considers the cost of both debt and equity capital. (1M)

Each category of the firm's capital is weighted proportionately to arrive at a blended rate, and
the formula considers every type of debt and equity on the company's balance sheet,
including common and preferred stock, bonds, and other forms of debt. (1M)

5B) Advantages and Disadvantages of Financial leverages (7M for total Explanation )
6A) Types of Dividends

There are various types of dividends a company can pay to its shareholders.  Below is a list and a
brief description of the most common types that shareholders receive. (1M)

Types include: (6M)

 Cash – this is the payment of actual cash from the company directly to the shareholders
and is the most common type of payment. The payment is usually made electronically
(wire transfer), but may also be paid by check or cash.
 Stock – stock dividends are paid out to shareholders by issuing new shares in the
company. These are paid out pro-rata, based on the number of shares the investor already
owns.
 Assets – a company is not limited to paying distributions to its shareholders in the form
of cash or shares.  A company may also pay out other assets such as investment
securities, physical assets, and real estate, although this is not a common practice.
 Special – a special dividend is one that’s paid outside of a company’s regular policy (i.e.,
quarterly, annual, etc.). It is usually the result of having excess cash on hand for one
reason or another.
 Common – this refers to the class of shareholders (i.e., common shareholders), not
what’s actually being received as payment.
  Preferred – this also refers to the class of shareholders receiving the payment.
 Other – other, less common, types of financial assets can be paid out as dividends, such
as options, warrants, shares in a new spin-out company, etc.
6B) 4 Main Components of Working Capital?

The four main components of working capital are:

 Cash and cash equivalents(2M)

 Accounts receivable (AR) (2M)
 Inventory(1M)
 Accounts payable (AP) (2M)

Cash, AR, and inventory are three items in your company’s asset column, while AP is a liability.
Let’s examine each of these four elements in greater detail.

7A) Project Management

1. A project has a lifecycle, underpinned by a plan, which is the path and sequence through
the various activities defined to produce its products. Project management is a controlled
implementation of the project plan under the direction of the organisation’s senior
management. (1M)
2. Traditionally, a successful project is one that has delivered its products or services
according to the project plan, meeting overall business objectives. (1M)
3. Project success is now seen more and more in terms of delivering projected
business benefits or the capability required for benefits delivery within the business.
(1M)
4. The Queensland Government's model for strategic management, Managing for
Outcomes, provides an integrated approach to planning, budgeting and performance
management. Resource and operational strategies should be further developed and
documented in conjunction with the development of the project brief in the project
definition stage. (1M)

Activities involved in the project definition stage encompass:

 undertaking of pre-design studies; and

 preparation of the project brief.

5. Departments may need to commission pre-design studies to adequately define a

project. The project brief developed in the project definition stage details client
needs and requirements and establishes the appropriate standard for the design.
At a portfolio level, accommodation guidelines may be developed to establish a
department's generic standards and specific building requirements. (1M)
 6. The project definition stage concludes with the completion of a project brief
that provides project managers and design teams with detailed information that
can be translated into successful building designs for further development in the
project delivery phase. (1M)
7. Business cases undertaken for building projects in the project evaluation phase
of project development, pre-design studies and relevant accommodation
guidelines are key elements which form the basis for development of project
briefs. (1M)

7B) Project Life Cycle

Projects are part and parcel of our professional life. In the world of ever-changing technology
and business trends, project management is in great demand. In this Topic, we are going to learn
about the Project management life cycle. (1M)

According to PMI, a project is defined as temporary with a definite beginning and end in time.
Also, the project is unique without routine operation and meant to meet the singular goal with a
specific set of operations. PMI further defines project management as the application of
knowledge, skills, tools, and techniques to project activities to meet the project requirements.
(1M)

Whether the project is software development, or new product launch, or even a movie, its
management will progress through five life cycle phases.

Phases of Project Management Life cycle (5M)

Here are the five life cycle phases of project management:
8A) ) Project Risks

A risk is anything that could potentially impact your project’s timeline, performance or budget.
Risks are potentialities, and in a project management context, if they become realities, they then
become classified as “issues” that must be addressed with a risk response plan. So risk
management, then, is the process of identifying, categorizing, prioritizing and planning for risks
before they become issues. (1M)
Risk management can mean different things on different types of projects. On large-scale
projects, risk management strategies might include extensive detailed planning for each risk to
ensure mitigation strategies are in place if issues arise. For smaller projects, risk management
might mean a simple, prioritized list of high, medium and low priority risks. (2M)
How to Manage and analyze Risk
To begin managing risk, it’s crucial to start with a clear and precise definition of what your
project has been tasked to deliver. In other words, write a very detailed project charter, with your
project vision, objectives, scope and deliverables. This way risks can be identified at every stage
of the project. Then you’ll want to engage your team early in identifying any and all risks. (2M)

Don’t be afraid to get more than just your team involved to identify and prioritize risks, too.
Many project managers simply email their project team and ask to send them things they think
might go wrong on the project. But to better plot project risk, you should get the entire project
team, your client’s representatives, and vendors into a room together and do a risk identification
session. (2M)
With every risk you define, you’ll want to log it somewhere—using a risk tracking template
helps you prioritize the level of risk. Then, create a risk management plan to capture the negative
and positive impacts of the project and what actions you will take to deal with them. You’ll want
to set up regular meetings to monitor risk while your project is ongoing. Transparency is critical.

8B) Methods of Risk

Make sure the risks are rooted in the cause of a problem. Basically, drill down to the root
cause to see if the risk is one that will have the kind of impact on your project that needs
identifying. When trying to minimize risk, it’s good to trust your intuition. This can point
you to unlikely scenarios that you just assume couldn’t happen. Use a risk breakdown
structure process to weed out risks from non-risks. (1M)
1. Analyze the Risk
Analyzing risk is hard. There is never enough information you can gather. Of course, a
lot of that data is complex, but most industries have best practices, which can help you
with your risk analysis. You might be surprised to discover that your company already
has a framework for this process. (1M)
2. Prioritize the Risk
Some risks are going to require immediate attention. These are the risks that can derail
your project. Failure isn’t an option. Other risks are important, but perhaps do not
threaten the success of your project. You can act accordingly. Then there are those risks
 that have little to no impact on the overall project’s schedule and budget. Some of these
low-priority risks might be important, but not enough to waste time on. (1M)
3. Assign an Owner to the Risk
Think about it. If you don’t give each risk a person tasked with watching out for it, and
then dealing with resolving it when and if it should arise, you’re opening yourself up to
more risk. It’s one thing to identify risk, but if you don’t manage it then you’re not
protecting the project. (1M)
4. Respond to the Risk
Now the rubber hits the road. You’ve found a risk. All that planning you’ve done is going
to be put to use. First you need to know if this is a positive or negative risk. Is it
something you could exploit for the betterment of the project? If not you need to deploy
a risk mitigation strategy. (1M)
5. Monitor the Risk
You can’t just set forces against risk without tracking the progress of that
initiative. That’s where the monitoring comes in. Whoever owns the risk will be
responsible for tracking its progress towards resolution. But you will need to stay updated
to have an accurate picture of the project’s overall progress to identify and monitor new
risks. (1M)