Stages of Marketing

1. Entrepreneurial Marketing:
Most companies are started by individuals who visualize an opportunity and knock on every door to gain attention.

2. Formulated Marketing
After achieving success by small companies, they do marketing department carries market research, adopting some of the tools used in profession.
Latest ratings, scanning research reports, trying to fine-tune dealer relations and ad messages.

3. Intrepreneurial Marketing :
Large companies stuck in formulated due to lack of creativity and passion.
Brand and product mangers start to living with their customers and visualizing new ways to add value to their consumers lives.


Src : Marketing management Kotler

Present value Interest Factor PVIF

A factor that can be used to simplify the calculation for finding the present value of a series of values. PVIFs can be presented in the form of a table with PVIF values seperated by respective period and interest rate combinations.

Pay back Period

 What is the payback period? What are the advantages and limitations of using this method?

PP is the simplest method of looking at one or more investment projects or ideas. This method focuses on recovering the cost of investments.  PP represents the amount of time that it take

For a capital budgeting project to recover its initial cost.

            (cost of proj /Investment )

    PP =     -------------------------------

          Annual cash inflows

Eg:  proj cost $200,000, and returns of proj 40,000 annually.

PP here is   $200,000 /40,000 = 5 years.

 

Advantage: Easy to calculate

 

Problems:

1. It ignores benefits occur after Payback period, and so does not measure the total incomes
2. PP ignores the Time value of Money.

Agency Cost

[A] : 

What Does Agency Costs Mean?

A type of internal cost that arises from, or must be paid to, an agent acting on behalf of a principal. Agency costs arise because of core problems such as conflicts of interest between shareholders and management. Shareholders wish for management to run the company in a way that increases shareholder value. But management may wish to grow the company in ways that maximize their personal power and wealth that may not be in the best interests of shareholders.

Src: http://www.investopedia.com/terms/a/agencycosts.asp

[B]

An agency cost is an economic concept that relates to the cost incurred by an entity (such as organizations) associated with problems such as divergent management-shareholder objectives and information asymmetry. The costs consist of two main sources:

1. The costs inherently associated with using an agent (e.g., the risk that agents will use organizational resource for their own benefit) and
2. The costs of techniques used to mitigate the problems associated with using an agent (e.g., the costs of producing financial statements or the use of stock options to align executive interests to shareholder interests).

Though effects of agency cost are present in any agency relationship, the term is most used in business contexts.

Src://http://www.absoluteastronomy.com/topics/Agency_cost

Difference between Stock price and Profit Maximization

[A]

Stock price maximizing = percentage increase in the price of a stock.
Profit maximizing = percentage increase in the amount invested. Which would be stock price increase minus the cost of investing. 
Profit maximizing should be the goal. So you would try to reduce the cost of investing: trading costs and fees.

[B]

the difference between the stock price and profit in terms of timing difference. Stock price incorporates every facet of what investor expect to see from his investment agent i.e. future investment opportunty, any incurred business constraints, government regulations to effect company's value, etc while profit focuses on what is realized explicitly from invested money which is shown in income statement. Logically, this two stuff is different in light of pre-post rationale.

Thus, stock price movement is strongly relied on market expectation on that stock. Any relevant incident either to boost up or dampen the value of company will be well-calulated and reflexed into the price. To maximize stock price, that company need to create a viable business to ensure the stability of future cash flows, any revenue enhancements and cost reductions will create value given that action will not negatively affect future cash flows. 
The cost reduction that won't or potentially undermine value is the reduction of project investments, innovations and risk management because those action will increase risk and lessen competitiveness.
To maximize profit, the company can do it by maximizing revenue and minimized both operational cost and financial cost. Some measures to spur sales are extending the flavorable term of payment to customers (this will increase the accounts receivable), sales promotions, etc. while operational and financial cost reduction can be achieved by sophisicate capital budgeting and opimal cost of capital.

Profit Maximization Problem :

Because it does not consider the riskiness of returns and it ignores the timing of returns. Because it does not consider the riskiness of returns and it ignores the timing of returns. 

Src: http://www.askmehelpdesk.com/investing/difference-between-stock-price-maximization-profit-maximization-37223.html

Agency Problem

Agency problem is the problem or conflict between the management of the company the the owner or principal of the company. The problem or conflict comes from the different interest of management and owner. This problem will affect the performance of the company and also the financial decision of the company such as when the company want to issue the new stock or the new bond.

Besides, the companies must run the business in the best interest of all stakeholders. One of the stakeholders is the shareholder. In order to achive that goal today many companies implement the corporate governance system. The corporate governance system is used to make sure that the management of the company can run the company in the best interest of all stakeholders. Because shareholders are part of stakeholder, therefore the corporate governance system can also reduce the agency problem

1. Principal-Agent Problem.

where one party, called an agent, acts on behalf of another party, called the principal. The agent usually has more information about his or her actions or intentions than the principal does, because the principal usually cannot perfectly monitor the agent. The agent may have an incentive to act inappropriately (from the viewpoint of the principal) if the interests of the agent and the principal are not aligned.

2. Moral hazard

Moral hazard is related to information asymmetry, a situation in which one party in a transaction has more information than another. The party that is insulated from risk generally has more information about its actions and intentions than the party paying for the negative consequences of the risk. More broadly, moral hazard occurs when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information.

3. Adverse Selecction

The term adverse selection was originally used in insurance. It describes a situation where an individual's demand for insurance (either the propensity to buy insurance, or the quantity purchased, or both) is positively correlated with the individual's risk of loss (e.g. higher risks buy more insurance), and the insurer is unable to allow for this correlation in the price of insurance. This may be because of private information known only to the individual (information asymmetry), or because of regulations or social norms which prevent the insurer from using certain categories of known information to set prices (e.g. the insurer may be prohibited from using information such as gender or ethnic origin or genetic test results).

Src:http://en.wikipedia.org

Goals of Financial Manager

  Finance integrates the concepts from economics,Accounting and many other areas.

* It is the study of relationship of Rish to Return is a central focus.

* The primary goal of finance  Manager is to maximize the value of

    wealth of shareholders.

* Financial Manager try to maximize the wealth by daily activities like

   Credit and Inventory management and Long-term by raising Funds.

* Finance Manager must consider both domestic and International business conditions before taking any decisions.

Goals:

1 . Survival of the organization.

2. Avoiding Bankruptcy

3. Maximize market share.

4.  Maximize cost

5.  Maximize Profit.

Concerns:

    Maximizing the profit may not be in stockholder's interest.

Maximize the wealth of the owners, the stock holders, i.e., to maximize today’s stock price.