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# Month: August 2009

## CPI – Consumer Price Index

Consumer Price index(CPI)  is the average price of product and services purchase by the consumers. Where The GDP price index measure the rate inflation of all products and services on the other hand CPI indicates the change in consumer prices for the defined time period, increase in index shows the level of inflation at consumer end.  There are many different CPI is calculated by region,types of products, types of consumer etc. The most common CPI is CPI-U, which is CPI for urban area because maximum percentage of products are purchased in urban areas. CPI is calculated for the given basket of goods to determine the change in index on monthly or annually. Formula to Calculate CPI CPI = Basket in any given year/ Price of the same Market * 100 CPI =  \$300/\$200 * 100 = 150 CPI Uses Consumer Inflation Consumer price index show the change in consume products in a given period of time. Deflator of other economic series The CPI and its components are used to adjust other economic series for price change and to translate these series into inflation-free dollars. Adjusting income payments and Taxes Over 2 million workers are covered by collective bargaining agreements which tie wages to the CPI. The index affects the income of almost 80 million people as a result of statutory action: 47.8 million Social Security beneficiaries, about 4.1 million...

## EBIT (Earnings before Interest and Tax)

EBIT stands for “Earnings before interest and tax”; this term is a part of income statement indicates the earning including interest amount and tax. The other common term used for EBIT are operating profit and operating earnings. EBIT Explaination Let me explain the terms in EBIT in detail Earning – Earning is the profit of organization Interest – The surplus amount which organization pay on debt Tax – Amount which organization pays to Government on sales or services. Calculation of EBIT EBIT can be determined by using this formula (total sales – cost of goods sold – operating expenses). Total sales is the revenue received after selling the product or services Costs of goods sold are the purchasing cost of the raw material and direct labor used for the production of goods. An operating expense, operating expenditure, operational expense, operational expenditure or OPEX is an on-going cost for running a product, business, or system. Net Sales – Cost of Goods Sold ————————————- Gross Profit – Operating Expense ———————————— EBIT (Earnings before Interest and Tax) Advantages and Disadvantages of EBIT An advantage of EBIT that it is easy to calculate and understand on the otherhand disadvantage is that it does not include the cost of...

## Market Segmentation

Market is composed of buyers, and buyer are not same in taste and preferences regarding to product and services. Every individual buyer view is different about any product, developing,marketing and selling the products on assumptions waste the investment made on different marketing programs. Marketing is the art and science of reading buyer’s mind, companies looking for offering the products by identifying the needs,wants and eager to provide solutions in the form of product will win the race in long term. Bad products not always failed in the market but offering a good product in a low demand market result in failure. It’s for sure there is no company which can claim that they cover complete world markets. Due to limited resources company should try to look for the market where return on investment is high can be called attractive market. Dividing the heterogeneous market into different distinct group on basis of needs,characteristics  or behavior is called market segmentation.Among different segments company can find the most attractive segment but it can be only possible if a detailed research study is conducted and result are evaluated in a proper manner.Rather then offering same marketing mix to all the segments company can tailor it for target segment. Before selecting the segment Organization should keep in mind the following points. – Profitable enough – Scalable for marketing and distribution activity. – Not change...

Advancement in technologies like Internet people can easily share their information by adapting modern way of communication. The world becomes global village due to which the organizations have to make certain vital decision to gain the competitive advantage. To survive and win in this age of globalization organization must adapt the fundamental success drivers to gain the competitive advantage over their rivals.The competitive advantage is consider as asset for the organization to survive and compete in the industry. Following are the four fundamental success drivers. 1.    Cost Competitiveness 2.    Quality 3.    Speed 4.    Innovation Cost Competitiveness Cost competitiveness is all about by keeping the price low by realizing the profits. If we find out most of the people have limited earnings. Keeping the cost low increases attractiveness of your product and people not feel hesitant to buy your products. But keeping the cost low is not easy to manage for most of the companies. It is possible by managing resources, labor, manufacturing, and marketing. Examples, •    Dell computers are one of the best companies of the world dealing in computers they provide computers in affordable prices and deal online in the Internet. •    Chinese products dominating the Asian market by keeping the price low of products. •    Major company like Intel establish manufacturing plats to cheap labor countries like china, Pakistan , India  and Bangladesh by managing labor, manufacturing...

## Downsizing

Reducing the size of the organization or reducing number of employees in the organization is called downsizing. Downsizing is a critical decision take by organization and human resource management have important role to play in this context. This pattern seems to represent a “churning” of employees.  Organizations were laying off employees with outdated skills or cutting whole businesses that were in declining markets while simultaneously building businesses and employee bases in newer, higher-growth markets. Initially layoff refer to the temporary suspension of the employees but now this term also refer to the permanent suspension of the employees. Reasons of Downsizing Organization take downsizing decision  due to several reasons some of them are mention below. Mergers When two organization in same industry take the decision to combine their resources for exploiting opportunities and reduce their cost.Downsizing take place in mergers because their are more than one person for the single position, so company have to take rational decision to layoff some employees. Acquisition One organization purchase other results in change management. Mostly stakeholders take decision to layoff employees to cut the cost and Increase revenues and profits. Economics crisis Recession or depression  lead to the financial crises in the organization. To avoid losses organization have to reduce the number of employees. Change management Processes,procedure or higher management change can also result in downsizing. Optimization Due to intense competition companies sometimes...

## Porter Generic Strategies

Long term survival for the organization in the industry is difficult in today complex environment where national boundaries are transparent, competition is complex and external environment can change at any time. The word change always remain same for the organizations,  not updating products and services soon means that you will be soon out of the industry. Porter suggested three strategies for the organization to retain the long term sustainable competitive advantage. The strategies are called as cost leadership, differentiation and focus, company can adapt one or more than strategies depends upon the resources and the level of competition. Cost leadership Cost leadership strategy best fit in the industry where the customers are price sensitive and change in price impact on demand.  Utilization of assets, refine processes can reduce the cost. If the organization have the ability to control over production  cost of product and service and easily quote low prices for their offering in the market by maintaining good quality. The organization can also survive in the situation when the country economic conditions are at low level and inflation increases with speed. Dell computer provide personal computer and laptops at lower cost to their customers without sacrificing the quality because they have well defined processes and procedures. Southwest Airlines offer low cost traveling with comfort, elimination of cost is possible for southwest by route selection and not providing extra...

## Intensive Growth Strategies: Ansoff’s Product-Market Expansion Grid

The Ansoff’s model is one of the best tool which companies to develop market and product expansion strategies.Ansoff’s  model is based upon four type of strategies namely market penetration strategy, market development strategy, product development strategy and diversification strategy. The strategy is also dependent on company objectives include increasing sales, increasing profit, enter into new market, develop new product and enter into new business. Ansoff’s Product-Market Expansion Grid Now we’ll discuss the four intensive growth strategies in detail. Market penetration strategy The first strategy company is looking to adapt for increasing there sales and profits. Marketing efforts of the company to offer their existing products in the current markets is called market penetration strategy. The best way to do this to attract competitors customer and looking for potential customer for the existing products. Market Penetration Figure The penetration that brands and products have can be recorded by companies such as ACNielsen and TNS who offer panel measurement services to calculate this and other consumer measures. In these cases penetration is given as a percentage of a country’s households who have bought that particular brand or product at least once within a defined period of time. Examples of Market penetration strategy Recognizing that software as a service can be a potent market penetration tool, Dell is assembling a services portfolio that now includes e-mail disaster recovery, spam/virus filtering and archiving...

## Debits and Credits in Accounting

Debits and credits are the accounting terminologies which are used to describe the increase or decrease in the financial components. Any movement in these components can be specified by using the term debits and credits. In T-accounts, left column represents debits while right column represents credits.  Rules of Debits and Credits There are five components of financial statements • Asset • Liability • Capital • Expense • Revenue Each Component has its own criteria for debits and credits. Sometimes students may face a general problem in specifying when to use debit or credit terminology so to tackle these problems there is a general rule. See the Table A below  In table you can notice when there is increase in asset and expense they are debited and when there is a decrease they are credited. On the other hand Liability, Capital and Revenue, when they are increased they are credited and debited when decreased. Illustration: 1 John bought a car of 3000\$ from Dj motors on credit.The above transaction is hitting two heads i.e. asset, “a car and liability, Dj motors. In john books of accounts, his assets and liabilities both are increasing so for assets he has to debit a car and for liability he has to credit Dj motors. Following journal entry will appear in his books: Illustration: 2  John paid electricity charges amounting to 50\$ so hence...

## SWOT OR TOWS Analysis (TOWS Matrix)

SWOT is the acronym for strength, weakness, opportunities and strengths  whereas TWOS is the acronym for threats,weakness,opportunities and strengths both refers to the same thing. SWOT or TWOS analysis use by the firm to develop strategies or we can say possible set of strategies. Strategist prefer SWOT or TWOS because it gives alternative set of strategies which help the firm to choose the strategies suit the firm in terms of available resources. SWOT analysis is not only the part of strategic management, it’s also the part of marketing, human resource and other business areas. In this tutorials we will discuss the way to develop TOWS matrix and its attributes in detail and also give examples to show firm develop strategies using TOWS or SWOT matrix. What are the things need to be included in TOWS or SWOT matrix? TOWS or SWOT matrix as discussed above consist of strength, weakness opportunities and threats, using these variety of strategies are developed. The most common tabular form of the SWOT or TWOS is shown in the figure below. I would like to explain strengths,weakness opportunities and threats before going into details to make easier for the readers unfamiliar to this topic. Strengths Strengths are the strong areas or attribute of the company, which are used to overcome weakness and capitalize to take advantage of the external opportunities available in the industry. Weakness Weakness...