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LECTURE NOTES ON
BUSINESS ECONOMICS AND FINANCIAL
ANALYSIS
B.Tech V Semester
Prepared by
Dr. E Sunitha, Associate Professor, MBA
Dr. T Vara Lakshmi, Associate Professor, MBA
Mr. M R S Surya Narayana Reddy, Assistant Professor, MBA
Ms. I Sireesha, Assistant Professor, MBA
Ms. K Lakshmi Revathi , Assistant Professor, MBA
Ms. S Lakshmi, Assistant Professor, MBA
Ms. G Joseph Mary, Assistant Professor, MBA
Ms. B Tulasi Bai, Assistant Professor, MBA
INSTITUTE OF AERONAUTICAL ENGINEERING
(Autonomous)
Dundigal, Hyderabad – 500043
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BUSINESS ECONOMICS AND FINANCIAL ANALYSIS
V Semester: ECE | IT | CSE | MECH | CIVIL | EEE
Course Code Category Hours / Week Credits Maximum Marks
L T P C CIA SEE Tota
AHS015 Skill l
2 1 - 3 30 70 100
Contact Classes: 30 Tutorial Classes: 15 Practical Classes: Nil Total Classes: 45
COURSE OBJECTIVES:
The course should enable the students to:
I. Understand the market dynamics namely demand elasticity of demand and pricing in different market
structures.
II. Analyze how capital budgeting decisions are carried out for selecting the best investment proposal.
III. Learn how organizations make important investment and financing decisions.
IV. Analyze a company's financial statements and come to a reasoned conclusion about the financial
situation of the company.
V. Acquire the basics of how to analyze and interpret the financial statements through ratio analysis.
COURSE OUTCOMES(CO’S):
CO 1: Understand microeconomic factors in related to demand analysis and its forecasting
CO 2: Apply the theory of production function and Cost concepts to determine the Break Even Analysis.
CO 3: Remember different market structures, pricing strategies and different forms business organization
CO 4: Determine the investment decisions of organizations by applying capital budgeting methods and Strategies
CO 5: Interpret the financial statement by using Fundamental accounting concepts and Ratio analysis
COURSE LEARNING OUTCOMES(CLO’S):
1. Describe the economic activities performed by the businessmen in the business for profit earning.
2. Understand the significance of demand, its analysis, measurement of demand and its forecasting.
3. Write the production function through Different Combination of variable inputs with Economies of Scale
4. Analyze the Different cost concepts and determine the significance of Break Even Analysis
5. Design and implement different structures of market covering how price is determined under different market
structures
6. Analyze different forms of business organizations existing in the modern business.
7. Describe the allocation and sources of capital which plays a vital role in a business organization.
8. Demonstrate the concept of capital budgeting and allocations of the resources through capital budgeting
methods
9. Interpret the financial position of business by applying accounting concepts and conventions.
10. Apply the ratio Analysis to assess the operating efficiency and profitability of business.
UNIT – I INTRODUCTION AND DEMAND ANALYSIS Classes: 07
Definition, nature and scope of business economics; Demand analysis; Demand determinants, law of demand and its
exceptions; Elasticity of demand: Definition, types, measurement and significance of elasticity of demand, demand
forecasting, factors governing demand forecasting.
UNIT - II PRODUCTION & COST ANALYSIS Classes: 10
Combination of Inputs, Cobb-Douglas Production function, Laws of Returns, Internal and External Economies of
Scale. Cost Analysis: Cost concepts, Opportunity cost, Fixed vs. Variable costs, Explicit costs vs. Implicit costs,
out of pocket costs vs. Imputed costs, Break-even analysis, Determination of Break – Even point (Simple
Problems) , Managerial Significance of BEA.
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UNIT-III MARKETS& NEW ECONOMIC ENVIRONMENT Classes: 08
Market structures: Types of competition, Features of perfect competition, Monopoly and monopolistic competition.
Price determination& Price Statistics: Price Output determination in case of perfect competition and monopoly.
Features and evaluation of different forms of Business organization: Sole
proprietorship, partnership, Joint Stock Company, public enterprises and their types.
UNIT-IV CAPITAL BUDGETING Classes: 10
Capital and its significance, types of capital, estimation of fixed and working capital requirements, methods and
sources of raising capital- Trading Forecast, Capital budget, Cash Budget. Features of capital budgeting
proposals, methods of capital budgeting – payback method, Accounting rate of return (ARR), Net Present Value
Method(simple problems).
UNIT-V INTRODUCTION TO FINANCIAL ACCOUNTING AND Classes: 10
FINANCIAL ANALYSIS
Accounting Concepts and Conventions, Introduction to IFRS– Double – Entry Book keeping, Journal, Ledger,
Trial balance, Final accounts (Trading Account, Profit and Loss Account and Balance Sheet with simple
adjustments.) Financial Analysis through Ratios: Significance, limitations of Ratio Analysis and Ratios
Computation, Analysis and Interpretation of Liquidity Ratios (Current Ratio and quick ratio). Activity Ratios
(Inventory turnover ratio and Debtor Turnover ratio), Capital structure Ratios (Debt-Equity ratio, Interest
Coverage ratio) and profitability ratios (Gross profit Ratio, Net profit ratio, Operating Ratio, P/E Ratio and
EPS), Du Pont Chart.
Text Books:
1. Aryasri, “Managerial Economics and Financial Analysis”, TMH publications, 4th Edition, 2012.
2. M. Kasi Reddy, Saraswathi, “Managerial Economics and Financial Analysis”, PHI Publications, New
Delhi, 2 nd Edition, 2012.
3. Varshney, Maheswari, “Managerial Economics”, Sultan Chand Publications, 11th Edition, 2009.
Reference Books:
1. D.N. Dwivedi, “Managerial Economics”, Vikas Publication House Pvt.Ltd, 2nd Edition, 2012.
2. S.N. Maheshwari & S.K.Maheshwari, “Financial Accounting”, Vikas Publication House Pvt.Ltd, 4th Edition,
2012.
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3. R.Narayana Swamy, “Financial Accounting- A managerial Perspective”, Pearson publications, 1 Indian
Reprint Edition, 2012.
4. J.V.Prabhakar Rao & P.V.Rao, “Managerial Economics & Financial Analysis”, Maruthi Publishers, 1st
Revised Edition, 2011.
5. .Kasi Reddy & Saraswathi, “Managerial Economics and Financial Analysis”, PHI Publications, New
Delhi, 10th Revised Edition, 2012.
6. Varshney & Maheswari, “Managerial Economics”, Sulthan Chand Publishers, 1st Revised Edition, 2009.
Web References:
1. https:// www.slideshare.net/glory1988/managerial-economics-and- financial analysis.
2. https:// thenthata.web4kurd.net/mypdf/managerial-economics-and- financial analysis.
3. https:// bookshallcold.link/pdfread/managerial-economics-and-financial analysis.
4. https:// www.gvpce.ac.in/syllabi/Managerial Economics and financial analysis.
E-Text Books:
1. https:// books.google.co.in/books/about/Managerial economics and financial analysis.
2. http://www. ebooktake. in /pdf/title/managerial-economics-and-financial analysis.
3. http://all4ryou.blogspot.in/2012/06/mefa-managerial-economics and financial analysis.
4. http://books.google.com/books/about/Managerial economics and financial analysis.
5. http://www.scribd.com/doc/37684926.
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UNIT-I
BUSINESS ECONOMICS AND DEMAND ANALYSIS
Imagine for a while that you have finished your studies and have joined as an engineer in a
manufacturing organization. What do you do there? You plan to produce maximum quantity
of goods of a given quality at a reasonable cost. On the other hand, if you are a sale manager,
you have to sell a maximum amount of goods with minimum advertisement costs. In other
words, you want to minimize your costs and maximize your returns and by doing so, you are
practicing the principles of managerial economics.
Managers, in their day-to-day activities, are always confronted with several issues such as
how much quantity is to be supplied; at what price; should the product be made internally; or
whether it should be bought from outside; how much quantity is to be produced to make a
given amount of profit and so on. Managerial economics provides us a basic insight into
seeking solutions for managerial problems.
Managerial economics, as the name itself implies, is an offshoot of two distinct disciplines:
Economics and Management. In other words, it is necessary to understand what these
disciplines are, at least in brief, to understand the nature and scope of managerial economics.
Introduction to Economics
Economics is a study of human activity both at individual and national level. The economists
of early age treated economics merely as the science of wealth. The reason for this is clear.
Every one of us in involved in efforts aimed at earning money and spending this money to
satisfy our wants such as food, Clothing, shelter, and others. Such activities of earning and
spending money are called
“Economic activities”. It was only during the eighteenth century that Adam Smith, the Father
of Economics, defined economics as the study of nature and uses of national wealth’.
Dr. Alfred Marshall, one of the greatest economists of the nineteenth century, writes
“Economics is a study of man’s actions in the ordinary business of life: it enquires how he
gets his income and how he uses it”. Thus, it is one side, a study of wealth; and on the other,
and more important side; it is the study of man. As Marshall observed, the chief aim of
economics is to promote ‘human welfare’, but not wealth. The definition given by AC Pigou
endorses the opinion of Marshall. Pigou defines Economics as “the study of economic
welfare that can be brought directly and indirectly, into relationship with the measuring rod
of money”.
Prof. Lionel Robbins defined Economics as “the science, which studies human behaviour as a
relationship between ends and scarce means which have alternative uses”. With this, the
focus of economics shifted from ‘wealth’ to human behaviour’.
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