I, The Absolute

Archive for August 31st, 2005

Term III – review

Posted by itheabsolute on August 31, 2005

Another Term ends. Another review.


Only four things matter to customers. Organizations better work everything around these – cost, quality, variety and availability. How can operations handle these?

1.Cost – improve efficiency (aka Toyota)

2.Variety – make flexible resources so that the plant can make a variety of products (same counter, different burgers and nuggets, aka, Mcdonald)

3.Availability – make the product available at many places and during most of the times. Keep the waiting time low.

4.Quality – value for money. Not easy to measure; nor easy to achieve

Corporate Finance

WACC, CAPM are well known concepts and are found in popular press. What was interesting was the Modigliani-Miller theorem. It simply says that how you finance an investment is not going to change the cash flows from that investment. If X is the present value of the cash flows of the company, the capital structure or changes in it will not change X. All the changes in capital structure will do is to reallocate cash between equity holders, debt holders and government (tax). There are many ifs and buts to this theorem. It may not sound intuitive and empirical, but just think about it. An analogy given by the Prof was – just because we do not observe a feather and a stone falling at the same pace does not mean that the force gravity exerts on them is different. Other extraneous factors make the observation difficult.

Managerial Accounting

It is all about how companies have been following wrong methods in calculating cost of producing a product. Thereby, selling products that made losses, withdrawing products which returned profits.

Activity Based Costing (ABC) is an important system. This will help identify proper costs associated with the production development to a particular product. ABC has helped many companies become profitable by letting them identify costs properly.

Then there was transfer pricing. There is no one formula for this. Wherever possible transfer pricing has to be at market value. If there is excess capacity, then the products/ services can be transferred at marginal cost,etc.

Budgeting and variance analysis were other concepts


Effectual thinking – how to convert an idea into an opportunity using existing resources – intellectual capital, social capital and human capital. The value of financial capital comes much later in the evolution of an organization.
(i have already covered a bit of this in one of my posts)

Post Scriptum:

Did my exams okay. I have gotten used to B grades. It looks like I will get them if I read or even if I don’t 🙂 Except when the subject is heavily quant oriented.

Next term – only one quant oriented course (investments). The rest are all faff ( as many of the ISBians call). If some subject does not have quant orientation, then the take aways are expected to be minimal.

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