Kavita has observed that there can be a good market for hand – knitted cotton and woollen trendy garments for small kids up to the age of three years. She thought of starting a small enterprise for the same. She also ensured that the enterprise will require 10 – 15 trained workers and an investment of rupees two lakhs. This will give 40% annual return on investment.
(a) Quoting lines from the above para, identify and give the meaning of the entrepreneurship concept being stated in the above para.
(b) Also, state the elements of the concept identified in (a) above

Question

Kavita has observed that there can be a good market for hand – knitted cotton and woollen trendy garments for small kids up to the age of three years. She thought of starting a small enterprise for the same. She also ensured that the enterprise will require 10 – 15 trained workers and an investment of rupees two lakhs. This will give 40% annual return on investment.

(a) Quoting lines from the above para, identify and give the meaning of the entrepreneurship concept being stated in the above para.

(b) Also, state the elements of the concept identified in (a) above

(a) Quoting lines from the above para, identify and give the meaning of the entrepreneurship concept being stated in the above para.

(b) Also, state the elements of the concept identified in (a) above

Accepted Answer

(a) The concept being stated in the para is the Financial Plan. Quoting the lines from the para: 'an investment of rupees two lakhs. This will give 40% annual return on investment.' A financial plan is a projection of key financial data about the potential investment commitment needed and the economic feasibility of the enterprise. It clarifies how much funds are required, where the funds will come from, how they will be disbursed, the amount of cash available and the probable revenue forecast. (b) Elements of the financial plan: (i) Proforma investment decisions - relate to how the enterprise's funds are invested in different assets to earn the highest possible returns; they cover land and building, machinery and plant, installation cost, preliminary expenses, margin for working capital and investment in short-term assets. (ii) Proforma financing decisions - summarise the projected sources of funds, including owner's funds and borrowed funds; the entrepreneur selects the best mix to minimise capital cost and financial risk and maximise returns. (iii) Proforma income statement - the projected net profit, i.e., projected revenue minus projected costs and expenses, summarising the first year's profit data. (iv) Proforma cash flow - reflects the projected cash available, i.e., projected cash receipts minus projected cash disbursements. (v) Proforma balance sheet - reflects the business position at the end of the first year, summarising projected assets, liabilities and net worth. (vi) Break-even analysis - helps determine the volume of sales needed to cover total variable and fixed expenses, where total revenue equals total cost.