Principles of Business and Management

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This document provides an overview of principles of business and management, covering topics such as motivation, content and process theories, Herzberg's two factor theory, Vroom and Lawler's expectation theory, balance sheet, and profit and loss statement. It also includes recommendations for improving financial performance.

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PRINCIPLES OF BUSINESS AND
MANAGEMENT

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Table of Contents
MAIN BODY...................................................................................................................................3
Q1 (a) Define motivation........................................................................................................3
Q1 (b) Differentiate the content and process theories of motivation.....................................3
Q1 (c) Herzberg’s two factor theory and Vroom and Lawler’s expectation theory...............3
Q4. Part A: Balance Sheet (Statement of Financial Position):...............................................6
Q4. Part B: Profit and Loss (Income Statement):...................................................................7
REFERENCES................................................................................................................................9
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MAIN BODY
Q1 (a) Define motivation
Motivation is defined as an act of movement which is helpful in inducing employees
within an organisation. With the help of appropriate motivation an employee can perform in
better way and acquire organisational goals and objectives in prominent manner. Motivation
is the tool which may lead the business and employees to enhance productivity and overall
level of output.
Q1 (b) Differentiate the content and process theories of motivation
There are two types of motivational theories existed which are satisfying broad
perspectives. Content theory is associated with people and individual goals and needs so by
using content theory of motivation individual needs can be focused (Alfayad and Arif, 2017).
Besides this process theory of motivation is associated with used process of motivation within
an organisation and the ways in which motivation can be inhaled within people.
Q1 (c) Herzberg’s two factor theory and Vroom and Lawler’s expectation theory
Herzberg’s two factor theory: This theory provides two factors which are responsible to bring
motivation within an organisation or workplace. With the help of these factors best
performance can be carried out by employees and this may lead the business to touch new
business heights. Besides this these factors are playing vital role in leveraging group
performance as presence of such factors are helpful in managing group harmony and team
work in proficient manner. These two factors included in this theory are named as Hygiene
factors and Motivators.
Hygiene factors are related with certain characteristics which are existed within job and lead
to provide job satisfaction to employees in direct or indirect manner. These factors are
intangible in nature but at the same time play vital and important role in motivating
employees and taking out best out of them. Achievement, recognition, responsibility and
growth are such hygiene factor by which employees can be motivated and perform in better
way so that inhale high job satisfaction and known as hygiene factors (Sanjeev and Surya,
2016). Whereas company policies, salary, relationship between higher authorities and working
conditions are the factors those may lead an employee to face situation of job dissatisfaction
and known as Motivator factors. So in order to manage these factors emphasis over working
condition is required to put within workplace so that employee may enjoy working at that
premises and this may lead them to perform with higher productivity.
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Figure 1 Herzberg’s two factor theory
Vroom and Lawler’s expectation theory: This theory is associated with providing
interrelationship between behaviour of people at workplace and their goals and objectives.
Under this theory this is being assumed that performance of an employee at their job place is
dependent over various factors such as personality, skills, knowledge, experience and their
capabilities (Lloyd and Mertens, 2018). Under this theory three dimensions as factors are
added which are acting as variables within individual in order to perform with extraordinary
abilities and to stay motivated throughout their working.
Expectancy: These are set of beliefs which are helpful for an individual to enhance their
performance by intensifying personal efforts. This factor is all about using given resources in
optimal manner so that appropriate skills can be acquired to finish the job in most effective
manner. Besides this expectancy is the belief in which individual is focused over final results in
order to receive rewards.
Instrumentality: This is defined as the belief existed within individual that they will be getting
appropriate results when expected level of performance is met by them. Under this factor

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individual is focused over prominent performance so that to take out desired output within
given tasks.
Valence: Valence is defined as the perceived value given by employees over obtaining desired
output (Meymandpour and Pawar, 2018). High valence means higher desirability within an
individual for attaining goals and objectives of given tasks.
Figure 2 Vroom and Lawler’s expectation theory
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Q4. Part A: Balance Sheet (Statement of Financial Position):
a) Balance Sheet (Statement of Financial Position):
Liability & Equity Amount Assets Amount
Capital 50,000 Cash 25,000
Loan 453,000 Fixtures & Fittings 7,000
Creditors 18,000 Equipment 9,000
Debtors 30,000
Property 350,000
Stock 100,000
Total 521,000 Total 521,000
b) Capital – Asset or Liability: Capital is a Liability because business is obliged to repay its
owners the sum of money at some point. Moreover, there is a theory saying every
business or company has its own separate entity or existence therefore the amount
induced in form of Capital is liability. Basic accounting equation is Assets = Liabilities +
Equity. Capital can either be internal or external, if it’s internal it falls under Equity
whereas if its external it falls under Liability and both must be repaid.
c) Recommendation: From the balance sheet of this retail establishment it is noticed that
they have huge amount of external loan and their liquid assets are comparatively low.
It is recommended to inject more owner capital and reduce the external loan
obligation so that proper debt equity ratio can be maintained.
d) Current Ratio: This ratio shows the ability of company to pay their short-term
obligations.
Current Ratio = Current Assets
Current Liability
Current Assets = Cash + Debtors + Stock = 25,000+30,000+100,000 = 155,000
Current Liabilities = Creditors = 18,000
Current Ratio = 155,000 = 8.61
18,000
Idle current ratio is 2 whereas they have too much higher than that; they can increase
their creditor repay period to maintain the ratio.
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e) Liquidity Ratio: This ratio shows ability of company’s liquid assets to cover its current
liabilities.
Liquidity Ratio = Liquid Assets
Current Liability
Liquid Assets = Cash + Debtors = 25,000+30,000 = 55,000
Current Liabilities = Creditors = 18,000
Current Ratio = 55,000 = 3.05
18,000
Idle liquid ratio is 1 whereas they have much higher than that. Anything above 1 is
good, it means that they are on safer side of liquidity. They can afford increasing their
creditors repay period.
Q4. Part B: Profit and Loss (Income Statement):
a) Profit and Loss (Income Statement):
Particular Amount Particular Amount
Opening Stock 60,000 Sales 290,000
Purchase 80,000 Closing Stock 90,000
Production Wages 40,000
Gross Profit 200,000
Total 380,000 Total 380,000
Expense Amount Income Amount
Interest on Loan 18,000 Gross Profit 200,000
Tax 27,000
Overhead Cost 75,000
Net Profit 80,000
Total 200,000 Total 200,000
Working : Cost of goods sold = Opening Stock + Purchases – Closing Stock
60,000 + 80,000 – 90,000 = 50,000
The retail establishment has net income of 80,000 as per given details.
b) Gross Profit Ratio: This ratio measures financial performance of the entity and its gross
profit margin
Gross Profit Ratio = Gross Profit *100

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Net Sales
Gross Profit Ratio = 200,000 *100 = 68.97%
290,000
Generally, there is no norm what best GP margin is, but it is as better as higher it gets
as the Gross profit margin is as it leads to higher profit margin. With context of this
retail establishment it can be noticed that margin is around 69% which is high and
good for company.
c) Net Profit Ratio: This ratio measures financial performance of the entity and its net
profit margin
Net Profit Ratio = Net Profit *100
Net Sales
Net Profit Ratio = 80,000 *100 = 27.59%
290,000
Similar to Gross profit ratio there is no norm what best GP margin is, but for this too it
is as better as higher it gets as the Net profit margin is as it leads to higher profit
margin. With context of this retail establishment it can be noticed that margin is
around 28% which is high and good for company.
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REFERENCES
Books and journals
Alfayad, Z. and Arif, L.S.M., 2017. Employee voice and job satisfaction: An application of
Herzberg two-factor theory. International Review of Management and Marketing.
7(1). pp.150-156.
Lloyd, R. and Mertens, D., 2018. Expecting more out of expectancy theory: History urges
inclusion of the social context. International Management Review. 14(1). pp.28-43.
Meymandpour, R. and Pawar, P., 2018. Study of Expectancy Motivation in IT
Developers. Telecom Business Review. 11(1). p.6.
Sanjeev, M.A. and Surya, A.V., 2016. Two factor theory of motivation and satisfaction: An
empirical verification. Annals of Data Science. 3(2). pp.155-173.
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