Engineering Economics

Engineering Economics

Involves methods to make economic decisions related to engineering activities to minimize costs or maximize benefits for businesses.

Roles in Engineering Firms

Various positions engineers may hold include CEO, General Manager, Product design/R&D team member, Production team member, Quality assurance team member, Maintenance team member, Sales team member, Researcher, or Academic.

Engineer's Tasks

Engineers typically develop new products, improve existing products, develop new processes or technologies, and improve existing processes or technologies.

Capital Expenditure

Engineers making decisions on investments in assets like buildings and machinery to design and produce products economically.

Asset Estimation

Engineers need to estimate future profits or cash flows generated by fixed assets like equipment before making capital expenditure decisions.

Consequences of Asset Estimation

Inaccurate asset estimation can lead to heavy expenses from overinvestment or loss of market share due to underinvestment.

Personal vs corporate financial affairs

Engineers play a role in managing corporate financial assets similar to managing personal financial affairs.

Investment Choices

Investment options include savings accounts, stocks, bonds, mutual funds, real estate, and business ownership, aiming to maximize economic benefits at an acceptable risk.

Stocks vs bonds

Stocks represent ownership in a company, while bonds represent a loan to a company or government, with different risk and return characteristics.

Investment Strategy

Diversifying investments across various risk levels and sectors helps manage risk and maximize returns.

Project Analysis

Large companies have specialized divisions to analyze and classify project ideas for equipment selection, replacement, new product development, cost reduction, or service quality improvement.

Engineering Project Decision Classifications

Decisions involve equipment or process selection, equipment replacement, new product or expansion, cost reduction, and service or quality improvement.

Business Organization Types

Proprietorship, partnership, and corporation are legal structures with varying levels of control, liability, and taxation for businesses.

Business Organization Challenges:

Business organization challenges refer to obstacles or difficulties that companies face in areas such as competition, technology, regulation, and globalization. These challenges can impact the efficiency and success of a business.

Business Registration in Ghana:

Business Registration in Ghana refers to the process of legally establishing a business entity in Ghana in accordance with the country's laws and regulations. It involves registering the business with the appropriate government authorities to obtain the necessary permits and licenses to operate legally.

different types of business structures and companies

Sole proprietorship, External company, Private/Public Companies limited by guarantee, Private/Public Companies limited/unlimited by shares

Business Volume Disparity:

:Business Volume Disparity refers to the difference in sales or revenue generated by different businesses within the same industry or market. It highlights the varying levels of success and performance among businesses operating in similar conditions.

Financial Management Importance:

Financial management is crucial for businesses as it involves planning, organizing, directing, and controlling financial activities to achieve organizational goals efficiently. It helps in ensuring proper allocation of resources, maximizing profits, managing risks, and making informed decisions.

Accounting Information System:

A system that collects, stores, and processes financial and accounting data to produce information for decision-making within an organization.

External Constraints and Role of Engineers:

External constraints refer to factors outside an engineer's control that impact their work, such as regulations, budget limitations, and societal needs. The role of engineers is to navigate these constraints while designing safe, efficient, and innovative solutions to real-world problems.

Balance Sheet Importance:

The balance sheet is crucial as it provides a snapshot of a company's financial position at a specific point in time. It helps stakeholders assess the company's assets, liabilities, and equity, aiding in decision-making and financial analysis.

Current Assets

Assets that can be converted to cash or its equivalent in less than one year, including cash, short-term investments, accounts receivable, inventories, and others.

Fixed Assets

Assets that reflect the amount paid for plant and equipment, are relatively permanent, and take time to convert into cash, such as land, buildings, machinery, and vehicles.

Depreciation

The accounting process recognizing the gradual conversion of fixed assets into expenses due to their limited useful life.

Other Noncurrent Assets

Include investments in other companies and intangible assets like goodwill, copyrights, and franchises.

Liabilities

The money a company owes, indicating where the company obtained funds to acquire assets and operate the business.

Stockholders' Equity

The portion of a company's assets provided by investors, representing the company's liability to its owners.

Current Liabilities

Debts that must be paid in the near future, usually within one year.

Stockholders' Equity

The amount available to owners after paying off all debts.

Preferred Stock

Hybrid between common stock and debt, paid after debtors but before common stockholders in bankruptcy.

Common Stock

Aggregate par value of a company's issued stock.

Paid-in Capital

Money received from stock sales exceeding the stock's par value.

Retained Earnings

Cumulative net income of a firm minus total dividends paid to stockholders.

Income Statement

Indicates if a company is making or losing money during a specific period.

Revenue

Income from goods sold and services rendered in an accounting period.

Net Revenue

Gross sales minus sales returns and allowances.

Gross Margin

Net revenue minus cost of revenue.

Retained Earnings

Earnings not paid out as dividends but reinvested in the core business or used to pay off debt, always presented in the Balance sheet.

Dividends

Profits paid out to stockholders by a corporation, which can be decided upon by the corporation's board of directors.

Cash Flow Statement

Financial statement detailing how a company generated and used cash during a reporting period, including operating, investing, and financing activities.

Net Cash Flow

The difference between cash inflows and outflows during a reporting period, crucial for determining the value of an asset or a firm.

Operating Cash Flows

Cash flows related to production and sales of goods or services, including non-cash expenses added back to net income.

Investing Activities

Cash flow transactions related to purchasing new fixed assets, reselling old equipment, and buying and selling financial assets.

Financing Activities

Cash transactions related to financing capital used in business, such as selling stock for cash inflows or paying off debt for cash outflows.