Fm-Best Q A

CA-IPCC (1ST GROUP) FINANCIAL MANAGEMENT (71 IMP QUESTIONS)
Compiled By :
Mukesh
Agarwa Resear!h Gr"u#
AA EE CC II nn dd ii aa . C o m m e r c e
Place, Shinde Ki Chhawani, Gwalior-4 4!!"
Gopal Madhav Extension
#$"- %"-&4&4&4!, $'$(!-
")4"%, $'& &!4""% Indias Leading CS / CA Classes

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FM Key Terms
(Page No. 62)
& Ratio Summary

(Page No. 88)
FM-QA Compiled By :
$ha %& Mah'""&
Chapter- ise Time a!!o"atio# a#$ Rati#g

Topi"s Re%isio# Time (i# Mi#utes) 15 70 50 55 20 30 15 40 35 15 10 30 10 10 10 30 15 20 ()* +) ,oursRati#g
&. 2. '. (. ). 6. *. 8. +. &,. &&. &2. &'. &(. &). &6. &*. &8.
Basic of FM Capital Budgeting Capital Structure Cash Flow Statement Cost of Capital Fund Flow Statement Leverage Ratio Analysis Source of Finance Time Value of Money or!ing Capital Management " Basic or!ing Capital Management " Cash Management or!ing Capital Management " #nventory Management or!ing Capital Management " M$BF " Tandon Committee or!ing Capital Management " %perating Cycle or!ing Capital Management " $ro&ected Statement or!ing Capital Management " Receiva'le Management or!ing Capital Management " Receiva'le " Factoring
- Page 5 of 90 -
FM-QA Compiled By :
$ha %& Mah'""&
-uestio#s a#$ So!utio#s . /i#ts 01C -.&. .ifferentiate 'etween ma/imi0ation ma/imi0ation1
Solution 2 ,int 3
the and
$rofit ealth
Chapter :asi" o2 FM
Pro2it Ma3imisatio# a#$ 4ea!th Ma3imisatio# The two most important o'&ectives of financial management are as follows3 41 $rofit ma/imi0ation 51 Value ma/imi0ation 567e"ti%e o2 pro2it ma3imi8atio#9 6nder this o'&ective the financial managers sole o'&ective is to ma/imi0e profits1 The o'&ective could 'e short7term or long term1 6nder the short7term o'&ective the manager would intend to show profita'ility in a short run say one year1 hen profit ma/imi0ation 'ecomes a long7term o'&ective the concern of the financial manager is to manage finances in such a way so as to ma/imi0e the 8$S of the company1 567e"ti%e o2 %a!ue ma3imi8atio#9 6nder this o'&ective the financial manager strives to manage finances in such a way so as to continuously increase the mar!et price of the companys shares1 6nder the short7term profit ma/imi0ation o'&ective a manager could continue to show profit increased 'y merely issuing stoc! and using the proceeds to invest in ris!7free or near to ris!7free securities1 ,e may also opt for increasing profit through other non7operational activities li!e disposal of fi/ed assets etc1 This would result in a consistent decrease in the shareholders profit " that is earning per share would fall1 ,ence it is commonly thought that ma/imi0ing profits in the long run is a 'etter o'&ective1 This would increase the 8arning $er Share on a consistent 'asis1 ,owever9 even this o'&ective has its own shortcomings9 which are as follows3 #t does not specify the timing of duration of e/pected returns9 hence one cannot 'e sure whether an investment fetching a Rs1 4* la!hs return after a period of five years is more or less valua'le than an investment fetching a return of Rs1 41: la!hs per year for the ne/t five years1 #t does not consider the ris! factor of pro&ects to 'e underta!en; in many cases a highly levered firm may have the same earning per share as a firm having a lesser percentage of de't in the capital structure1 #n spite of the 8$S 'eing the same the mar!et price per share of the two companies shall 'e different1 This o'&ective does not allow the effect of dividend policy on the mar!et price per share; in order to ma/imi0e the earning per share the companies may not pay any dividend1 #n such cases the earning per share shall certainly increase9 however the mar!et price per share could as well go down1 For the reasons &ust given9 an o'&ective of ma/imi0ing profits may not 'e the same as ma/imi0ing the mar!et price of
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share and hence the firms value1 The mar!et price of a firms share represents the focal &udgment of all mar!et participants as to the value of the particular firm1 #t ta!es into account present as well as futuristic earnings per share; the timing9 duration and ris! of these earnings; the dividend policy of the firm; and other factors that 'ear upon the mar!et price of the share1 The mar!et price serves as a 'arometer of the companys performance; it indicates how well management is doing on 'ehalf of its shareholders1 Management is under continuous watch1 Shareholders who are not satisfied may sell their shares and invest in some other company1 This action9 if ta!en9 will put downward pressure on the mar!et price per share and hence reduce the companys value1
01C -.2.
.ifferentiate 'etween Traditional $hase and Modern $hase of Financial Management1

Solution 2 ,int 3
:asi" o2 FM
Tra$itio#a! Phase a#$ Mo$er# Phase o2 Fi#a#"ia! Ma#ageme#t .uring the Tra$itio#a! Phase9 financial management was considered necessary only during occasional events such as ta!eovers9 mergers9 e/pansion9 li<uidation9 etc1 Also9 when ta!ing financial decisions in the organisation9 the needs of outsiders +investment 'an!ers9 people who lend money to the 'usiness and other such people- to the 'usiness was !ept in mind1 hereas9 on the other hand9 Mo$er# Phase is still going on1 The scope of financial management has greatly increased now1 #t is important to carry out financial analysis for a company1 This analysis helps in decision7ma!ing1 .uring this phase9 many theories have 'een developed regarding efficient mar!ets9 capital 'udgeting9 option pricing9 valuation models and also in several other important fields in financial management1
01C -.'.
rite short notes on the Role of Chief Financial %fficer +CF%-1 Solution 2 ,int 3
:asi" o2 FM
Ro!e o2 Chie2 Fi#a#"ia! 522i"er (CF5) A new era has ushered during the recent years for chief financial officers1 ,is role assumes significance in the present day conte/t of li'erali0ation9 deregulation and glo'alisation1 The chief financial officer of an organisation plays an important role in the companys goals9 policies9 and financial success1 ,is responsi'ilities include3 i1 Fi#a#"ia! 0#a!ysis a#$ P!a##i#g9 .etermining the proper amount of funds to employ in the firm9 i1e1 designating the si0e of the firm and its rate of growth1 ii1 ;#%estme#t <e"isio#s9 The efficient allocation of funds to specific assets1 iii1 Fi#a#"i#g a#$ Capita! Stru"ture <e"isio#s9 Raising funds on favoura'le terms as possi'le i1e1 determining the composition of lia'ilities1 iv1 Ma#ageme#t o2 Fi#a#"ia! Resour"es (su"h as or=i#g "apita!) 1 v1 Ris= Ma#ageme#t9 $rotecting assets1
01C -.(.
.ifferentiate 'etween Financial Lease and %perating Lease1

Solution 2 ,int 3
Capita! :u$geti#g
01C -.).
8/plain the limitations of Capital Rationing1 Solution 2 ,int 3
Capita! :u$geti#g
>imitatio#s o2 Capita! Ratio#i#g +i- #n capital rationing it may also 'e more desira'le to accept several small investment proposals than a few large investment proposals so that there may 'e full utilisation of 'udgeted amount1 This may result in accepting relatively less profita'le investment proposals if full utilisation of 'udget is a primary consideration1 +ii- Capital rationing may also mean that the fiim foregoes the ne/t most profita'le investment following after the 'udget ceiling even though it is estimated to yield a rate of return much higher than the re<uired rate of return1 Thus capital rationing does not always lead to optimum results1
01C -.6.
rite short notes on Merits of $ay'ac! $eriod1

Solution 2 ,int 3
Capita! :u$geti#g
Merits o2 Pay6a"= Perio$ +i- This method of evaluating proposals for capital 'udgeting is <uite simple and easy to understand1 #t has the advantage of ma!ing it clear that there is no profit on any pro&ect unless the pay'ac! period is over1 Further9 when funds are limited9 they may 'e made to do more 'y selecting pro&ects having shorter pay'ac! periods1 This method is particularly suita'le in the case of industries where the ris! of technological o'solescence is very high1 #n such industries9 only those pro&ects which have a shorter pay'ac! period should 'e financed since the change in technology would ma!e the pro&ects totally o'solete 'efore their costs are recovered1 +ii- #n the case of routine pro&ects also use of pay'ac! period method favours pro&ects which generate cash inflows in earlier years9 there'y eliminating pro&ects 'ringing cash inflows in later years which generally are conceived to 'e ris!y as ris! tends to increase with futurity1 +iii- By stressing earlier cash inflows9 li<uidity dimension is also considered in the selection criterion1 This is important in situations of li<uidity crunch and high cost of capital1 +iv- The pay'ac! period can 'e compared to a 'rea!7even
+v-
point9 the point at which the costs are fully recovered 'ut profits are yet to commence1 The ris! associated with a pro&ect arises due to uncertainty associated with the cash inflows1 A shorter pay'ac! period means that the uncertainty with respect to the pro&ect is resolved faster1
Capita! :u$geti#g
01C -.*.
Solution 2 ,int 3
01C -.8.
Capita! :u$geti#g
Solution 2 ,int 3
01C -.+.
Capita! :u$geti#g
Solution 2 ,int 3
01C -.&,.
Capita! :u$geti#g
Solution 2 ,int 3
01C -.&&.
Beetal Limited is trying to decide whether to 'uy a machine for Rs1 )*9*** which will save costs of Rs1 5*9*** per annum for : years and which will have a resale value of Rs1 4*9*** at the end of : years1 #f it is the companys policy to
underta!e pro&ects only if they are e/pected to yield a return of 4* percent or more9 you are re<uired to advise Beetal Limited whether to underta!e this pro&ect or not1
Capita! :u$geti#
Solution 2 ,int 3
0$%ise to :eeta! >imite$ 6ase$ o# ;#ter#a! Rate o2 Retur# (;RR) Annual depreciation = +)*9***7 4*9***-4: Rs1 4(9***
0$%ise9 if lt is Beetal Limiteds policy to underta!e investments which are e/pected to yield 4*> or more9 then this pro&ect should 'e underta!en1
01C -.&2.
8<uipment A has a cost of Rs1 ?:9*** and net cash flow of Rs1 5*9*** per year for si/ years1 A su'stitute e<uipment B would cost Rs1 :*9*** and generate net cash flow of Rs1 4(9*** per year for si/ years1 The re<uired rate of return of 'oth e<uipments is 44 per cent1 Calculate the #RR and @$V for the e<uipments1 hich e<uipment should 'e accepted and whyA
Solution 2 ,int 3
Capita! :u$geti#g
01C -.&'.
Bion Limited is planning for the purchase of a machine that would cost Rs1 49**9*** with the e/pectation that Rs1 5*9*** per year could 'e saved in after7ta/ cash costs if the machine was ac<uired1 The machines estimated useful life is ten years9 with no residual value9 and would 'e depreciated 'y the straight7line method1 Cou are re<uired to calculate the pay'ac! period1
Solution 2 ,int 3
Capita! :u$geti#g
01C -.&(.
.ifferentiate 'etween .e't Financing and 8<uity Financing

Solution 2 ,int 3
Capita! Stru"ture
<e6t Fi#a#"i#g a#$ 1?uity Fi#a#"i#g Financing a 'usiness through 'orrowing is cheaper than using e<uity1 This is 'ecause3 Lenders re<uire a lower rate of return than ordinary shareholders1 .e't financial securities present a lower ris! than shares for the finance providers 'ecause they have prior claims on annual income
and li<uidation1 A profita'le 'usiness effectively pays less for de't capital than e<uity for another reason3 the de't interest can 'e offset against pre7ta/ profits 'efore the calculation of the corporate ta/9 thus reducing the ta/ paid1 #ssuing and transaction costs associated with raising and servicing de't are generally less than for ordinary shares1 These are some of the 'enefits from financing a firm with de't1 Still firms tend to avoid very high gearing levels1 %ne reason is financial distress ris!1 This could 'e induced 'y the re<uirement to pay interest regardless of the cash flow of the 'usiness1 #f the firm goes through a rough period in its 'usiness activities it may have trou'le paying its 'ondholders9 'an!ers and other creditors their entitlement1
01C -.&).
@ame the various fundamental principles to 'e !ept in mind while choosing a suita'le capital structure1 Solution 2 ,int 3
Capita! Stru"ture
@arious Fu#$ame#ta! Pri#"ip!es to 6e =ept i# mi#$ hi!e "hoosi#g a Suita6!e Capita! Stru"ture hile choosing a suita'le financing pattern9 certain fundamental principles should 'e !ept in mind li!e3 (i) Cost Pri#"ip!e (ii) Ris= Pri#"ip!e Business ris! Financial ris! (iii) Co#tro! Pri#"ip!e (i%) F!e3i6i!ity Pri#"ip!e (%) 5ther Co#si$eratio#s D @ature of industry D Timing of issue D Competition in the industry1
01C -.&6.
hich of the following is an advantage of de't financingA (i) #nterest and principal o'ligations must 'e paid regardless of the economic position of the firm1 (ii) .e't agreements contain covenants1 (iii) The o'ligation is generally fi/ed in terms of interest and principal payments1 (iv) 8/cessive de't increases the ris! of e<uity holders and therefore depresses share prices1
Solution 2 ,int 3
Capita! Stru"ture
The re<uirement is to identify the advantages of de't financing1 Answer +iii- is correct 'ecause the fi/ed o'ligation of interest and principal is an advantage to de't financing1 Answers +i-9 +ii-9 and +iv- are incorrect 'ecause they are all disadvantages of de't financing1
Cash F!o
01C -.&*.
Stateme#t
Solution 2 ,int 3
01C -.&8.
.ifferentiate 'etween the 8/plicit Cost and #mplicit Cost1 Solution 2 ,int 3
Cost o2 Capita!
13p!i"it Cost a#$ ;mp!i"it Cost The 13p!i"it "ost of any source of capital may 'e defined as the discount rate that e<uals that present value of the cash inflows that are incremental to the ta!ing of financing opportunity with the present value of its incremental cash outflows1 hereas9 on the other hand9 ;mp!i"it "ost is the rate of return associated with the 'est investment opportunity for the firm and its shareholders that will 'e foregone if the pro&ect presently under consideration 'y the fimi was accepted1 %pportunity costs are technically referred to as implicit cost of capital1
01C -.&+.
rite short notes on Trading on 8<uity

Solution 2 ,int 3
Cost o2 Capita!
Tra$i#g o# 1?uity The term Etrading on e<uity is derived from the fact that de'ts are contracted and loans are raised mainly on the 'asis of e<uity capital1 Those who provide de't have a limited share in the firms earnings and hence want to 'e protected
in terms of earnings and values represented 'y e<uity capital1 Since fi/ed charges do not vary with the firms earnings 'efore interest and ta/9 a magnified effect is produced on earnings per share1 hether the leverage is favoura'le in the sense increase in earnings per share more proportionately to the increased earnings 'efore interest and ta/ depends on the profita'ility of investment proposals1 #f the rate of return on investment e/ceeds their e/plicit cost financial leverage is said to 'e positive1 #n other words9 it can 'e stated that trading on e<uity means using 'orrowed funds to generate returns in anticipation that the return would 'e more than the interest paid on those funds1 Therefore9 trading on e<uity occurs when a company uses 'onds9 preference shares or any other type of de't to increase its earnings on e<uity shares1 For e/ample9 a company may use long term de't to purchase assets that are e/pected to generate earnings more than the interest on the de't1 The earnings in e/cess of the interest on the de't will increase the earnings of the companys e<uity shareholders1 This increase in earnings indicates that the company was successful in trading on e<uity1
Cost o2 Capita! 01C -.2,.
Solution 2 ,int 3
01C -.2&.
Cost o2 Capita!
Solution 2 ,int 3
01C -.22.
Assume that a company is e/pected to pay a dividend of Rs1 :1** per share this year1 The company along with the dividend is e/pected to grow at a rate of F>1 #f the current mar!et price of the share is Rs1 F* per share9 calculate the estimated cost of e<uityA
Solution 2 ,int 3
Cost o2 Capita!
01C -.2'.
Bestvision Company re<uires Rs1 4*9**9*** of financing and is considering two options as given under3
Cost o2 Capita!
5ptio#s
A B
0mou#t o2 1?uity Raise$ (Rs.)

?9**9*** G9**9***
0mou#t o2 <e6t Fi#a#"i#g (Rs.)

G9**9*** ?9**9***
:e2oreAta3 Cost o2 <e6t (per a##um)

)> 4*>
#n the first year of operations9 the company is e/pected to have sales revenues of Rs1 :9**9***; cost of sales of Rs1 59**9***; and general and administrative e/penses of Rs1 49**9***1 The ta/ rate is G*>1 All earnings are paid out as dividends at year end1 Cou are re<uired to calculate3 +a- The weighted average cost of capital under option A9 if the cost of e<uity is 45>1 +'- The return on e<uity and the de't ratio under the two options1
Solution 2 ,int 3
01C -.2(.
Hanpati Limited has issued 4*> de'entures of nominal value of Rs1 4**1 The mar!et price is Rs1 I* e/7 interest1 Cou are re<uired to calculate the cost of de'entures if the de'entures are3 +a- #rredeema'le; and +'- Redeema'le at par after 4* years1 Solution 2 ,int 3
Cost o2 Capita!
01C -.2).
Jansa Limiteds operating income is Rs1 49)*9***1 The companys cost of de't is 45> and currently it employs Rs1 :95:9*** of de't The overall cost of capital of the company is 4F> Cou are re<uired to determine the cost of e<uity of Jansa Limited1 Solution 2 ,int 3
Cost o2 Capita!
01C -.26.
Cou are re<uired to calculate the cost of e<uity of Alpha Limited whose ris!7 free interest rate e<uals to :>9 the e/pected mar!et rate of interest e<uals to 4*>9 and the firms 'eta coefficient is e<ual to *1I1
Solution 2 ,int 3
Cost o2 Capita!
01C -.2*.
Fu#$
F!o
Stateme#t
Solution 2 ,int 3
01C -.28.
Fu#$ F!o Stateme#t
Solution 2 ,int 3
01C -.2+.
.ifferentiate 'etween the %perating Leverage and Financial Leverag e1

S o l u t i o n 2 , i n t 3
5 p e
rati#g >e%erag e a# Fi#a#"ia ! >e%erag e %peratin g leverage is defined as th Kfirms a'ility t use fi/e operatin costs t magnify effects o changes in sale on it earnings 'efore interest and
ta
>e %e ra thege
an in
or decrease in sales level the 8B#T also changes1 The effect of change in sales on the level o f 8B#T is measured 'y operating leverage1 %perating leverage occurs when a firm has fi/ed costs which must 'e met regardless of volume of sales1 hen the firm has fi/ed costs9 the percentage change in profits due to change in sales level is greater than the percentage change in sales1 hereas9 Financial leverage is defined as Kthe a'ility of a firm to use fi/ed financial charges to magnify the effects of changes in 8B#T2%perating profits9 on the firms earnings per shareL1 The financial leverage occurs when a firms capital structure contains o'ligation of fi/ed financial charges e1g1 interest on de'entures9 dividend on preference shares etc1 along with owners e<uity to enhance earnings of e<uity shareholders1 The fi/ed financial charges do not vary with the operating profits or 8B#T1 They are fi/ed and are to 'e paid irrespective of level of operating profits or 8B#T1
>e%erage 01C -.',.
Solution 2 ,int 3
01C -.'&.
>e%erage
Solution 2 ,int 3
Gopal Madhav Extension Place, Shinde Ki Chhawani, Gwalior-4 4!!"
A ECI ndi a. Com m er c e Indias Leading CS / CA Classes #$"- %"-&4&4&4!, $'$(!-")4"%, $'& &!4""%
,e-. www.aeccsca.-lo*sp ot.com/ E-mail. aec.com0*mail.com
- Pa*e &) o+ $! -
01C -.'2.
.ifferentiate 'etween Li<uidity Ratios and Activity Ratios

Solution 2 ,int 3
>i?ui$ity Ratios a#$ 0"ti%ity Ratios Li<uidity or short7term solvency means a'ility of the 'usiness to pay its short7 term lia'ilities1 #na'ility to pay7off short7term lia'ilities affects its credi'ility as well as its credit rating1 Continuous default on the part of the 'usiness leads to commercial 'an!ruptcy1
8ventually such commercial 'an!ruptcy may lead to its sic!ness and dissolution1 Short7 term lenders and creditors of a
- Pa*e (& o+ $! -
'usiness are very much interested to !now its state of li<uidity 'ecause of their financial sta!e1 ThereforeB !i?ui$ity ratios provide information a'out a companys a'ility
Ratio 0#a!ysis
- Pa*e (( o+ $! -
to meet its short7term financial o'ligations1 hereas9 on the other hand9 the a"ti%ity ratios9 also called the Turnover ratios or $erformance ratios9 are employed to evaluate the efficiency with which the firm manages and utilises its assets1 These ratios usually indicate the fre<uency of sales with respect to its assets1 These assets may 'e capital assets or wor!ing capital or average inventory1 These ratios are usually calculated with reference to sales2cost of goods sold and are e/pressed in terms of rate or times1
01C -.''.
rite short notes on Composition of R%8 using .u $ont

Solution 2 ,int 3
Ratio 0#a!ysis
01C -.'(.
Ratio 0#a!ysis
- Pa*e (% o+ $! -
Solution 2 ,int 3
- Pa*e () o+ $! -
- Pa*e ( o+ $! -
- Pa*e (' o+ $! -
- Pa*e ($ o+ $! -
01C -.').
Ratio 0#a!ysis
- Pa*e 4! o+ $! -
Solution 2 ,int 3
- Pa*e 4" o+ $! -
01C -.'6.
Ratio 0#a!ysis
- Pa*e 4& o+ $! -
Solution 2 ,int 3
- Pa*e 4( o+ $! -
Ratio 0#a!ysis
01C -.'*.
Based on the a'ove information9 you are re<uired to compute the following ratios3
i1 iii1 v1 vi1 vii1 viii1
Current Ratio ii1 Muic! Ratio .e't 8<uity Ratio iv1 $roprietary ratio @et or!ing Capital #f @et Sales is Rs14: Lac9 then what would 'e the Stoc! Turnover Ratio in timesA .e'tors Velocity Ratio if the sales are Rs1 4: Lacs1 Creditors Velocity Ratio if purchases are Rs14*1: Lacs1
Solution 2 ,int 3
01C -.'8.
The following accounting information and financial ratios of Mahurat Limited relate to the year ended G4st .ecem'er9 5**)3
Ratio 0#a!ysis
- Pa*e 44 o+ $! -
41
- Pa*e 4% o+ $! -
Raw materials consumed .irect ages Stoc! of Raw Materials Stoc! of Finished Hoods .e't Collection $erioad 51
5*> of wor!s cost 4*> of wor! Cost G Months 6sage F> of wor!s cost F* .ays
Financial Ratios3 Fi/ed 43G assets to sales Fi/ed assets to Current assets 4G344 Current ratio 534 Long7term loans to Current lia'ilities 534 Capital to Reserves and Surplus 43( #f value of fi/ed assets as on G4st .ecem'er9 5**? amounted to Rs1 5F la!hs9 you are re<uired to prepare a summarised $rofit and Loss Account of the company for the year ended G4st .ecem'er9 5**) and also the Balance Sheet as on G4st .ecem'er9 5**)1
Solution 2 ,int 3
01C -.'+.
.ifferentiate 'etween the American .epository Receipts1

Solution 2 ,int 3
Hlo'al
.epository
Receipts
and
Sour"e Fi#a#"e
o2
01C -.(,.
.iscuss in 'rief the concept of KVenture Capital FinancingL1
Sour"e Fi#a#"e
o2
Solution 2 ,int 3
Co#"ept o2 @e#ture Capita! Fi#a#"i#g The venture capital financing refers to financing of new high ris!y venture promoted 'y <ualified entrepreneurs who lac! e/perience and funds to give shape to their ideas1 #n 'road sense9 under venture capital financing9 venture capitalists ma!e investments to purchase e<uity or de't securities from ine/perienced entrepreneurs who underta!e highly ris!y ventures with a potential of success1 Some of the characteristics of Venture Capital Funding are3 #t is 'asically e<uity finance in new companies1 #t can 'e viewed as a long7term investment in growth7oriented small2medium firms1 Apart from providing funds9 the investor also provides support in form of sales strategy9 'usiness networ!ing and management e/pertise9 ena'ling the growth of the entrepreneur1
01C -.(&.
.iscuss the advantages of raising finance 'y issue of de'entures1

Solution 2 ,int 3
Sour"e Fi#a#"e
o2
0$%a#tages o2 Raisi#g Fi#a#"e 6y ;ssue o2 <e6e#tures +ii- The cost of de'entures is much lower than the cost of preference or e<uity capital as the interest is ta/7deducti'le1 Also9 investors consider de'enture investment safer than e<uity or preferred investment and9 hence9 may re<uire a lower return on de'enture investment1 +iii- .e'enture financing does not result in dilution of control1 +iv- #n a period of rising prices9 de'enture issue is advantageous1 The fi/ed monetary outgo decreases in real terms as the price level increases1
01C -.(2.
.iscuss the features of Trade Credit1

Solution 2 ,int 3
Sour"e Fi#a#"e
o2
Features o2 Tra$e Cre$it Trade Credit represents credit granted 'y suppliers of goods9 etc19 as an incident of sale1 The usual duration of such credit is
4: to I* days1 #t generates automatically in the course of 'usiness and is common to almost all 'usiness operations1 #t can 'e in the form of an Nopen accountN or N'ills paya'leN1 Trade credit is preferred as a source of finance 'ecause it is without any e/plicit cost and till a 'usiness is a going concern it !eeps on rotating1 Another very important characteristic of trade credit is that it enhances automatically with the increase in the volume of 'usiness1
01C -.('.
8/plain some of the characteristics of .e'entures1 Solution 2 ,int 3
Sour"e Fi#a#"e
o2
Chara"teristi"s o2 <e6e#tures Some of the characteristics of .e'entures or Bonds are3 .e'entures are noirnally issued in different denominations ranging from Rs1 4** to Rs1 49*** and carry different rates of interest @oirnally9 de'entures are issued on the 'asis of a de'enture trust deed which lists the tern7is and conditions on which the de'entures are floated1 .e'entures are either secured or unsecured1 The cost of capital raised through de'entures is <uite low since the interest paya'le on de'entures can 'e charged as an e/pense 'efore ta/1 From the investors point of view9 de'entures offer a more attractive prospect than the preference shares since interest on de'entures is paya'le whether or not the company ma!es profit1 .e'entures are thus instruments for raising long7term de't capital1
01C -.((.
rite short notes on .e't Securitisation1

Solution 2 ,int 3
Sour"e Fi#a#"e
o2
<e6t Se"uritisatio# #t is a method of recycling of funds1 #t is especially 'eneficial to financial intermediaries to support the lending volumes1 Assets generating steady cash flows are pac!aged together and against this asset pool9 mar!et securities can 'e issued9 e1g1 housing finance9 auto loans9 and credit card receiva'les1 Process of Debt Securitisation (i) The origi#atio# 2u#"tio# " A 'orrower see!s a loan from a finance company or a 'an!1 The credit worthiness of 'orrower is evaluated and contract is entered into with repayment schedule structured over the life of the loan1 (ii) The poo!i#g 2u#"tio# " Similar loans on receiva'les are clu''ed together to create an underlying pool of assets1 The pool is transferred in favour of Special $urpose Vehicle +S$V-9 which acts as a trustee for investors1 (iii) The se"uritisatio# 2u#"tio# " S$V will structure and issue securities on the 'asis of asset pool1 The securities carry a coupon and e/pected maturity which can 'e asset7 'ased2mortgage7'ased1 These are generally sold to investors through merchant 'an!ers1 #nvestors are " pension funds9 mutual funds9 insurance funds1 The process of securitisation is without recourse i1e1 investor 'ears the credit ris! or ris! of default1 Credit enhancement facilities li!e insurance9 letter of credit +L%C- and guarantees are also provided1
01C -.().
rite short notes on 8/ternal Commercial Borrowings +8CBs-1

Solution 2 ,int 3
Sour"e Fi#a#"e
o2
13ter#a! Commer"ia! :orro i#gs (1C:s) 8/ternal Commercial Borrowings +8CBs- refer to commercial loans +in the form of 'an! loans9 'uyers credit9 suppliers credit9 securitised instruments + e1g1
floating rate notes and fi/ed rate 'onds- availed from non7resident lenders with minimum average maturity of G years1 Borrowers can raise 8CBs through internationally recognised sources li!e +i- international 'an!s9 +ii- international capital mar!ets9 +iii- multilateral financial institutions such as the #FC9 A.B etc9 +iv- e/port credit agencies9 +v- suppliers of e<uipment9 +vi- foreign colla'orators and +vii- foreign e<uity holders1 8/ternal Commercial Borrowings can 'e accessed under two routes vi0 +i- Automatic route and +ii- Approval route1 6nder the Automatic route there is no need to ta!e the RB#2Hovernment approval whereas such approval is necessary under the Approval route1 Companys registered under the Companies Act and @H%s engaged in micro finance activities are eligi'le for the Automatic Route whereas Financial #nstitutions and Ban!s dealing e/clusively in infrastructure or e/port finance and the ones which had participated in the te/tile and steel sector restructuring pac!ages as approved 'y the government are re<uired to ta!e the Approval Route1
01C -.(6.
rite short notes on the Bridge Finance1 Solution 2 ,int 3
Sour"e Fi#a#"e
o2
:ri$ge Fi#a#"e Bridge finance refers to loans ta!en 'y a company normally from commercial 'an!s for a short period 'ecause of pending dis'ursement of loans sanctioned 'y financial institutions1 Though it is a of short term nature 'ut since it is an important step in the facilitation of long term loan9 therefore it is 'eing discussed along with the long term sources of funds1 @ormally9 it ta!es time for financial institutions to dis'urse loans to companies1 ,owever9 once the loans are approved 'y the tern lending institutions9 companies9 in order not to lose further time in starting their pro&ects9 arrange short term loans from commercial 'an!s1 The 'ridge loans are repaid2ad&usted out of the term loans as and when dis'ursed 'y the concerned institutions1 Bridge loans are normally secured 'y hypothecating mova'le assets9 personal guarantees and demand promissory notes1 Henerally9 the rate of interest on 'ridge finance is higher as compared with that on term loans1
01C -.(*.
rite short notes on Venture Capital Financing1

Solution 2 ,int 3
Sour"e Fi#a#"e
o2
@e#ture Capita! Fi#a#"i#g #t refers to financing of new high ris!y venture promoted 'y <ualified entrepreneurs who lac! e/perience and funds9 to give shape to their ideas1 #n other words9 under venture capital financing venture capitalist ma!e investment to purchase e<uity or de't securities from ine/perienced entrepreneurs who underta!e highly ris!y ventures with a potential of success1 Some common methods of venture capital financing are as follows3 (i) 1?uity 2i#a#"i#g9 hen funds are re<uired for a longer period 'ut the firm fails to provide returns to the investors during the initial stages9 the venture capital finance is provided 'y way of e<uity share capital1 (ii) Co#$itio#a! !oa#9 A conditional loan is repaya'le in the form of a royalty after the venture is a'le to generate Esales1 ,ere royalty ranges 'etween 5 to 4: per cent1 @o interest is paid on such loans1 (iii) ;#"ome #ote9 #t com'ines the features of 'oth conventional and conditional loans1 The concern has to pay vi019 interest and royalty on sales 'ut at su'stantially low rates1 (i%) Parti"ipati#g $e6e#ture9 Such a security carries charges in three phases " in the start 7 up phase no interest is
charged9 ne/t stage a low rate of interest is charged up to a particular level of operation9 after that9 a high rate of interest is re<uired to 'e paid1
01C -.(8.
rite short notes on the $erpetuity1 Solution 2 ,int 3
Time @a!ue o2 Mo#ey
Perpetuity $erpetuity is an annuity in which the periodic payments or receipts 'egin on a fi/ed date and continue indefinitely or perpetually1 Fi/ed coupon payments on permanently invested +irredeema'le- sums of money are prime e/amples of perpetuities1 The formula for evaluating perpetuity is relatively straight forward1 Two points which are important to understand in this regard are3 +i- The value of the perpetuity is finite 'ecause receipts that are anticipated far in the future have e/tremely low present value +todays value of the future cash flows-1 +ii- Additionally9 'ecause the principal is never repaid9 there is no present value for the principal1 Therefore the price of perpetuity is simply the coupon amount over the appropriate discount rate or yield1
01C -.(+.
Time @a!ue o2 Mo#ey
Mr1 $into 'orrowed Rs1 49**9*** from a 'an! on a one7year )> term loan9 with interest compounded <uarterly1 .etermine the effective annual interest on the loanA
Solution 2 ,int 3
01C -.),.
Suppose Adit has 'orrowed a G7year loan of Rs1 4*9*** at I per cent from his employer to 'uy a motorcycle1 #f his employer re<uires three e<ual end7of7year repayments9 then calculate the annual instalment1
Solution 2 ,int 3
Time @a!ue o2 Mo#ey
01C -.)&.
The cost of a new mo'ile phone is Rs1 4*9***1 #f the interest rate is : percent9 how much would you have to set aside now to provide this sum in five yearsA
Solution 2 ,int 3
Time @a!ue o2 Mo#ey
01C -.)2.
Cou are re<uired to calculate the effective annual rate of interest of3 +a- 4:> nominal per annum compounded <uarterly; and +'- 5(> nominal per annum compounded monthly1 Solution 2 ,int 3
Time @a!ue o2 Mo#ey
01C -.)'.
Cou have invested Rs1 F*9(?F at ) percent1 After paying the a'ove tuition fees9 how much would remain at the end of the si/ yearsA
Solution 2 ,int 3
Time @a!ue o2 Mo#ey
01C -.)(.
Cou have to pay tuition fees amounting to Rs1 459*** a year at the end of each of the ne/t si/ years1 #f the interest rate is ) percent9 how much do you need to set aside today to cover these feesA
Solution 2 ,int 3
Time @a!ue o2 Mo#ey
01C -.)).
Anand Toys maintains a separate account for cash dis'ursement1 Total
4or=i#g
dis'ursements are Rs1 59F59:** per month1 Administrative and transaction cost of transferring cash to dis'ursement account is Rs1 5: per transfer1 Mar!eta'le securities yield is ?1:> per annum1 .etermine the optimum cash 'alance according to illiam O Baumol model1
Solution 2 ,int 3
Capita! Ma#ageme#t A Cash Ma#ageme#t
01C -.)6.
All of the following statements in regard to wor!ing capital are correct e/cept (i) Current lia'ilities are an important source of financing for many small firms1 (ii) $rofita'ility varies inversely with li<uidity1 (iii) The hedging approach to financing involves matching maturities of de't with specific financing needs1 (iv) Financing permanent inventory 'uildup with long7term de't is an e/ample of an aggressive wor!ing capital policy1
Solution 2 ,int 3
4or=i#g Capita! Ma#ageme#t A :asi"
The re<uirement is to determine the false statement regarding wor!ing capital management1 Answer +iv- is correct 'ecause financing permanent inventory 'uildup with long7term de't is an e/ample of a conservative wor!ing capital policy1 Answers +i-9 +ii-9 and +iii- are all accurate statements a'out wor!ing capital management1
01C -.)*.
.ifferentiate 'etween the Spontaneous Sources and @egotiated Sources of Capital Finance1 Solution 2 ,int 3
or!ing
4or=i#g Capita! Ma#ageme#t A :asi"
Spo#ta#eous Sour"es a#$ Negotiate$ Sour"es o2 4or=i#g Capita! Fi#a#"e Spontaneous sources of finance are those which naturally arise in the course of 'usiness operations1 Trade credit credit from employees9 credit from suppliers of services9 etc1 are some of the e/amples which may 'e <uoted in this respect hereas9 on the other hand9 @egotiated sources9 as the name implies9 are those which have to 'e specifically negotiated with lenders say9 commercial 'an!s9 financial institutions9 general pu'lic etc1
01C -.)8.
.ifferentiate 'etween the Management Model1

Solution 2 ,int 3
illiam O1 Baumal and Miller7 %rr Cash
4or=i#g Capita! Ma#ageme#t A Cash Ma#ageme#t
01C -.)+.
Solution 2 ,int 3
01C -.6,.
Sa!ya Limited has the following data for your consideration3 (i) The minimum cash 'alance is Rs1 )9***1 (ii) The variance of daily cash flows is (*9**9***9 e<uivalent to a standard deviation of Rs1 59*** per day1 (iii) The transaction cost for 'uying or selling securities is Rs1 :*1 (iv) The interest rate is *1*5: percent per day1 Cou are re<uired to formulate a decision rule using the Miller7 %rr model for cash management1
Solution 2 ,int 3
01C -.6&.
@alanda Limiteds average inventory is Rs1 49**9**9*** and annual sales are Rs1 (9**9**9***1 Cou are re<uired to calculate the inventory conversion period1
Solution 2 ,int 3
4or=i#g Capita! Ma#ageme#t A ;#%e#tory Ma#ageme#t
01C -.62.
The demand for a commodity is (*9*** units a year9 at a constant rate1 #t costs Rs1 5* to place an order9 and (* paise to hold a unit for a year1 Find the order si0e to minimi0e stoc! costs9 the num'er of orders placed each year9 and the length of the stoc! cycle1
Solution 2 ,int 3
01C -.6'.
The following information relates to material KAL that is used 'y Hamma Company3 Annual usage in units 5*9*** or!ing days per year 5:* Safety stoc! in units )** @ormal lead time in wor!ing days G* The units of the material KAL will 'e re<uired evenly throughout the year1 Compute
the order point1

Solution 2 ,int 3
01C -.6(.
4or=i#g Capita! Ma#ageme#t A MP:F A Ta#$o# Committee
Solution 2 ,int 3
01C -.6).
Royal Sporting Company has Rs1 :* la!hs in inventory and Rs1 5* la!hs in accounts receiva'le1 #ts average daily sales is Rs1 49**9***1 The companys paya'les deferral period is G* days1 Cou are re<uired to calculate the length of the companys cash conversion periodA
Solution 2 ,int 3
4or=i#g Capita! Ma#ageme#t A 5perati#g Cy"!e
01C -.66.
4or=i#g Capita! Ma#ageme#t A Pro7e"te$ Stateme#t
Solution 2 ,int 3
Note: #t has 'een assumed that all the direct materials are allocated to wor!7in7 progress when production starts1
01C -.6*.
#f Beta Companys terms of trade are G24*9 net (: with a particular supplier9 then calculate the cost on an annual 'asis of not ta!ing the discountA Assume a GF*7 day year1
Solution 2 ,int 3
01C -.68.
#ndian Metals Limited is considering a change of credit policy which will result in slowing down in the average collection period from one to two months1 The rela/ation in credit standards is e/pected to produce an increase in sales in each year amounting to 5:> of the current sales volume1 Sales $rice per unit Rs1 4*1**
$rofit per unit +'efore interestRs1 41:* Current Sales Revenue per annum Rs1 5(9**9*** Re<uired Rate of Return on #nvestme nt 5*>
- Pa*e )4 o+ $! -
4or=i#g Capita! Ma#ageme#t A Re"ei%a6!e Ma#ageme#t
4or=i#g Capita! Ma#ageme#t A Re"ei%a6!e Ma#ageme#t
- Pa*e )% o+ $! -
Assume that the 5:> increase in sales would result in additional stoc!s of Rs1 49**9*** and additional creditors of Rs1 5*9***1 Cou are to advise the company on whether or not it should e/tend the credit period offered to customers9 in the following circumstances3 +i- #f all customers ta!e the longer credit of two months1 +ii- #f e/isting customers do not change their payment ha'its9 and only the new customers ta!e a full two months credit1
Solution 2 ,int 3
01C -.6+.
rite short notes on Factoring1

Solution 2 ,int 3
Fa"tori#g #t is a new financial service that is presently 'eing developed in #ndia1 #t is not &ust a single service9 rather a portfolio of complimentary financial services availa'le to clients i1e19 sellers1 The sellers are free to avail of any com'ination of services offered 'y the factoring organi0ations according to their individual re<uirements1 Factoring involves provision of speciali0ed services relating to credit investigation9 sales ledger management9 purchase and collection of de'ts9 credit protection as well as provisions of
4or=i#g Capita! Ma#ageme#t A Re"ei%a6!e Ma#ageme#t A Fa"tori#g
finance against receiva'les and ris!7'earing1 #n factoring9 accounts receiva'les are generally sold to a financial institution +a su'sidiary of commercial 'an! called KFactorL- that charges commission and 'ears the credit ris!s associated with the accounts receiva'le purchased 'y it1 #ts operation is very simple1 Clients enter into an agreement with the KFactorL wor!ing out a factoring arrangement according to his re<uirements1 The Factor then ta!es the responsi'ility of monitoring; follow 7 up9 collection and ris! " ta!ing and provision of advance1 The factor generally fi/es up a limit customer7wise for the client +seller-1 The seller selects various com'inations of these functions 'y changing provision in the factoring agreements1 The seller may utili0e the factor to perform the credit chec!ing and ris!7ta!ing functions 'ut not the lending functions1 6nder this arrangement the factor chec!s and approves the invoices1
01C -.*,. 4or=i#g Capita! Ma#ageme#t A Re"ei%a6!e Ma#ageme#t A Fa"tori#g
Solution 2 ,int 3
01C -.*&.
Poni!a 8lectronics has total sales of Rs1 G15 crores and its average collection period is I* days1 The past e/perience indicates that 'ad7de't losses are 41:> on sales1 The e/penditure incurred 'y the company in administering its receiva'le collection efforts are Rs1 :9**9***1 A factor is prepared to 'uy the companys receiva'les 'y charging 5> commission1 The factor will pay advance on receiva'les to Poni!a 8lectronics at an interest rate of 4)> p1a1 after withholding 4*> as reserve1 Cou are re<uired to compute the effective cost of factoring to Poni!a 8lectronics1
Solution 2 ,int 3
4or=i#g Capita! Ma#ageme#tA Re"ei%a6!e Ma#ageme#t A Fa"tori#g
G*) P8C T8RMS #@
F;N0NC;0> M0N0C1M1NT
S@ 41 Term 0:C 0#a!ysis 8/planation The techni<ue suggested for inventory control can e<ually 'e applica'le to management of de'tors 'alances 'y classifying the 'alances into QA classR9 QB classR and QC classR1 The a'solute li<uid assets include cash in hand9 cash at 'an! and short7term or temporary investments1 #t is calculated as a percentage of the average annual profits after ta/ to average investment in the pro&ect9 and the pro&ect with higher rate of return will 'e selected1 #t is also !nown as Qreturn on investmentR or Qreturn on capital employedR1 The accounting ratios are used to descri'e significant relationships which e/ist 'etween figures shown in the financial statements1 A ratio is a <uotient of two num'ers and the relation is e/pressed 'etween two accounting figures1 #n ageing schedule9 the total de'tors 'alances are classified according to their age of outstanding1 The schedule helps in analy0ing the ris! of default1 The agency theory models a situation in which a principal +shareholders- delegate decision ma!ing authority to an agent +managers- who receives a reward in return for performing some activity of principal1 The shareholders can ma/imi0e their wealth 'y giving appropriate incentives to the managers and 'y proper monitoring of the managers1 The management is considered to 'e an agent of shareholders9 and if it does not act in the 'est interests of the shareholders9 it leads to agency costs for the firm resulting in a fall of mar!et price1 ?1 0ggressi%e Strategy 6nder this approach9 current assets are maintained &ust to meet the current lia'ilities without !eeping cushion for variations in wor!ing capital needs1 #ssue of securities 'y an #ndian company in 61S1 through appointment of 'an! as depository is called QAmerican .epository Receipts +A.Rs-1 The physical shares remain in #ndia with a domestic depository 'an! who shall act as agent of overseas depository 'an!1 The foreign investors can sell these A.Rs in foreign stoc! e/changes or 'ac! to the depository to get delivery of the underlying rupee denominated shares9 which can 'e sold in the #ndian stoc! mar!ets1 #t is a gradual and systematic writing7off of an asset or repayment of lia'ility over a period1 FM CH 38 or!ing capital planning Su'1 FM 41 C, Related Topic
CH R8C8#VABL8S MA@AH8M8@T de'tors
51
06so!ute >i?ui$ 0ssets 0""ou#ti#g Rate o2 Retur#
FM
CH 28 CH 36
Ratio Analysis
G1
FM
Capital 'udgeting techni<ues
(1
0""ou#ti#g Ratio
FM
CH 28
Ratio Analysis
:1
0gei#g S"he$u!e
FM
CH 41
R8C8#VABL8S MA@AH8M8@T
F1
0ge#"y Theory
FM
CH 26
#ntroduction T% F#@A@C#AL MA@AH8M8@T
)1
0meri"a# <epository Re"eipts
FM
CH 35
M8.#6M A@. L%@H
I1
0morti8atio#
FM
CH 27
T#M8 VAL68 %F M%@8C
S@ 4*1
Term 0##uity
8/planation #t is the amount per period of cash inflow or cash outflow for a specified period of time1 For e/ample9 depositing Rs1 ?** p1m1 in 'an! recurring deposit for a period of : years to get Rs1 :*9*** at he end of :th year1 An increase in an asset or decrease in a lia'ility over the year will result in an application of fund1 These ratios measure how effectively the firm employs its resources9 which involve comparison 'etween the level of sales and investment in various accounts li!e inventories9 de'tors9 fi/ed assets etc. #t is the creation of facilities of production of raw materials and components re<uired for current production1
Su'1 FM
C, CH 27
Related Topic T#M8 VAL68 %F M%@8C
441
0pp!i"atio# o2 Fu#$ 0sset Ma#ageme#t Ratios
FM
CH 29 CH 28
F6@.S FL% A@ALCS#S Ratio Analysis
451
FM
4G1
:a"= ar$ ;#tegratio#
FM
CH 34
$R%O8CT $LA@@#@H A@. A$$RA#SAL or!ing capital planning $R%O8CT $LA@@#@H A@. A$$RA#SAL
4(1
:a!a#"e Sheet 0pproa"h :a!a#"i#g Pro7e"t
The wor!ing capital has its significance in two perspectives1 These are gross wor!ing capital and net wor!ing capital1 The 'alancing e<uipment is installed to remove the 'ottlenec!s and to increase the capacity utili0ation of total plant1
FM
CH 38 CH 34
4:1
FM
4F1
:a#= Cuara#tee
#t is a form of facility e/tended 'y the 'an!9 on 'ehalf of its customer9 in favour of third parties who will 'e the 'eneficiaries of the guarantees1 The 'an!erRs lia'ility arises only if his customer fails to pay the 'eneficiary of the guarantee1 The 'an! guarantee limits are !nown as Qnon7'orrowing limitsR or Qnon7 fund limitsR1 #t is a short7term 'orrowing facility made availa'le 'y the 'an! to the companies in case of urgent need of funds9 with a right to call them 'ac! at short7notice1 #t suggests that cash to 'e managed in the same manner li!e any other items of inventory and finds an optimum cash 'alance 'y com'ining the carrying costs and transaction costs to the minimum1 The carrying costs refer to cost of holding cash i.e. interest foregone on mar!eta'le securities1 The transaction costs refer to cost involved in getting the mar!eta'le securities converted into cash and vice versa.
FM 39
CH or!ing capital F#@A@C#@H
4?1
:a#= 5%er$ra2t
FM
CH 39
or!ing capital F#@A@C#@H
4)1
:aumo!Ds 15Mo$e!
FM
CH 40
CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T
4I1
:i!!s 0""epta#"e
6nder this finance arrangement9 a company draws a 'ill on the 'an!1 The 'an! accepts the 'ill there'y promising to payout the amount of the 'ill at a specified future date1 The 'ill 'earing the 'an!Rs name can 'e sold in the money mar!et at a discount than the amount for which the 'ill is drawn1 #t is a source of wor!ing capital finance in which 'ills arising out of trade transactions are sold to a financial intermediary at a discount1 The 'an!er will generally earmar!s the discounting 'ill limit1 hen an instrument is given9 nota'ly negotia'le instrument9 in
FM
CH 39
5*1
:i!!s <is"ou#ti#g
FM
CH 39
541
:i!!s Paya6!e
FM
CH
or!ing capital
S@
Term
8/planation ac!nowledgment of the de't the same appears in the 'alance sheet of the 'uyer as Q'ills paya'leR or Qnotes paya'leR1
Su'1
C, 3 9
Related Topic F#@A@C#@H M8.#6M A@. L%@ H
551
:oo= :ui!$i#g
#n the 'oo! 'uilding process9 the issuing company will ascertain the demand for the securities and the price at which such securities and ultimately determines the <uantum of shares to 'e issued and the issue price1 The issue price is not fi/ed in advance1
FM
C H 3 5
5G1
:oo= @a!ue
#t indicates the net worth per e<uity share and it reflects the past earnings and distri'ution policy of the company1 The 'ridge loans are raised from 'an!s and financial institutions when the source and timing of the funds to 'e raised is !nown with certainty9 to fill the time gap in accessing the funds to speed up the pro&ect implementation1
FM
5(1
:ri$ge >oa#s
FM
C H 2 8 C H 3 5 C H 3 4 C H 3 4 C H 3 3 C H 2 6 C H 3 6 C H 3 4 C H 2 8
Ratio Analysis
M8.#6M A@. L%@ H
5:1
:ui!$B 5perate a#$ Tra#s2er (:.5.T.)
6nder this the entrepreneur 'uilds the pro&ect on 'ehalf of the government from his own resources and operates it for certain period and then transfer the pro&ect to the government1 6nder this9 the entrepreneur 'uilds the pro&ect from his own resources and operates the pro&ect after its commercial launching1 #t arises due to higher amount of fi/ed overheads in cost structure1
FM
$R%O8CT $LA@@#@H A@. A$$RA#SAL $R%O8CT $LA@@#@H A@. A$$RA#SAL %$8RAT#@H A@. financia l L8V8RAH8 #ntroduction T% F#@A@C#AL MA@AH8M8@T
5F1
:ui!$B 5 # a#$ 5perate (:.5.5.)
FM
5?1
:usi#ess Ris=
FM
5)1
:usi#ess Ta3atio#
The ta/ payments represent a cash outflow from the 'usiness and these cash flows are critical part of the financial planning and decision ma!ing in a 'usiness firm1 The ta/ation implications are dominant influences on the final investment decisions also1 #t is a long7term planning e/ercise in selection of pro&ects which generates cash flows over a num'er of years in future1 #t is an art of finding assets that are worth more than they cost to achieve the goals of optimi0ing wealth of owners1 #t includes share capital9 reserves and surplus9 secured loans9 unsecured loans less investments made outside 'usiness9 preliminary e/penses9 profit and loss account de'it 'alance and capital wor!7in7progress1
FM
5I1
Capita! :u$geti#g
FM
Capital 'udgeting techni<ues $R%O8CT $LA@@#@H A@. A$$RA#SAL Ratio Analysis
G*1
Capita! :u$geti#g
FM
G41
Capita! 1mp!oye$
FM
G51
Capita! ;#%estme#t <e"isio#
#t involves a huge outlay and it should 'e appraised and made carefully with a view to ma/imi0e the wealth of the concern1 #t involves huge amounts of money and having a long7span of time for cash inflow and carry some degree of ris! and uncertainty with the cash flows1 #t involves search for investment opportunities9 screening and evaluation of alternatives and selection of right alternative for
FM
C H 3 6 C H 3 4 C H
GG1
Capita! ;#%estme#t <e"isio#s
FM
$R%O8CT $LA@@#@H A@. A$$RA#SAL $R%O8CT $LA@@#@H A@.
G(1
Capita! ;#%estme#t
FM
S@
Term Pro"ess implementation1
8/planation
Su'1
C, 34
Related Topic A$$RA#SAL #ntroduction T% F#@A@C#AL MA@AH8M8@T Capital 'udgeting techni<ues
G:1
Capita! Mar=et
The capital mar!et refers to the mar!et for long7term securities9 such as corporate stoc!s and 'onds9 for financing long7term assets1 #t refers to the selection of the investment proposals in a situation of constraint on availa'ility of funds9 to ma/imi0e the wealth 'y ma/imi0ing the @$V of its pro&ects selected for implementation1 The capital structure of a company implies de't and e<uity components raised from long7term sources1
FM
CH 26
GF1
Capita! Ratio#i#g
FM
CH 36
G?1
Capita! Stru"ture
FM
CH 32
CA$#TAL structure A@. VAL68 %F F#RM T#M8 VAL68 %F M%@8C C%ST %F CA$#TAL A@. ACC CAS, FL% A@ALCS#S CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T
G)1
Capita!i8i#g Rate
#t is the rate applied in the reverse process of discriminating the present value of future cash flows1 Cost of e<uity capital consists of ris! free return plus premium to compensate for 'usiness and financial ris!s1
FM
CH 27 CH 31
GI1
C0PM Metho$
FM
(*1
Cash
#t comprises of cash in hand and demand deposit with 'an!s1
FM
CH 30 CH 40
(41
Cash 0ssets
The cash assets include holding of funds in most li<uid form li!e cash in hand9 cash at 'an!9 mar!eta'le securities etc.
FM
(51
Cash 0ssets Ma#ageme#t
The 'asic o'&ective of cash assets management is to optimi0e li<uidity and profita'ility1 Cash is a non7earning asset1 #dle and temporary cash surplus to 'e suita'ly invested in li<uid9 short7 long7term investments as per the firmRs policy with a view to increase its profita'ility1 #t incorporates the cash inflow and cash outflow9 'oth revenue CH and capital items9 to ascertain the cash flow position and to
FM
CH CAS, ASS8TS 40 A@. TR8AS6RC MA@AH8M8@T term and
(G1
Cash :u$get
FM
CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T CH 30 CAS, FL% A@ALCS#S
((1
Cash :u$get
40 cash 'udget is prepared for the forthcoming period as a The planning e/ercise1 #t starts with the opening 'alance of cash in hand and at 'an!1 #t incorporates all e/pected cash receipts and estimated payments and ascertain the e/cess or shortage of the cash for the period1 #t refers to the e/clusion of depreciation from e/penses in the operating cycle1 #n estimation of wor!ing capital under cash cost 'asis9 depreciation is e/cluded from cost of goods sold; depreciation and profit margin are e/cluded from selling price for ascertaining the investment in de'tors 'alance1 The 'an!er will allow certain amount of credit facility to its customer on continuous 'asis and the customer is not allowed
FM
(:1
Cash Co#%ersio# Cy"!e Cash Cost 4or=i#g Capita!
FM
CH 38 CH 38
or!ing capital planning or!ing capital planning
(F1
FM
(?1
Cash Cre$it
FM
CH 39
S@
Term
8/planation to e/ceed the limit sanctioned 'y the 'an!1
Su'1
C,
Related Topic
()1
Cash <e2i"its
The cash shortages can result in ma!ing of su'optimal investment decisions and su'optimal financing decisions1
FM
CH 40
CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T or!ing capital F#@A@C#@H
(I1
Cash <is"ou#t
#t is a discount or reduction in de't allowed 'y creditors to their de'tors to encourage them to pay their dues 'efore the e/piry of credit period1 These are offered 'y the seller to the customer to encourage payment1 These are also called as Qsettlement discountsR1 A purchases goods has to ma!e an analysis of accepting either cash discount or credit term1 #t is calculated 'y dividing the net profit 'efore depreciation with num'er of e<uity shares1 These are short7term9 highly li<uid investments that are readily converti'le into !nown amounts of cash and which are su'&ect to an insignificant ris! of changes in value1 81g1 commercial paper9 treasury 'ills1 #t provides information a'out the cash receipts and cash payments of an enterprise for a given period 'y providing the information a'out changes in cash and cash e<uivalents1 #t means the movement of cash into and out of the organi0ation and the difference is either net cash inflow or net cash outflow1 @et profit S .epreciation FM
FM
CH 39
:*1
Cash <is"ou#ts
CH 41
R8C8#VABL8S early MA@AH8M8@T firm
:41
Cash 1PS
FM
CH
Ratio Analysis
:51
Cash 1?ui%a!e#ts
FM
CH 30
CAS, FL% A@ALCS#S
:G1
Cash 2!o Stateme#t
FM
CH 30
CAS, FL% A@ALCS#S
:(1
Cash 2!o s
FM
CH 30 CH 28 CH 40
CAS, FL% A@ALCS#S Ratio Analysis
::1
Cash Pro2it
FM
:F1
Cash Proportio# Ratio
This ratio will assist in the cash management 'y fi/ing the level of cash 'alance in proportion to the level of current assets1
FM
CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T F6@.S FL% A@ALCS#S
:?1
Cash Tur#o%er
#n determining the amount of cash that the company may need to carry cash is to e/amine the cash 'alance in relation to sales of the period1 6nder this9 the treasury department is setup in the head office which will loo! after the management of funds of multi7 locational centers of the organi0ation1 The e/cess of funds generated over funds outgo from noncurrent assets and noncurrent lia'ilities will lead to increase or decrease in wor!ing capital and it is presented in a statement form1 A firm has to incur some routine costs li!e sending reminders9 telephone e/penses9 e/penses incurred for personal visits to customersR places9 commission and fees paya'le to collection agencies9 legal e/penses etc.
FM
CH 40
:)1
Ce#tra!i8e$ Treasury Ma#ageme#t Cha#ges i# 4or=i#g Capita! Positio#
FM
CH 40
:I1
FM
CH 29
F*1
Co!!e"tio# 13pe#ses
FM
CH 41
S@ F41
Term Co!!e"tio# F!oat
8/planation #t refers to the time 'etween the payment made 'y the de'tors or customers and the time when funds availa'le for use in the companyRs 'an! account1 #t is a usance promissory note9 negotia'le 'y endorsement and delivery1 The commercial paper are issued 'y the corporate9 as a form of wor!ing capital finance9 who o'tains credit rating and wor!ing capital limits from the commercial 'an!s1 The issuing companyRs net worth should not 'e less than Rs1 ( crores1 C$ is issued at a discount and matured at face value1 #n computation of compound interest9 interest of one period is added to the principal for the ne/t period1 The compounding is done monthly9 <uarterly9 half7yearly9 annually etc1 #t is the rate used in pro&ect evaluation to determine the present value of past investment or cash flows1 hen two investment proposals are mutually e/clusive9 @$V and #RR methods will give a conflicting ran!ing1 #RR do not use the concept of desired rate of return9 whereas it provides rate of return which is indicative of the profita'ility of investment proposal1 6nder @$V method9 all pro&ects with a positive @$V9 when discounted at firmRs cost of capital9 will 'e chosen1 #t suggests not to ta!e any ris! in wor!ing capital management and to carry a high level of current assets in relation to sales1 #t is generally offered to the end7consumer1
Su'1 FM
C, CH 40
Related Topic CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T or!ing capital F#@A@C#@H
F51
Commer"ia! Paper
FM
CH 39
FG1
Compou#$ ;#terest
FM
CH 27
T#M8 VAL68 %F M%@8C
F(1
Compou#$i#g Rate Co#2!i"ti#g Ra#=i#g
FM
CH 27 CH 36
T#M8 VAL68 %F M%@8C Capital 'udgeting techni<ues
F:1
FM
FF1
Co#ser%ati%e Strategy Co#sumer Cre$it
FM
CH 38 CH 41 CH 35
or!ing capital planning R8C8#VABL8S MA@AH8M8@T M8.#6M A@. L%@H
F?1
FM
F)1
Co#%erti6!e Se"urities
The converti'le de'entures or converti'le preference shares are e/changea'le into ordinary shares either at the option of the holder or compulsory conversion under specified terms and conditions1 The core current assets are those re<uired 'y the firm to ensure the continuity of operations which represents the minimum levels of various items of current assets1 This minimum level of current assets is to 'e financed 'y long7term sources and any fluctuations over the minimum level of current assets will 'e financed 'y the short7term financing1 The corporate financing means identification of funds re<uirement of a firm and raising of funds from various sources to meet the funds re<uirement of the firm1 The cost of capital is the rate of return paya'le to various suppliers of funds li!e e<uity share capital9 preference share capital9 de'entures9 term loans etc. The company should earn in e/cess of cost of capital to increase its mar!et value1 The e/tension of credit to customers involves the carrying costs9 defaulting costs9 administration costs1 Costs of denying credit
FM
FI1
Core Curre#t 0ssets
FM
CH 38
or!ing capital planning
?*1
Corporate Fi#a#"i#g
FM
CH 26
#ntroduction T% F#@A@C#AL MA@AH8M8@T C%ST %F CA$#TAL A@. ACC
?41
Cost o2 Capita!
FM
CH 31
?51
Cost o2 Cre$it
FM
CH 41
S@
Term leads to loss of sales1
8/planation
Su'1
C,
Related Topic
?G1
Cost o2 <e6t
The cost of de't funds li!e de'entures9 term loans9 is the interest paya'le on it less of ta/ shield1
FM
CH 31
C%ST %F CA$#TAL A@. ACC C%ST %F CA$#TAL A@. ACC C%ST %F CA$#TAL A@. ACC
?(1
Cost o2 1?uity
#t is the minimum rate of return that a company must earn on the e<uity share capital financed portion of a pro&ect so that mar!et price of the shares remains unchanged1 #t is ascertained 'y dividing the preference dividend with net proceeds from issue of preference shares after deducting the floatation costs1 The cost of preference capital can also 'e ascertained 'y dividing the preference dividend with average amount of redeema'le and sale value of preference shares1 #t is the aggregate of costs estimated to 'e incurred on various heads for 'ringing the pro&ect into e/istence li!e land and site development9 factory 'uilding9 plant and machinery9 miscellaneous fi/ed assets9 preliminary and preoperative e/penses9 technical !nowhow fees9 contingencies and escalation9 margin money for wor!ing capital1
FM
CH 31
?:1
Cost o2 Pre2ere#"e Capita!
FM
CH 31
?F1
Cost o2 Pro7e"t
FM
CH 34
$R%O8CT $LA@@#@H A@. A$$RA#SAL
??1
Cost o2 Retai#e$ 1ar#i#gs
#t may 'e considered e<uivalent to the return foregone 'y the e<uity shareholders9 and it is the opportunity cost of funds not availa'le for reinvestment 'y the individual shareholders1 #t relates to the ascertainment of cost of capital from different sources li!e e<uity capital9 preference capital9 de'entures9 long7 term loans etc1 #t is the period for which trade credit is made availa'le to the company 'y its suppliers1 A firm is re<uired to esta'lish its credit policy for efficient management of receiva'les1 A credit policy specifies the credit accepta'le credit ris!9 discount policy9 assessment of creditworthiness9 action against slow7players1 The credit ris! means that there is a possi'ility that the de't will go 'ad1 These are the guiding principles set 'y the credit control department to screen and select the customers9 to whom credit 'e offered1 #t is the time period allowed to the customer in payment against credit sales1 #t indicates the average time ta!en 'y a firm to pay for goods and services purchased1 The 'asic consideration in granting credit is the evaluation of the de't will go 'ad1 The information a'out the status of the party is assessed1 #t is termed as FM 41
FM
CH 31
C%ST %F CA$#TAL A@. ACC #ntroduction T% F#@A@C#AL MA@AH8M8@T or!ing capital F#@A@C#@H R8C8#VABL8S MA@AH8M8@T term9
?)1
Costi#g
FM
CH 26
?I1
Cre$it Perio$
FM
CH 39 CH 41
)*1
Cre$it Po!i"y
FM
)41
Cre$it Ris=
FM
CH 41
)51
Cre$it Sta#$ar$s
FM 41
CH R8C8#VABL8S MA@AH8M8@T limit can
)G1
Cre$it Term
FM
CH 41 CH 28
R8C8#VABL8S MA@AH8M8@T Ratio Analysis
)(1
Cre$itors Payme#t Perio$ Cre$it orthi#ess
FM
):1
CH R8C8#VABL8S ris! that MA@AH8M8@T and soundness
S@
Ter m Curre#t 0ssets
8/planation QcreditworthinessR of the customer1 The current assets are those assets which can 'e converted into cash within a year1 For e/ample9 sundry de'tors9 stoc!9 short7 term investments1
Su' 1 FM
C , C H 2 8 C H 3 8 C H 2 8 C H 3 8 C H 3 5 C H 2 8 C H 3 9 C H 3 4 C H 3 2 C H 2 8 C H 2 8 C H 4 1
Related Topic
)F1
Ratio Analysis
)?1
Curre#t 0ssets
The current assets are those assets which are converti'le into cash within a period of one year and are re<uired to meet the day to day operations of the 'usiness1
FM
))1
Curre#t >ia6i!ities Curre#t >ia6i!ities
The current lia'ilities and provisions that are paya'le within a year1 For e/ample9 creditors9 'ills paya'le1 The current lia'ilities are those claims of outsiders which are e/pected to mature for payment within an accounting year1 A de'enture is an ac!nowledgment of de't for the repayment of principal sum at a specified future date and for the payment of interest at a fi/ed rate of interest until the principal amount is repaid1
FM
Ratio Analysis
)I1
FM
or!ing capital planning M8.#6M A@. L%@ H
I*1
<e6e#ture
FM
I41
<e6t
The long7term lia'ilities raised for 'usiness li!e de'entures9 'onds9 term loans etc. $reference share capital is e/cluded from de't1
FM
Ratio Analysis
I51
<e6t Se"uriti8atio#
#n this case9 de'ts are transferred 'y the originator to the special purpose vehicle +S$V- which acts as the trustee1 The S$V issues asset 'ac!ed trada'le securities to investors1 #t indicates the a'ility of the 'orrower to service the loan in regard to timely payment of interest and repayment of loan installment1 A ratio of 5 is considered satisfactory 'y the financial institutions1 The de't7e<uity ratio is a commonly used determinant of capital structure1 There is an optimal capital structure where the marginal ta/ 'enefit is e<ual to the marginal cost of anticipated financial distress1 #t indicates the time ta!en to collect amounts from de'tors1
FM
IG1
<e6t Ser%i"e Co%erage Ratio
FM
I(1
<e6t-1?uity Ratio 0#a!ysis
FM
CA$#TAL structure A@. VAL68 %F F#RM
I:1
<e6tors Co!!e"tio# Perio$
FM
Ratio Analysis
IF1
<e6tors Tur#o%er
#t indicates the amount of resources tied up in de'tors and it indicates the efficiency of the firm in converting de'tors into cash1
FM
Ratio Analysis
I?1
<e"isio# Tree
The decision tree techni<ue can 'e used in analy0ing the cost7 'enefit in granting credit to a customer1 The payment of de't or turning out to 'e 'ad de't are the future uncertain events for which pro'a'ilities are assigned9 'ased on the chances of outcome estimated1
FM
I)1
<e2e#si%e ;#ter%a!
#t is measure of li<uid assets against pro&ected daily cash re<uirement1
FM
C H 2 8
Ratio Analysis
S@ II1
Term <e2erre$ 0##uity <egree o2 Fi#a#"ia! >e%erage <egree o2 5perati#g >e%erage
8/planation #t is an annuity where the first payment is delayed 'eyond one year1 #t measures the responsiveness of 8$S to the changes in 8B#T1
Su'1 FM
C, CH 27 CH 33
Related Topic T#M8 VAL68 %F M%@8C %$8RAT#@H A@. financial L8V8RAH8 %$8RAT#@H A@. financial L8V8RAH8
4** 1
FM
4*4 1
#t measures the responsiveness of 8B#T to change in levels of output and indicates the response in profits with alteration of output and sales1 here there is a change of 4> in sales produces a more than 4> change in 8B#T9 there is a presence of operating leverage1 #t measures the sensitivity of 8$S to change in <uantity produced and sold1
FM
CH 33
4*5 1
<egree o2 Tota! >e%erage
FM
CH 33
%$8RAT#@H A@. financial L8V8RAH8 #ntroduction T% F#@A@C#AL MA@AH8M8@T
<epre"iatio# 0!!o a#"e 4*G 1 <eri%ati%e Mar=et 4*( 1 <etai!e$ Pro7e"t Report
#t is the measure of wearing out9 consumption or other loss of value of a fi/ed asset1 #t may also arise from use of asset9 afflu/ion of time9 o'solescence through technology and mar!et changes etc1 .epreciation will also serve as a ta/ shield1 The individuals and firms who wish to avoid or reduce ris! can deal with others who are willing to accept the ris! for a price1 The common place where such transactions ta!e place is called Qderivatives marketR1 #t contain the details a'out the plan of action9 details a'out technical9 financial9 mar!eting9 management and social aspects1 The detailed pro&ect report will 'e su'mitted to the 'an!s and financial institutions for financial support 'oth for long7term assistance and wor!ing capital re<uirements1 6nder this method9 cash receipts from operating revenues and cash payments for operating e/penses are rearranged so as to get cash flow from operating activities1 6nder discounted cash flow techni<ues9 the future net cash flows generated 'y a capital pro&ect are discounted to ascertain their present values1 #t is ascertained 'y accumulating the present values of net cash inflows year after year9 till the original cash outlay is recovered1 The discounting of cash flows is done as in case of @$V method1 The process of converting cash flows into their present e<uivalents is !nown as QdiscountingR1 The value of future cash flows are assessed to the present date 'y inverting the compounding process to give present value of future cash flows1 The process of ascertainment of present values is called QdiscountingR1 #t is an investment decision to setup an entirely new pro&ect which is not connected with the e/isting line of 'usiness with a view to increase asset 'ase9 increase in turnover and profits9
FM
CH 26
FM
CH 26
FM
CH 34
4*: 1 <ire"t Metho$
FM
CH 30
CAS, FL% A@ALCS#S
4*F 1
<is"ou#te$ Cash2!o Te"h#i?ues <is"ou#te$ Pay6a"= Perio$
FM
CH 36
FM
4*? 1
CH 36
<is"ou#ti#g 4*) 1
FM
CH 36 CH 27
Capital 'udgeting techni<ues T#M8 VAL68 %F M%@8C
<is"ou#ti#g
FM
4*I 1
<i%ersi2i"atio# Pro7e"t
FM
CH 34
$R%O8CT $LA@@#@H A@.
44*
S@
Term
8/planation reduced level of 'usiness ris! etc.
Su'1
C,
Related Topic A$$RA#SAL
445 1
<i%i$e#$
44G 1
<i%i$e#$ <e"isio#s
#t indicates the num'er of times the dividends are covered 'y the profits availa'le for distri'ution1 28 The dividend decisions concerned with the determination of <uantum of profits to 'e distri'uted to the owners and the fre<uency of such payments and the amounts to 'e retained 'y the firm1 An allowance for future growth in dividend is added to the current dividend yield in computation of cost of e<uity capital1
FM
CH
Ratio Analysis
FM
CH 26
44( 1
<i%i$e#$ Cro th Metho$
FM
CH 31
C%ST %F CA$#TAL A@. ACC Ratio Analysis
<i%i$e#$ Payout 44: 1
<i%i$e#$ Eie!$
#t indicates the e/tent of net profits distri'uted to the shareholders as dividend1 28 #t reflects the percentage of yield an investor receives on his current mar!et price of a share1 The cost of e<uity capital is defined as the discount rate that e<uates the present value of all e/pected future dividends per share with the current mar!et price of share1 #t indicates the a'ility of the 'orrower to service the loan in regard to timely payment of interest and repayment of loan installment1 #t is a chart of financial ratios which analyses the net profit margin in terms of assets turnover1 #t indicates that the return on investment is ascertained as a product of net profit margin ratio and investment turnover ratio1 #t is an important tool in capital structure1 The optimum capital structure can 'e determined 'y ta!ing into consideration the financial 'rea!7even and financial indifference points1 The efficiency in wor!ing capital management is measured 'y computing the ratios li!e wor!ing capital to sales ratio9 inventory turnover ratio and current assets turnover ratio1 #t refers to the networ!ed cash management systems to ensure faster and relia'le mo'ility of funds 'y adopting latest information technologies1 #n this9 the contractor ta!es complete responsi'ility to construct9 erect9 commission and supply the plant and !eeps it ready to operate 'y the owner1
FM
CH
FM
CH
Ratio Analysis
44F 1
<i%i$e#$ Eie!$ Metho$
FM
CH 31
44? 1
<SCR
FM
CH 28
44) 1
<u Po#t Chart
FM
CH 28
Ratio Analysis
44I 1
1:;T-1PS 0#a!ysis
FM
CH 32
CA$#TAL structure A@. VAL68 %F F#RM or!ing capital planning
122i"ie#"y Ratios 45* 1
FM
CH 38
1!e"tro#i" Cash Ma#ageme#t
FM
CH 40
CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T $R%O8CT $LA@@#@H A@. A$$RA#SAL
454 1
1#gi#eeri#gB Pro"ureme#t a#$ Co#stru"tio# (1.P.C.) 1PS
FM
CH 34
455 1
#t is a measure of net profit earned per share1 A higher 8$S means 'etter capital productivity and economic performance of the company1 The e<uity represents the shareholders funds which include e<uity share capital9 preference share capital9 reserves and
FM
CH 28
Ratio Analysis
45G 1
1?uity
FM
CH
Ratio Analysis
S@
Term
8/planation surplus less accumulated losses1
Su'1
C, 28
Related Topic
45F 1
1?uity Shares
An e<uity interest in a company may 'e said to represent a share of the companyRs assets and a share of the profits earned on those assets after other claims have 'een met1 The e<uity shareholders have a right to vote on every resolution placed in the general meeting and the voting rights shall 'e in proportion to the paid7up capital1 #t denotes that the issue is made a'road through instruments denominated in foreign currency and the securities issued are listed on overseas stoc! e/change1 The e/isting plant capacity can 'e e/panded with a view to produce a large volume of output than the current level1
FM 35
CH
M8.#6M A@. L%@H
45? 1
1uro issue
FM
CH 35
M8.#6M A@. L%@H
45) 1
13pa#sio# Pro7e"t
FM
CH 34
$R%O8CT $LA@@#@H A@. A$$RA#SAL M8.#6M A@. L%@H
45I 1
13ter#a! Commer"ia! :orro i#gs Fa"tori#g
8CBs are the 'orrowings made 'y corporate and financial institutions from international mar!ets for a maturity period of over 4)* days and with a relative lower financing cost1 #t is a method of financing wor!ing capital where'y the company sells its trade de'ts at a discount to a financial institution called QfactorR1 The factor ma!es immediate payment upto )*> of the invoice value and the 'alance 5*> amount is paid on due date9 after deducting its commercial charges1 Before the finali0ation of a capital investment decision9 a feasi'ility study will 'e conducted to confirm a'out the techno7 commercial feasi'ility1 The feasi'ility study report contains 'rief details which are su'stantial in ma!ing the capital investment decision1 The finance decisions assert that the mi/ of de't and e<uity chosen to finance investments should ma/imi0e the value of investments made1 The financial ris! arises due to use of de't in capital structure1 @8.C ris!s arise out of no employment of de't capital in the capital structure1 #n determining the optimum level of de't7 e<uity com'ination9 the Finance Manager has to 'alance the financial and @8.C ris!s 'y minimi0ing the total ris!2costs1 #t is the point where fi/ed interest charges are &ust e<ual to 8B#T1 #t denotes the level of 8B#T for which firmRs 8$S is &ust e<ual to 0ero1 The financial cash flows arise from variations in long7term capital1 #t include cash from issue of shares and de'entures9 repayment of term loans etc. After the necessary government clearances o'tained and after entering into loan agreements9 the pro&ect in all aspects ready for implementation and this state of readiness for monetary support of pro&ect is called Qfinancial closureR1
FM
CH 35
FM 39
CH or!ing capital F#@A@C#@H
4G* 1 Feasi6i!ity Stu$y
FM
CH 34
4G4 1 Fi#a#"e <e"isio#s
FM
CH 26
#ntroduction T% F#@A@C#AL MA@AH8M8@T CA$#TAL structure A@. VAL68 %F F#RM
4G5 1
Fi#a#"ia! a#$ N1<C Ris=s Tra$e-o22
FM
CH 32
4GG 1
Fi#a#"ia! :rea=e%e# Poi#t
FM
CH 32
CA$#TAL structure A@. VAL68 %F F#RM CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T $R%O8CT $LA@@#@H A@. A$$RA#SAL
Fi#a#"ia! Cash2!o s 4G( 1
FM
CH 40
Fi#a#"ia! C!osure
FM
CH 34
4G: 1
S@ 4G? 1
Term Fi#a#"ia! <isi#terme$iatio#
8/planation #n this9 the savers ta!e their funds out of financial institutions and 'uy the primary securities themselves1
Su'1 FM
C, CH 26
Related Topic #ntroduction T% F#@A@C#AL MA@AH8M8@T CA$#TAL structure A@. VAL68 %F F#RM CA$#TAL structure A@. VAL68 %F F#RM
4G) 1
Fi#a#"ia! <istress a#$ 0ge#"y Costs Fi#a#"ia! ;#$i22ere#"e Poi#t
hen the leverage of the firm is e/tremely high9 it is li!ely to run into the costs of financial distress and 'an!rupting9 and agency costs1 #t is the situation when two alternative financial plans to produce the level of 8B#T where 8$S is same1 The 8B#T at indifference point e/plains that the 8$S for two methods of financing is e<ual1 #t is a sort of indirect financing in which the savers deposit funds with financial institutions and 'an!s9 who in turn lend to the ultimate 'orrowers1 #n a financial lease9 the lessor intends to recover his capital 'uy outlay plus a re<uired rate of return on funds used in financing the asset1 Financial lease is a non7cancella'le contractual commitment on the part of lessee9 who ac<uires most of the economic values associated with the outright ownership of the asset at the end of the lease period1 #t refers to the use of de't component in capital structure and the effect of payment of fi/ed interest on firmRs profita'ility1 #t is e/pressed as 8B#T28BT1 A high financial leverage indicates a percentage of de't in the capital structure1 #t conveys interest 'urden on the firm1 #t studies a'out the process of procuring and &udicious use of financial resources with a view to ma/imi0ing the value of the firm there 'y the value of the owners1 The financial mar!ets are the transmission mechanism 'etween saver7lenders and 'orrower7spenders1 6ltimate lenders supply funds to ultimate 'orrowers either directly 'y 'uying primary securities or indirectly 'y 'uying lia'ilities of speciali0ed financial institutions9 which in turn 'uy the primary securities1 #t arises due to high charge of interest due to e/cessive use of de't component1
FM
CH 32
FM
4GI 1
CH 32
Fi#a#"ia! ;#terme$iatio# 4(* 1
FM
CH 26
#ntroduction T% F#@A@C#AL MA@AH8M8@T lease or decisions
Fi#a#"ia! >ease
FM
CH 37
4(4 1
Fi#a#"ia! >e%erage
FM
CH 33
%$8RAT#@H A@. financial
L8V8RAH8 higher 4(5 1 Fi#a#"ia! Ma#ageme#t
FM
CH 26
#ntroduction T% F#@A@C#AL MA@AH8M8@T #ntroduction T% F#@A@C#AL MA@AH8M8@T
Fi#a#"ia! Mar=et 4(G 1
FM
CH 26
4(( 1
Fi#a#"ia! Ris=
FM
CH 33
%$8RAT#@H A@. financial L8V8RAH8 #ntroduction T% F#@A@C#AL MA@AH8M8@T
Fi#a#"ia! Se"tor Re2orms 4(: 1 Fi#a#"ia! Stru"ture
The financial sector reforms aim at promoting a diversified9 efficient and competitive financial sector with ultimate o'&ective of improving the allocative efficiency of availa'le resources9 increasing the return on investment and promoting accelerated growth of real sectors of economy1 #t consists of e<uity9 long7term de't and also current lia'ilities1
FM
CH 26
FM
4(F 1
CH 32
CA$#TAL structure A@. VAL68 %F F#RM CAS, FL%
Fi#a#"i#g
These activities result in changes in the si0e and composition of
FM
CH
S@
Term 0"ti%ities
8/planation the ownerRs capital +including preference share capital- and 'orrowings of the enterprise1 The fi/ed interest 'earing funds include de'entures9 long7term loans and preference share capital1 #t refers to the time difference 'etween the payment is initiated and funds availa'le in the 'an! account in spenda'le form1
Su'1
C, 30
Related Topic A@ALCS#S
4(I 1
Fi3e$ ;#terest :eari#g Fu#$s F!oat
FM
CH 28 CH 40
Ratio Analysis
4:* 1
FM
CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T or!ing capital F#@A@C#@H
F!oati#g Charge 4:4 1
ith creation of floating charge on current assets9 the 'orrowing firm gives the lender a general claim against the current assets which are floating1 The lenderRs rights on current assets will 'e crystalli0ed only when the 'orrower defaults in payment of his dues1 #n floating de't rate9 a certain percentage of interest will 'e of fi/ed nature1 %ver and a'ove the fi/ed rate of interest9 the lender will charge e/tra rate of interest depending on the mar!et conditions1
FM
CH 39
F!oati#g <e6t Rate 4:5 1 F!o
FM
CH 31
C%ST %F CA$#TAL A@. ACC
The flow of fund refers to transfer of economic values from one asset e<uity to another1 FCCBs are issued in accordance with the scheme and su'scri'ed 'y a nonresident in foreign currency and converti'le into ordinary shares of the issuing company in the manner stated in offer document1 Till conversion9 the company has to pay interest on FCCBs in foreign currency and if conversion option is not e/ercised9 the redemption has to 'e done in foreign currency1 The 'onds are unsecured in nature1 #n foreign e/change mar!et9 the currencies of different countries are 'ought and sold1 The foreign e/change mar!et provides means to hedge the ris! arising from foreign e/change fluctuations and it is a decentrali0ed worldwide mar!et9 the participants in the mar!et include central 'an!s9 commercial 'an!s9 'ro!ers9 corporations and individuals1 #t is the creation of facilities for manufacturing products for which the current products of the organi0ation serve as inputs1
FM
CH 29 CH 35
F6@.S FL% A@ALCS#S M8.#6M A@. L%@H
4:G 1
Foreig# Curre#"y Co#%erti6!e :o#$s
FM
4:( 1
Foreig# 13"ha#ge Mar=et
FM
CH 26
4:: 1 For ar$ ;#tegratio#
FM
CH 34
$R%O8CT $LA@@#@H A@. A$$RA#SAL F6@.S FL% A@ALCS#S F6@.S FL% A@ALCS#S
Fu#$ 4:F 1
The fund refers to all financial resources of the company1
FM
CH 29 CH 29
Fu#$s F!o 0#a!ysis
#t refers to movement of funds which in turn changes in wor!ing capital position of the organi0ation and highlights inefficiency in funds management1 #t highlights the amounts raised from various sources of finance during a period and then e/plains how that finance has 'een used in the 'usiness1 #n this9 the payments or receipts occur at the end of each period and the sum of future value of all annuity payments or receipts
FM
4:? 1
Fu#$s F!o Stateme#t
FM
CH 29
F6@.S FL% A@ALCS#S
4:) 1
Future @a!ue o2 5r$i#ary
FM
CH
T#M8 VAL68 %F
S@
Term 0##uity
8/planation are ascertained at the end of certain period1 #t refers to the amount of de't finance a company uses relative to e<uity finance1 A company with high level of de't component in its capital structure is said to 'e Qhighly gearedR and vice versa. #t indicates the relationship 'etween loan funds and net worth of the company1 #f the proportion of de't to e<uity is low9 a company is said to 'e low7geared and vice versa1 H.R is an instrument which allows #ndian Corporate9 Ban!s9 @on7'an!ing financial companies etc. to raise funds through e<uity issues a'road to augment their resources for domestic operations1 #t represents the e/cess of sale proceeds over the cost9 'efore ta!ing into account administration9 selling and distri'ution and financing charges1 #t refers to the firmRs investment in current assets only1
Su'1
C, 27
Related Topic M%@8C %$8RAT#@H A@. financial L8V8RAH8 Ratio Analysis
4F4 1
Ceari#g
FM
CH 33
4F5 1
Ceari#g
FM
CH 28
4FG 1
C!o6a! <epository Re"eipt
FM
CH 35
M8.#6M A@. L%@H
Cross Pro2it 4F( 1
FM
CH 28
Ratio Analysis
Cross 4or=i#g Capita! /ire Pur"hase
FM
CH 38 CH 37
or!ing capital planning lease or decisions
4F: 1
4FF 1
A hire purchase contract allows one party to ac<uire possession 'uy of goods 'elonging to another party 'y an initial deposit9 followed 'y a num'er of installments over a specified period of time and the title to the asset will pass on to the hire purchaser after payment of final payment1 The hire purchaser can claim depreciation as well as charge of interest as 'usiness e/penditure1
FM
;mp!i"it Cost
The trade credit has implicit cost1 The suppliers would add up interest9 administrative e/penses9 loss due to ris! of 'ad de'ts etc. to the cost of supplies1 The inverse of interest cover is called Qincome gearingR9 indicating the proportion of pre7ta/ earnings committed to prior interest charges1 The lower percentage indicates the companyRs a'ility to meet interest o'ligation in time1 6nder this method9 net profit is ta!en as a 'ase and ad&ust it to arrive at cash flows from operating activities1 An unlisted company ma!es a fresh issue of securities to the pu'lic for the first time through issue of prospectus and gets the shares listed in a recogni0ed stoc! e/change1 This ratio is calculated to analy0e the companyRs a'ility to meet interest o'ligations1 #t is e/pressed as num'er of times interest earned1 #t is measured as a ratio of profit 'efore interest and ta/ to interest charges1 The more the num'er of times interest earned9 safer the position of de't providers1 #t represents how many times interest charges are covered 'y funds that are availa'le for payment of interest1 28
FM
CH 39
4F? 1
;#"ome Ceari#g
FM
CH 33
%$8RAT#@H A@. financial L8V8RAH8
4F) 1
;#$ire"t Metho$
FM
CH 30 CH 35
CAS, FL% A@ALCS#S M8.#6M A@. L%@H
;#itia! Pu6!i" 522eri#g 4FI 1
FM
;#terest Co%er
FM
CH 33
4?* 1 ;#terest Co%er 4?4
FM
CH
Ratio Analysis
S@ 4?G 1
Term ;#terest Co%erage Ratio
8/planation #t shows how may times interest charges are covered 'y funds that are availa'le for payment of interest1 An interest cover of more than G times is considered desira'le1 The interest rates are the measure of cost of 'orrowing and interest rates are dependent on factors li!e ris!9 si0e of loan9 purpose of loan9 profita'ility and sta'ility of the 'orrower9 mar!et value of interest9 general state of economy etc1 #t is a percentage discount rate used in capital investment appraisals which e<uates the present value of anticipated cash inflows with initial capital outlay1 #RR is compared with the desired rate of return or ACC to evaluate the capital investment decision1 #t indicates the amount tied up in financing of raw materials9 wor!7in7progress and finished stoc!1 A low inventory turnover indicates high amount tied up in stoc!s1 These activities relate to the ac<uisition and disposal of long7 term assets and other investments not included in cash and cash e<uivalents1 The investment decisions are those which determine how scarce resources in terms of funds availa'le are committed to pro&ects1
Su'1 FM
C, CH 34
Related Topic $R%O8CT $LA@@#@H A@. A$$RA#SAL T#M8 VAL68 %F M%@8C
4?( 1
;#terest Rate
FM
CH 27
4?: 1
;#ter#a! Rate o2 Retur#
FM
CH 36
;#%e#tory Tur#o%er 4?F 1
FM
CH 28
Ratio Analysis
;#%esti#g 0"ti%ities
FM
CH 30
CAS, FL% A@ALCS#S
4?? 1
;#%estme#t <e"isio#s
FM
CH 26
#ntroduction T% F#@A@C#AL MA@AH8M8@T lease or decisions
4?) 1
>ease
4?I 1 >ease Re#ta!s
#t is an agreement where'y a lessor conveys to the lessee9 in 'uy return for rent9 the right to use an asset for an agreed period of time1 Leasing gives the facility to posses and operate the asset without owning the asset9 'y paying lease rentals1 #n lease contract9 the lessor conveys the right to use an asset for an agreed period in return for rent1 The lease rents are paya'le on periodical 'asis over the specified 'uy lease period1 The lease rentals should 'e structured in such a way that it will 'e convenient for 'oth the lessor and lessee1 6nder this9 the government will give a running plant for reha'ilitation to put the plant on profita'ility trac! or for increasing its production capacity9 and operate it for certain period and then transfer the pro&ect to the government1
FM
CH 37
FM
CH 37
lease or decisions
4)* 1
>easeB Reha6i!itateB 5perate a#$ Tra#s2er (>.R.5.T.) >essor
FM
CH 34
4)4 1
The lessor is the owner of the asset and is entitled to the 'enefit of depreciation1 #t is an arrangement 'y which the issuing 'an! underta!es to pay against presentation of stipulated documents1 #t is also called as Qdocumentary creditR1 An appraisal of the pro&ect9 if the financial institution satisfies in all aspects a'out the pro&ect9 it will issue a sanction letter called Qletter of intentR1
FM
CH 37 CH 39
lease or 'uy decisions or!ing capital F#@A@C#@H
>etter o2 Cre$it
FM
4)5 1
>etter o2 ;#te#t
FM
CH 34
S@ 4): 1
Term >e%erage
8/planation #t refers to the a'ility of a firm in employing long7term funds having a fi/ed interest9 to enhance returns to the owners1
Su'1 FM
C, CH 33
Related Topic %$8RAT#@H A@. financial L8V8RAH8 lease or decisions
4)F 1
>e%erage$ >ease
#n this9 the lessor underta!es to finance only a part of the money 'uy re<uired to purchase the asset and ma&or part of finance is arranged with the financier to whom the title deeds of the asset are assigned1 #t is a planning and monitoring the progress of an order9 pro&ect or program to 'e completed 'y a target date1 #n L%B tas!s are represented 'y vertical 'ars of a length9 proportional to their production re<uirements and are plotted se<uentially in vertical 'ar chart1 #t is a commitment 'y a 'an!9 at e/tra charge9 to lend a certain amount of funds on demand specifying the ma/imum amount of unsecured credit1 #t measures a companyRs a'ility to meet e/pected as well as une/pected re<uirements of cash9 to e/pand its assets9 to reduce its lia'ilities and to cover up any operating losses1 #t measures a companyRs a'ility to meet e/pected as well as une/pected re<uirements of cash to e/pand assets9 reduce its lia'ilities and cover up any operating losses1 #t is the a'ility to reali0e value in money9 the most li<uid assets1
FM
CH 37
>i#e o2 :a!a#"e 4)? 1
FM
CH 34
>i#e o2 Cre$it 4)) 1
FM
CH 39
>i?ui$ity
FM
CH 40
CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T #ntroduction T% F#@A@C#AL MA@AH8M8@T Ratio Analysis
4)I 1
>i?ui$ity
FM
CH 26
4I* 1
>i?ui$ity
FM
CH 28 CH
>i?ui$ity Ratios 4I4 1
>i?ui$ity Ratios
4I5 1
The li<uidity ratios measure the li<uidity of the firm and its a'ility to meet its maturing short7term o'ligations1 28 The li<uidity part of wor!ing capital management is measured 'y computing the ratios li!e current ratio9 <uic! ratio9 a'solute li<uid ratio1 The listing means admission of securities to dealing on a recogni0ed stoc! e/change where the securities are 'ought and sold through its mem'ers called stoc! 'ro!ers1 The long7term funds include share capital9 reserves and surplus and long7term loans1 28 The 'an!s and financial institutions maintain a margin while financing the pro&ect cost 'y as!ing the 'orrower to 'ring a certain amount say 5*> of the cost of pro&ect cost as margin money to safeguard from changes in value of assets that are 'eing financed and provided as security1
FM
Ratio Analysis
FM
CH 38
>isti#g
FM
CH 35
M8.#6M A@. L%@H
4IG 1
>o#g-term Fu#$s
FM
CH
Ratio Analysis
4I( 1
Margi# Mo#ey
FM
CH 34
4I: 1
Margi#a! Cost o2 Capita!
#t is the cost of the ne/t increments of capital raised 'y the firm1 The new capital investment can 'e accepted if the #RR of the pro&ect is e/ceeding its marginal cost of capital1 These ratios relate the firmRs stoc! price to its earnings9 'oo! value etc1 which indicates the share price movements in the
FM
CH 31
4IF 1
Mar=et :ase$
FM
CH
S@
Term Ratios mar!et1
8/planation
Su'1
C, 28
Related Topic
4II 1
Mat"hi#g 0pproa"h
6nder matching approach9 to financing wor!ing capital re<uirements of a firm9 each asset in the 'alance sheet assets side would 'e offset with a financing instrument of the same appro/imate maturity1 #t is a term which determines the e/tent to which a customer is eligi'le for trade credit1 To 'ring the pro&ect into reality9 funds will 'e raised in the form of issue of e<uity shares9 preference shares9 de'entures9 'onds etc.; raising of long7term loans form 'an!s and financial institutions as per the scheme of finance incorporated in the detailed pro&ect report1 This model suggests the management of cash with the help of control limits1 hen the cash 'alance rises 'eyond the upper control limit9 it is suggested to invest surplus cash in temporary mar!eta'le securities1 #f the cash 'alance drops 'elow the lower control limit9 the cash 'alance can 'e raised 'y selling mar!eta'le securities9 so that the cash 'alance reaches return point1
FM
CH 38
5** 1
Ma3imum Cre$it >imit Mea#s o2 Fi#a#"e
FM
CH 39 CH 34
or!ing capital F#@A@C#@H $R%O8CT $LA@@#@H A@. A$$RA#SAL
FM
5*4 1
Mi!!er-5rr Mo$e! 5*5 1
FM
CH 40
CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T
MM Theory
5*G 1
#t is considered as modern approach1 According to the theory9 the mar!et value of the firm is independent of its capital structure and the rate of return re<uired 'y shareholders increases linearly as the de't2e<uity ratio is increased1 The cutoff rate for new investment will in all cases 'e average cost of capital and will 'e unaffected 'y the type of security used to finance the investment1 The process of ar'itrage will prevent the different mar!et values for e<uivalent firms1 %riginally9 MM theory has ignored the corporate and personal ta/ation9 'ut later Miller has modified the theory 'y considering ta/ relief availa'le to geared firms1
FM
CH 32
Mo$erate Po!i"y
The wor!ing capital level estimated 'etween the two e/tremes i.e. restricted and rela/ed policies1 #n moderni0ation9 old machines are removed and new machines are installed in its place in order to cope with changing technology and competitive 'usiness environment to improve productivity and to reduce cost of production1
FM
CH 38 CH 34
or!ing capital planning $R%O8CT $LA@@#@H A@. A$$RA#SAL
5*( 1
Mo$er#i8atio# Pro7e"t
FM
5*: 1
Mo#ey Mar=et
The temporary cash surplus availa'le with a firm are commonly invested in easily mar!eta'le short7term securities1 The mar!et availa'le for these short7term securities is termed as Qmoney marketR1 The Tandon committee has suggested three methods of wor!ing out the ma/imum amount of wor!ing capital finance that a firm may e/pect from the 'an!9 which is termed as Qma/imum permissi'le 'an! finance +M$BF-R1
FM
CH 26
5*F 1
MP:F
FM
CH 39
S@ 5*) 1
Term Negati%e 4or=i#g Capita! Negotiate$ Fi#a#"e
8/planation #t refers to the situation when current lia'ilities are e/ceeding the current assets1 The finance for wor!ing capital has to 'e negotiated with the lenders li!e commercial 'an!s and it may 'e short7term or long7 term in nature1 The net float at a point of time is simply the overall difference 'etween the firmRs availa'le 'an! 'alance and the 'alance as shown 'y the ledger account of the firm1 According to this approach any change in capital structure causes an overall changes in the cost of capital and also in the total value of the firm1 According to this9 the value of the firm is independent of its capital structure and ACC is unchanged irrespective of the level of gearing1 #n this method9 the future cash flows are discounted at minimum re<uired rate of return of the pro&ect and then deduct it from initial outlay to arrive at the @$V of the pro&ect1 #f the @$V is positive9 then the pro&ect can 'e selected1 @$V method is particularly useful for the selection of mutually e/clusive pro&ects1 The net profit is arrived at from gross profit after deducting administration9 selling and distri'ution e/penses1 #t refers to e/cess of current assets over current lia'ilities1
Su'1 FM
C, CH 38 CH 39
Related Topic or!ing capital planning or!ing capital F#@A@C#@H
5*I 1
FM
Net F!oat 54* 1 Net ;#"ome 0pproa"h 544 1
FM
CH 40
CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T CA$#TAL structure A@. VAL68 %F F#RM CA$#TAL structure A@. VAL68 %F F#RM Capital 'udgeting techni<ues
FM
CH 32
Net 5perati#g ;#"ome 0pproa"h Net Prese#t @a!ue Metho$
FM
CH 32
545 1
FM
CH 36
54G 1 Net Pro2it
FM
CH
Ratio Analysis
Net 4or=i#g Capita! 54( 1 Net orth
FM
CH 38 CH
or!ing capital planning Ratio Analysis
The net worth of a firm represents e<uity share capital9 FM preference share capital and free reserves less intangi'le assets1 #t is the actual rate of interest paid1 FM
54: 1
Nomi#a! ;#terest Rate No#"ash Tra#sa"tio#s
CH 27 CH 30
T#M8 VAL68 %F M%@8C CAS, FL% A@ALCS#S
54F 1
#nvesting and financing transactions that do not re<uire the use of cash and cash e<uivalents and therefore9 should 'e e/cluded from a cash flow statement1 #t is the credit availa'le to the 'uyer without any legal evidence or instrument and appears in the 'alance sheet of the 'uyer as Qsundry creditorsR1 These are the principal revenue producing activities of the enterprise1 These transactions and events will 'e ta!en into consideration of net profit or loss1 The operating cycle is the length of time 'etween the companyRs outlay on raw materials9 wages9 e/penses and inflow of cash from sale of goods1 The <uic!er operating cycle leads to increase in profita'ility of the firm1 The length of operating cycle is the indicator of efficiency in management of short7term funds and
FM
54? 1
5pe# 0""ou#t Tra$e Cre$it
FM
CH 39
54) 1
5perati#g 0"ti%ities
FM
CH 30
CAS, FL% A@ALCS#S
5perati#g Cy"!e 54I 1
FM
CH 38
S@
Term wor!ing capital1
8/planation
Su'1
C,
Related Topic
555 1
5perati#g >ease
#t generally arises out of a sale transaction1 6sually the 'uy manufacturer supplies the asset9 and allows the purchaser to !eep the asset on lease 'asis until the full purchase price is paid in installments1 #t refers to the e/istence of fi/ed cost element in total cost structure of a firm and its impact on firmRs a'ility1 #t is e/pressed as Contri'ution28B#T1 A high operating leverage indicates a proportion of fi/ed costs causing low net profit and the 8B#T will tend to vary more with sales1 These are the ratios of all operating e/penses to sales1 For e/ample9 material cost ratio9 la'our cost ratio9 factory overhead ratio etc. These are the cash flows relating to normal 'usiness operations li!e cash receipts from sales9 payment for supplies9 payment for operational e/penses etc. #t is the e/pected rate of return that e<uates to the mar!et rate of interest for investments of a similar ris! profile1
FM
CH 37
lease or decisions
55G 1
5perati#g >e%erage
FM
CH 33
L8V8RAH8 larger
5perati#g Ratios 55( 1 5peratio#a! Cash2!o s 55: 1
FM
CH 28
Ratio Analysis
FM
CH 40
CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T C%ST %F CA$#TAL A@. ACC CA$#TAL structure A@. VAL68 %F F#RM
5pportu#ity Cost o2 Capita!
FM
CH 31
55F 1
5ptimum Capita! Stru"ture
#t the com'ination of de't and e<uity that leads to the ma/imi0ation of the value of the firm1 The companyRs long7term survival and growth depends upon design of optimum capital structure1 #t is a situation where e/cessive investments are made in current assets than re<uired9 leads to inefficiency in wor!ing capital management1 #t is a situation where a firm attempts to increase its sales level without having a support of ade<uate wor!ing capital1 6nder this method accumulation of cash flows is made year after year until it meets the initial capital outlay9 to identify the recovery time of the capital amount invested1 #n periods of capital rationing9 the pro&ect with earliest pay'ac! period would 'e given preference over the others1 #t refers to the che<ues issued 'ut not paid 'y the 'an! at any particular time1
FM
CH 32
55? 1
5%er Capita!i8atio#
FM
CH 38
55) 1
5%ertra$i#g
FM
CH 38 CH 36
or!ing capital planning Capital 'udgeting techni<ues
Pay6a"= Perio$ 55I 1 Payme#t F!oat
FM
5G* 1
FM
CH 40
CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T CA$#TAL structure A@. VAL68 %F F#RM
Pe"=i#g 5r$er Theory 5G4 1
The theory does not suggest any particular target or optimal capital structure and firms prefer internal to e/ternal financing1 #f the firms do re<uire e/ternal financing they will issue the safest security first in the order of term loans9 unsecured de'entures9 secured de'entures9 converti'le de'entures9 preference shares9 converti'le preference shares and finally in the form of new e<uity shares1
FM
CH 32
5G5
S@ 5GG 1
Term Per"e#tage Sa!es Metho$
8/planation 6nder this method9 the level of current assets and current lia'ilities are determined 'y esta'lishing its past trend in relation to sales1 #t refers to the need for minimum level of wor!ing capital to carry the firmRs 'usiness irrespective of change in level of sales or production1 Such minimum level of wor!ing capital is also called as permanent wor!ing capital9 fi/ed wor!ing capital and regular wor!ing capital1 #n perpetuity9 there is an e<ual cash flow per period forever9 i.e. for an indefinite period and in such case principal never 'e repaid1 A 'usiness organi0ation must consider the ta/ conse<uences for the investors in companyRs shares9 de'entures and 'onds in order to attract investors to the firmRs securities1
Su'1 FM
C, CH 38
Related Topic or!ing capital planning
5G( 1
Perma#e#t 4or=i#g Capita!
FM
CH 38
Perpetuity 5G: 1 Perso#a! Ta3atio# 5GF 1
FM
CH 27
T#M8 VAL68 %F M%@8C
FM
CH 26
#ntroduction T% F#@A@C#AL MA@AH8M8@T CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T or!ing capital planning C%ST %F CA$#TAL A@. ACC M8.#6M A@. L%@H
P!ayi#g the F!oat
The company can ma!e use of the payment float is called Qplaying the floatR1
FM
CH 40
5G? 1
Positi%e 4or=i#g Capita! Pre2ere#"e <i%i$e#$
#t represents the e/cess of current assets over current lia'ilities1
FM
CH 38 CH 31
5G) 1
The preference shareholders entitle for a fi/ed rate of dividend out of profits availa'le for distri'ution1
FM
5GI 1
Pre2ere#"e Shares
5(* 1
The preference shareholders get their stated dividend 'efore e<uity shareholders can receive any dividends and in the event of winding up the preference shareholders have a claim on availa'le assets 'efore the e<uity shareholders1 The preference shareholders will not entitle voting right in the general meeting e/cept to the e/tent their rights are affected1 #t is the sum of the present values of series of regular periodic receipts or payments1
FM
CH 35
Prese#t @a!ue o2 5r$i#ary 0##uity Pri"e 1ar#i#g
FM
CH 27
T#M8 VAL68 %F M%@8C
5(4 1
#t indicates the ratio of mar!et price of an e<uity share to the earnings per share1 #t measures the num'er of times the earnings per share discounts the mar!et price of e<uity1 The cost of e<uity capital is computed 'y ta!ing the capitali0ed stream of future earnings per share1
FM
CH 28
Ratio Analysis
Pri"e-1ar#i#g Metho$
FM
CH 31
C%ST %F CA$#TAL A@. ACC #ntroduction T% F#@A@C#AL MA@AH8M8@T
5(5 1
Pro2it Ma3imi8atio#
The true o'&ective of the firm is ma/imi0ation of profits1 The attainment of o'&ectives li!e survival9 security or the maintenance of li<uid assets is possi'le only when the firm earns profit1 #t refers to a situation in terms of efficiency in utili0ation of resources to achieve profit ma/imi0ation for the owners1
FM
CH 26
5(G 1
Pro2ita6i!ity
FM
CH 40
CAS, ASS8TS A@. TR8AS6RC
S@
Term
8/planation
Su'1
C,
Related Topic MA@AH8M8@T
5(F 1
Pro2ita6i!ity
#t signifies the operational efficiency of an organi0ation 'y value addition through the utili0ation of resources to achieve profit ma/imi0ation1 #t is the present value of anticipated cash inflows divided 'y the initial investment1 A pro&ect with an inde/ of more than 4 will 'e selected1 These ratios help in assessing the ade<uacy of profits earned 'y the company and indicate whether profita'ility is declining or increasing1 $rofita'ility ratios are measured with reference to sales9 capital employed9 total assets employed9 shareholders funds etc.
FM
CH 26
#ntroduction T% F#@A@C#AL MA@AH8M8@T Capital 'udgeting techni<ues
5(? 1
Pro2ita6i!ity ;#$e3
FM
CH 36
5() 1
Pro2ita6i!ity Ratios
FM
CH 28
Ratio Analysis
Pro7e"t 0ppraisa! 5(I 1
#t is the process 'y which a financial institution ma!es an independent and o'&ective assessment of the various aspects of the investment proposition for arriving at a financing decision1 The pro&ect appraisal is done from four angles vi .! financial feasi'ility9 technical feasi'ility9 economic feasi'ility9 managerial competence1 The location of the industry and setting up of a pro&ect are influenced 'y state incentives9 and ta/ considerations li!e incentives offered for 4**> 8%69 small scale units9 cash su'sidy for setting of pro&ect in 'ac!ward areas9 sales ta/ deferment9 su'sidy in electricity charges9 rent free land and 'uilding etc. An entrepreneur who promotes the pro&ect will also participate CH in the scheme of finance 'y 'ringing certain portion of the 34 The <uic! assets include all current assets e/cept inventories1
FM
CH 34
Pro7e"t ;#"e#ti%es 5:* 1 Promoters Co#tri6utio# 5:4 1 -ui"= 0ssets
FM
CH 34
FM
$R%O8CT $LA@@#@H A@. A$$RA#SAL CH 28 CH 27 CH 41 Ratio Analysis
FM
Rea! ;#terest Rate 5:5 1 Re"ei%a6!es
#t is the rate of interest ad&usted for inflation1
FM
T#M8 VAL68 %F M%@8C R8C8#VABL8S MA@AH8M8@T
5:G 1 Regressio# 0#a!ysis
#t arises from sale of goods and services on credit 'asis1 Receiva'le 'alance as shown in the 'alance sheet of a company relates to sales made on credit for which payment has not yet received1 #t is a statistical techni<ue used in esta'lishing of trend relation in 'etween sales and wor!ing capital9 used for estimation of wor!ing capital needs of the forthcoming period1 #t allows sufficient cushion for fluctuations in funds re<uirement for financing various items of wor!ing capital1 The e/isting e<uipment9 which is deteriorated due to o'solescence and its economic life is completed9 should 'e replaced with a new machine9 which may 'e more efficient than old machine1
FM
FM
5:( 1
CH 38
Re!a3e$ Po!i"y
FM
CH 38 CH 34
or!ing capital planning $R%O8CT $LA@@#@H A@. A$$RA#SAL
5:: 1
Rep!a"eme#t Pro7e"t
FM
S@ 5:) 1
Term Resour"e >e%e!!i#g
8/planation #t is the usage of resources during the pro&ect duration with minimum variation in source re<uirements without e/tending the pro&ect completion time1 #t involves the rigid estimation of wor!ing capital to the re<uirements of the firm and then forcing it to adhere to the estimate1 The covenants in the long7term loan agreement is incorporated to protect the interest of the financial institution1
Su'1 FM
C, CH 34
Related Topic $R%O8CT $LA@@#@H A@. A$$RA#SAL or!ing capital planning
5:I 1
Restri"te$ Po!i"y
FM
CH 38
5F* 1
Restri"ti%e Co%e#a#ts
FM
CH 34
$R%O8CT $LA@@#@H A@. A$$RA#SAL C%ST %F CA$#TAL A@. ACC Ratio Analysis
Retai#e$ 1ar#i#gs 5F4 1
These are the profits ploughed 'ac! and retained with the company9 without distri'uting them in the form of dividends1
FM
CH 31
Retur# o# 1?uity
@et profit margin T Total assets turnover ratio T Total assets to @et worth1 A company issues fresh capital to the e/isting shareholders in proportion to their e/isting holding1 Capital structure decisions assume vital significance in corporate financial management due to their influence 'oth on ris! and return of the shareholders1 6nder this9 the lessee first purchases the e<uipment and then sell it to the leasing company9 which in turn leases it to the same purchaser2lessee1 This form of finance is used to improve the li<uidity position of the lessee1 A leasing company will enter into an agreement with the seller9 'uy usually manufacturer of the e<uipment9 to mar!et the latterRs product through its leasing operations1 The leasing company will also get commission for such sales9 which add7up to its profits1 #t is the process of converting the mortgaged loans and other future receiva'les into negotia'le securities which may 'e traded later in the open mar!et9 which are collaterali0ed 'y the underlying assets and their associated income streams1 #t is calculated only on original principal amount till it is repaid 'ac! to the lender1 #t is a form of specific reserve used for the redemption of long7 term de't or replacement of capital assets9 'y setting aside certain amount of money every year for a specified time 'y investing the same in outside mar!eta'le securities which can 'e sold at the time of maturity of de't or replacement of asset is needed1
FM
CH
5F5 1
Rights ;ssue
FM
CH 35 CH 26
M8.#6M A@. L%@H #ntroduction T% F#@A@C#AL MA@AH8M8@T lease or 'uy decisions
Ris= 5FG 1 Sa!e a#$ >ease :a"=
FM
FM
5F( 1
CH 37
5F: 1
Sa!es 0i$ >easi#g
FM
CH 37
lease or decisions
Se"uriti8atio# 5FF 1 Simp!e ;#terest 5F? 1
FM
CH 35
M8.#6M A@. L%@H
FM
CH 27 CH 27
T#M8 VAL68 %F M%@8C T#M8 VAL68 %F M%@8C
Si#=i#g Fu#$
FM
5F) 1 Sour"e o2 Fu#$ 5FI 1 A decrease in an asset or an increase in lia'ility over the year results in source of fund1 #t is the finance naturally arise in the course of 'usiness li!e FM CH 29 CH F6@.S FL% A@ALCS#S or!ing capital
Spo#ta#eous
FM
S@
Term Fi#a#"e
8/planation trade creditors9 credit from employees etc. #t is the date on which credit period or discount period starts1 #t could 'egin from the date of goods dispatch9 date of invoice or some other date accepted 'y the parties to sale1 The theory says that the value of firm depends on the ta/ savings on interest payments which induces the firm to 'orrow to the margin where the present value of interest ta/ shields is &ust offset 'y the value of loss to agency costs of de't and the possi'ility of financial distress1 #t is a place where the savers and the users of their funds come together in the mar!et for finance9 and the rules of supply and demand are applica'le and also su'&ect to Hovernment regulation1 The focus of strategic financial management is a long7range financial planning to achieve the mission and o'&ectives of the firm through financial discipline1 #t involves financial planning9 financial forecasting9 provision of finance and formulation of finance policies which should lead the firmRs survival and success and to counter the uncertain and imperfect mar!et conditions and highly competitive 'usiness environment1 The aim of strategic planning is to create a via'le lin! 'etween the organi0ationRs o'&ectives and resources and environmental opportunities1
Su'1
C, 39
Related Topic F#@A@C#@H or!ing capital F#@A@C#@H
5?5 1
Starti#g <ate
FM
CH 39
5?G 1
Stati" Tra$e-o22 Theory
FM
CH 32
Sto"= Mar=et 5?( 1 Strategi" Fi#a#"ia! Ma#ageme#t Strategi" Fi#a#"ia! P!a##i#g
FM
CH 35
M8.#6M A@. L%@H
FM
CH 26
5?: 1
FM
CH 26
5?F 1 Strategi" P!a##i#g
FM its
CH 26
5?? 1
Strategy
A strategy is a declaration of intent1 #t defines what the organi0ation wants to go to fulfill its purpose and achieve its mission1 #t provides the framewor! for guiding choices which determine the organi0ationRs nature and direction1 These ratios include current assets to total net assets9 composition of current assets9 de'tors turnover ratio9 de'tors collection period9 'ad de'ts to sales9 creditors payment period etc1 #t is e/pressed in traditional form as de't7e<uity ratio1 A high ratio indicates large outside 'orrowings and it ena'les to have control over the firmRs management and the firm carries higher financial ris!1 A company can issue sweat e<uity shares to its employees or directors at discount or for consideration other than cash for providing !now7how or ma!ing availa'le rights in the nature of intellectual property rights or value addition etc1 #t is the conduct of environmental scans 'y internal appraisals of the strengths and wea!nesses of the organi0ation and e/ternal appraisals of the opportunities and threats which the
FM
CH 26
5?) 1
Stru"tura! /ea!th Ratios
FM
CH 38
5?I 1
Stru"tura! >e%erage
FM
CH 33
L8V8RAH8 level of S eat 1?uity Shares FM CH 35 M8.#6M A@. L%@H
5)* 1
S45T 0#a!ysis 5)4 1
FM
CH 26
S@
Term organi0ation face it1
8/planation
Su'1
C,
Related Topic
5)G 1
Ta3 122e"ts
The lessee can claim full amount of annual lease payments and 'uy maintenance e/pense of the asset as a deducti'le e/pense and the lessor is entitled to claim the depreciation allowance on leased asset1 The payment of corporate ta/es involves cash outflows and will reduce the wealth availa'le to the shareholders1 %ne of the functions of a Finance manager is to act as a Ta/ planner of the organi0ation and to minimi0e the cash outflows in the form of ta/es1 The interest paya'le on de't is treated as an e/pense and it reduces ta/a'le profit1 The ta/ savings due to interest charge is considered as ta/ shield and ultimately reduces the cost de't1 Any interest paya'le on de't is a charge against profit and it will reduce the profit1 6ltimately the companyRs lia'ility towards ta/es would decrease1 This phenomenon is termed as Qta" s#ieldR1 #t is the e/tra wor!ing capital over and a'ove the permanent wor!ing capital needed to support the changing 'usiness activities and levels of production and sales1 #t is also called as fluctuating wor!ing capital1 #t descri'es the relationship 'etween interest rates and loan maturities1 The value of money received today is different from the value of money received after sometime in the future and the value of money is time dependent due to inflation and interest effect on money1 #t may 'e defined as the potential use of fi/ed cost9 'oth operating and financial9 which indicates the effect of sales volume change on the 8$S of the firm1 #t is e/pressed as Contri'ution28BT1 A higher com'ined leverage indicates the firm is su'&ect to greater ris! which includes 'oth 'usiness ris! and financial ris!1 #t is the credit offered 'y a 'usiness firm to another 'usiness firm as a part of trade transaction1 #t is a spontaneous source of finance where'y 'usiness firms are allowed 'y the suppliers of raw materials9 services etc. to defer the immediate payment to a definite future period1 The de't component should 'e used in the capital structure to enhance the return to the e<uity shareholders is called Qtrading on e<uityR1 #t deals with efficient and s!illed management of corporate finances and also deals with management of cash assets and its
FM
CH 37
lease or decisions
5)( 1
Ta3 P!a##er
FM
CH 26
Ta3 Shie!$ 5): 1 Ta3 Shie!$ 5)F 1 Temporary 4or=i#g Capita! 5)? 1 Term Stru"ture o2 ;#terest Rates Time @a!ue o2 Mo#ey
FM
CH 31
C%ST %F CA$#TAL A@. ACC #ntroduction T% F#@A@C#AL MA@AH8M8@T
FM
CH 26
FM
CH 38
FM
CH 27 CH 27
T#M8 VAL68 %F M%@8C T#M8 VAL68 %F M%@8C
FM
5)) 1
5)I 1
Tota! >e%erage
FM
CH 33
5I* 1
Tra$e Cre$it
FM
CH 41 CH 39
R8C8#VABL8S MA@AH8M8@T or!ing capital F#@A@C#@H
Tra$e Cre$it
FM
5I4 1
Tra$i#g o# 1?uity
FM
CH 33
%$8RAT#@H A@. financial L8V8RAH8 CAS, ASS8TS A@. TR8AS6RC
5I5 1
Treasury Ma#ageme#t
FM
CH 40
S@
Term
8/planation financial ris!1 The 'asic o'&ective of treasury management is to ma/imi0e the availa'ility of funds at any point of time and at desired place for investment and to minimi0e the situations of cash deficits1
Su'1
C,
5I: 1
F#$er Capita!i8atio# @a!ue Ma3imi8atio#
#t is a situation where the company does not have funds sufficient to run its normal operations smoothly1 The value ma/imi0ation is modified that the ma/imi0ation of shareholders wealth is possi'le with the ma/imi0ation of mar!et value of e<uity shares of the company1 #t denotes the provision of 'an!ing and related services through e/tensive use of information technology without direct recourse to the 'an! 'y the customer1
FM
CH 38 CH 26
or!ing capital planning #ntroduction T% F#@A@C#AL MA@AH8M8@T CAS, ASS8TS A@. TR8AS6RC MA@AH8M8@T C%ST %F CA$#TAL A@. ACC
5IF 1
FM
@irtua! :a#=i#g 5I? 1 40CC 5I) 1
FM
CH 40
The weighted average cost of capital of the company is calculated 'y aggregating together the costs of each individual source of finance and weighted 'y their relative proportions to total amount of long7term funds raised1 ACC is the re<uired minimum rate of return the firm must earn to maintain its mar!et value1 ACC is ta!en as the discounting rate for appraisal of capital pro&ects1 According to this traditional approach9 the optimum capital structure is determined at a point where ACC is minimum and this point the value of firm is ma/imi0ed1 A warrant is a long7term security attached to a 'ond or preferred stoc!9 which gives the holder right to 'uy a fi/ed num'er of companyRs e<uity shares at a future specified period9 under prescri'ed terms and conditions1 The wealth ma/imi0ation o'&ective of financial management asserts on ma/imi0ation of shareholders wealth in the form of dividend and capital gains1 #t is the e/cess of current assets over current lia'ilities1
FM
CH 31
40CC 0pproa"h
FM
CH 32
CA$#TAL structure A@. VAL68 %F at F#RM M8.#6M A@. L%@H
5II 1
4arra#t
FM
CH 35
G** 1
4ea!th Ma3imi8atio#
FM
CH 26
#ntroduction T% F#@A@C#AL MA@AH8M8@T F6@.S FL% A@ALCS#S or!ing capital planning
G*4 1
4or=i#g Capita!
FM
CH 29 CH 38
4or=i#g Capita! G*5 1 4or=i#g Capita! >e%erage
#t refers to a firmRs investment in short7term assets1 #t refers to the e/cess of current assets over current lia'ilities1 #t is also called as circulating capital9 fluctuating capital and revolving capital1 #t refers to the impact of level of investment in wor!ing capital on companyRs return on capital employed1 #t measures the responsiveness of R%C8 for changes in current assets1 #t is the rate of return earned on security if it is held till maturity1 #t can 'e e/plained with the help of a graph called Qyield to maturity curveR1 #t is a system of cash management in which every day the firm totals all che<ues presented for payment against the account
FM
FM
G*G 1
CH 38
Eie!$ to Maturity
FM
CH 27
T#M8 VAL68 %F M%@8C
G*( 1
Gero :a!a#"e 0""ou#t
FM
CH 40
CAS, ASS8TS A@. TR8AS6RC
S@
Term
8/planation and transfers the 'alance amount in the account 'y 'uying mar!eta'le securities1 #n case of shortage of cash the firm will sell mar!eta'le securities1
Su'1
C,
G*? 1
Gero <ate
The 0ero date of a pro&ect means a date is fi/ed up from which the implementation of the pro&ect 'egins9 which is a 'ase for counting the time as well as cost of the pro&ect1 #t refers to a situation where at all times the current assets shall e<ual to the current lia'ilities and e/cess of investment in current assets is avoided and the firmRs current ratio is 4341
FM
CH 34
$R%O8CT $LA@@#@H A@. A$$RA#SAL or!ing capital planning
G*) 1
Gero 4or=i#g Capita!
FM
CH 38
Summary o2 Ratio 0#a!ysis
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CA-IPCC (1ST GROUP) FINANCIAL MANAGEMENT (71 IMP QUESTIONS) Compiled By : Mukesh Agarwa Resear!h Gr"u#
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CA-IPCC (1ST GROUP) FINANCIAL MANAGEMENT (71 IMP QUESTIONS) Compiled By : Mukesh Agarwa Resear!h Gr"u# #ndiaRs Leading CS 2 CA Classes
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e'3 www1aeccsca1'logsp ot1com; 87mail3 aec1com]gmail1com

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CA-IPCC (1ST GROUP) FINANCIAL MANAGEMENT (71 IMP QUESTIONS)

Agarwa Resear!h Gr"u#

Gopal Madhav Extension

#$"- %"-&4&4&4!, $'$(!-

")4"%, $'& &!4""% Indias Leading CS / CA Classes

,e-. www.aeccsca.-lo*sp ot.com/ E-mail.

& Ratio Summary

$ha %& Mah'""&

Chapter- ise Time a!!o"atio# a#$ Rati#g

$ha %& Mah'""&

.ifferentiate 'etween Traditional $hase and Modern $hase of Financial Management1

.ifferentiate 'etween Financial Lease and %perating Lease1

8/plain the limitations of Capital Rationing1 Solution 2 ,int 3

rite short notes on Merits of $ay'ac! $eriod1

.ifferentiate 'etween .e't Financing and 8<uity Financing

rite short notes on Trading on 8<uity

0mou#t o2 1?uity Raise$ (Rs.)

0mou#t o2 <e6t Fi#a#"i#g (Rs.)

:e2oreAta3 Cost o2 <e6t (per a##um)

Fu#$ F!o Stateme#t

.ifferentiate 'etween the %perating Leverage and Financial Leverag e1

Gopal Madhav Extension Place, Shinde Ki Chhawani, Gwalior-4 4!!"

.ifferentiate 'etween Li<uidity Ratios and Activity Ratios

Gopal Madhav Extension Place, Shinde Ki Chhawani, Gwalior-4 4!!"

rite short notes on Composition of R%8 using .u $ont

i1 iii1 v1 vi1 vii1 viii1

.ifferentiate 'etween the American .epository Receipts1

.iscuss in 'rief the concept of KVenture Capital FinancingL1

.iscuss the advantages of raising finance 'y issue of de'entures1

.iscuss the features of Trade Credit1

8/plain some of the characteristics of .e'entures1 Solution 2 ,int 3

rite short notes on .e't Securitisation1

rite short notes on 8/ternal Commercial Borrowings +8CBs-1

rite short notes on the Bridge Finance1 Solution 2 ,int 3

rite short notes on Venture Capital Financing1

rite short notes on the $erpetuity1 Solution 2 ,int 3

Time @a!ue o2 Mo#ey

Time @a!ue o2 Mo#ey

Time @a!ue o2 Mo#ey

Time @a!ue o2 Mo#ey

Time @a!ue o2 Mo#ey

Time @a!ue o2 Mo#ey

Anand Toys maintains a separate account for cash dis'ursement1 Total

Capita! Ma#ageme#t A Cash Ma#ageme#t

4or=i#g Capita! Ma#ageme#t A :asi"

4or=i#g Capita! Ma#ageme#t A :asi"

.ifferentiate 'etween the Management Model1

illiam O1 Baumal and Miller7 %rr Cash

4or=i#g Capita! Ma#ageme#t A Cash Ma#ageme#t

4or=i#g Capita! Ma#ageme#t A Cash Ma#ageme#t

4or=i#g Capita! Ma#ageme#t A Cash Ma#ageme#t

4or=i#g Capita! Ma#ageme#t A ;#%e#tory Ma#ageme#t

4or=i#g Capita! Ma#ageme#t A ;#%e#tory Ma#ageme#t

4or=i#g Capita! Ma#ageme#t A ;#%e#tory Ma#ageme#t

the order point1

4or=i#g Capita! Ma#ageme#t A MP:F A Ta#$o# Committee

4or=i#g Capita! Ma#ageme#t A 5perati#g Cy"!e

4or=i#g Capita! Ma#ageme#t A Pro7e"te$ Stateme#t

4or=i#g Capita! Ma#ageme#t A Re"ei%a6!e Ma#ageme#t

4or=i#g Capita! Ma#ageme#t A Re"ei%a6!e Ma#ageme#t

Gopal Madhav Extension Place, Shinde Ki Chhawani, Gwalior-4 4!!"

rite short notes on Factoring1

4or=i#g Capita! Ma#ageme#t A Re"ei%a6!e Ma#ageme#t A Fa"tori#g