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CAPITAL Flashcards

COM EXAM

1
Q

BUSINESS FINANCE

A

Business Finance is the acquisition and utilization of business finance or funds to meet the business objectives or financial requirements of the company

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2
Q

NATURE OF THE BUSINESS

A
  1. all types of capital
  2. all types of business
    3.wide term
    4.future oriented
  3. scale of operation
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3
Q

IMPORTANCE OF BUSINESS FINANCE

A
  1. goodwill
  2. credit standing
  3. replace
  4. smoothly
  5. wages and salary
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4
Q

SOURCES OF FINANCE FOR TYPES OF FIRM

A
  1. capital for joint stock company
  2. capital for partnership
  3. capital for sole proprietorship
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5
Q

FINANCIAL PLANNING

A

Financial Planning is the process of estimating financial requirements so it can choose the source of funds and how it can be utilized

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6
Q

FEATURES OF FINANCIAL PLANNING

A
  1. when, how, why
  2. deciding
  3. future oriented
  4. wide term
  5. formulating policies
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7
Q

IMPORTANCE OF FINANCIAL PLANNING

A
  1. shortage and surplus of funds
  2. coordination
  3. debt and equity ratio
  4. business shocks
  5. utilization of funds
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8
Q

CAPITAL STRUCTURE

A

Capital Structure is the type of securities to be issued and proportionate to capitalization

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9
Q

LONG TERM FUNDS IS OBTAINED BY

A
  1. owners
  2. borrowers
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10
Q

OWNERSHIP FUND CONSISTS OF

A

1 Share capital.
2 Retained earning

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11
Q

BORROWED FUNDS CONSISTS OF

A
  1. Debentures
  2. long term loans
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12
Q

FINANCIAL LEVERAGE/ CAPITAL GEARING

A

Financial Leverage is the ratio between debt and equity

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13
Q

EXPLAIN LOW AND HIGH GEARING

A
  • when the proportion of debt is high it is called high gearing/ trading on thin equity
  • when the proportion of debt is low it is called low gearing/ trading on thick equity
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14
Q

FACTORS AFFECTING CAPITAL STRUCTURE

A
  1. Training on equity/ Financial Leverage
  2. Statutory Requirements
  3. Capital Market Conditions
  4. Need for Flexibility
  5. Exercise of Control
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15
Q

WORKING CAPITAL

A

Working Capital indicates the capital invested on current assets or working asset such as cah,debtors
It represents liquid fund and is used for day to day expenses

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16
Q

WHY IS WORKING CAPITAL CALLED CIRCULATING CAPITAL

A

The money keeps on circulating, revolving in business
It is invested, recovered, reinvested repeatedly in business

17
Q

OPERATING CYCLE OF WORKING CYCLE

A

Conversion of cash to raw materials
|
raw materials to work in progress
|
work in progress to finished goods
|
finished goods to receivables
|
receivables to cash

18
Q

WORKING CAPITAL IS USED IN 2 SENSES

A
  1. Gross Working Capital
  2. Net working Capital
19
Q

GROSS WORKING AND NET WORKING CAPITAL FORMULAS

A
  1. Gross Working Capital
    = book value of current asset
  2. Net working Capital
    = current asset - current liability
20
Q

NEED OF WORKING CAPITAL

A
  1. to purchase
    2.to pay
  2. day to day expenses
21
Q

TYPES OF WORKING CAPITAL

A
  1. PERMANENT WORKING CAPITAL
  2. TEMPORARY WORKING CAPITAL
22
Q

TYPES OF PERMANENT WORKING CAPITAL

A
  1. Initial Working capital
  2. Regular Working Capital
23
Q

TYPES OF TEMPORARY WORKING CAPITAL

A
  1. Seasonal Working Capital
  2. Special Working Capital
24
Q

FACTORS OF WORKING CAPITAL

A
  1. Seasonal Variations
  2. growth and expansion of Business
  3. Goodwill of business
  4. Manufacturing Cycle
  5. Size of The firm
25
Q

FIXED CAPITAL

A

Fixed Capital refers to capital invested on fixed assets
Fixed asset are meant for generating income
These assets are not fixed in value

26
Q

FIXED CAPITAL IS CALLED BLOCK CAPITAL

A

It is blocked up in fixed assets for the lifetime of the business

27
Q

FIXED CAPITAL PROVIDES CORNERSTONE TO ENTERPRISE

A

Fixed Capital is needed for establishing a new brand enterprise as well as for modernization and expansion and diversification of business activity.
It is raised through long term sources of finance such as shares, debentures and retained earning

28
Q
A

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