CAPITAL Flashcards
COM EXAM
BUSINESS FINANCE
Business Finance is the acquisition and utilization of business finance or funds to meet the business objectives or financial requirements of the company
NATURE OF THE BUSINESS
- all types of capital
- all types of business
3.wide term
4.future oriented - scale of operation
IMPORTANCE OF BUSINESS FINANCE
- goodwill
- credit standing
- replace
- smoothly
- wages and salary
SOURCES OF FINANCE FOR TYPES OF FIRM
- capital for joint stock company
- capital for partnership
- capital for sole proprietorship
FINANCIAL PLANNING
Financial Planning is the process of estimating financial requirements so it can choose the source of funds and how it can be utilized
FEATURES OF FINANCIAL PLANNING
- when, how, why
- deciding
- future oriented
- wide term
- formulating policies
IMPORTANCE OF FINANCIAL PLANNING
- shortage and surplus of funds
- coordination
- debt and equity ratio
- business shocks
- utilization of funds
CAPITAL STRUCTURE
Capital Structure is the type of securities to be issued and proportionate to capitalization
LONG TERM FUNDS IS OBTAINED BY
- owners
- borrowers
OWNERSHIP FUND CONSISTS OF
1 Share capital.
2 Retained earning
BORROWED FUNDS CONSISTS OF
- Debentures
- long term loans
FINANCIAL LEVERAGE/ CAPITAL GEARING
Financial Leverage is the ratio between debt and equity
EXPLAIN LOW AND HIGH GEARING
- 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
FACTORS AFFECTING CAPITAL STRUCTURE
- Training on equity/ Financial Leverage
- Statutory Requirements
- Capital Market Conditions
- Need for Flexibility
- Exercise of Control
WORKING CAPITAL
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
WHY IS WORKING CAPITAL CALLED CIRCULATING CAPITAL
The money keeps on circulating, revolving in business
It is invested, recovered, reinvested repeatedly in business
OPERATING CYCLE OF WORKING CYCLE
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
WORKING CAPITAL IS USED IN 2 SENSES
- Gross Working Capital
- Net working Capital
GROSS WORKING AND NET WORKING CAPITAL FORMULAS
- Gross Working Capital
= book value of current asset - Net working Capital
= current asset - current liability
NEED OF WORKING CAPITAL
- to purchase
2.to pay - day to day expenses
TYPES OF WORKING CAPITAL
- PERMANENT WORKING CAPITAL
- TEMPORARY WORKING CAPITAL
TYPES OF PERMANENT WORKING CAPITAL
- Initial Working capital
- Regular Working Capital
TYPES OF TEMPORARY WORKING CAPITAL
- Seasonal Working Capital
- Special Working Capital
FACTORS OF WORKING CAPITAL
- Seasonal Variations
- growth and expansion of Business
- Goodwill of business
- Manufacturing Cycle
- Size of The firm
FIXED CAPITAL
Fixed Capital refers to capital invested on fixed assets
Fixed asset are meant for generating income
These assets are not fixed in value
FIXED CAPITAL IS CALLED BLOCK CAPITAL
It is blocked up in fixed assets for the lifetime of the business
FIXED CAPITAL PROVIDES CORNERSTONE TO ENTERPRISE
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
