Finance assignment help
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The document discusses various types and sources of business finance classified based on period as short term, medium term, and long term finance and based on ownership as owner's funds and borrowed funds. It also explains key concepts in financial management like objectives, decisions around investment, financing, and dividends. Finally, it covers topics such as working capital, capital structure and provides additional resources for further information.
Finance assignment help
- 1. he l p ssign ment Fina nce a
- 2. Finance Money required for carrying out business activities is called finance. Finance is needed to: Establish a business To run a business To modernize , expand and diversify the activities of business. For buying the assets; they may be tangible like machinery, factories, building etc. or intangible such as trademark, patent etc. For running day- to day operations such as buying raw materials, paying wages, salaries etc.
- 3. SOURCES OF FINANCEPERIOD CLASSIFICATION ON THE BASIS OF
- 4. Types of business finance on the basis of period: Long term finance Medium term finance Short term finance
- 5. Long term finance Funds which are required to be invested in a business for a long period of time, that is more than five years are known as long term finance. FEATURES OF LONG TERM FINANCE Used for acquiring fixed assets like machinery, land, building. It is required for expansion projects and adoption of innovative techniques METHOD OF RAISING LONG TERM FUNDS Issue of shares, debentures and long term loans. REQUIRED BY Large scale enterprises
- 6. Medium term finance It is the finance required by business enterprises for more than one year but less than five years is known as medium term finance. FEATURES OF MEDIUM TERM FINANCE Used for introduction of new products, modernization of plant and machinery. METHOD OF RAISING MEDIUM TERM FINANCE Accepting public deposits, medium term loans etc. REQUIRED BY Manufacturing industries
- 7. Short term finance It is the finance required for a short period upto one year is known as short term finance. FEATURES OF SHORT TERM FINANCE Used to meet day- to – day requirements such as holding stock of raw materials, spare parts. METHOD OF RAISING SHORT TERM FINANCE Credit granted in trade, short term loans from commercial banks, commercial paper, factoring REQUIRED BY Trading companies
- 8. TYPES OF BUSINESS FINANCE ON THE BASIS OF OWNERSHIP: Owner’s fund Borrowed fund
- 9. Owner’s fund It refers to the funds contributed by the owners as well as the accumulated profit of the company. For e.g.: equity shares, retained earning FEATURES: 1. Source of permanent capital 2. Provision of risk capital 3. No security required
- 10. Borrowed funds It refers to the borrowing of the firm. It includes all funds available by way of loans or credit. FEATURES 1. Need to give security 2. Regular payment of interest has to be made. 3. Holders do not get the right to control and manage the activities of the firm.
- 11. METHODS OF RAISING FINANCE Retained earning Trade credit Public deposits Commercial paper Shares Debentures Commercial bank Financial institution International financing
- 12. Retained earning It refers to undistributed profits after payment of dividend and taxes. FEATURES: Cushion of security Funds for new and innovative projects Medium and long term finance provider Conversion into ownership funds No cost No fixed liability No security required
- 13. Trade credit It refers to an arrangement where by a manufacturer is granted credit from the supplier of raw material, input, spare part etc. generally the duration is of 3- 6 months. It is short term financing facility. FEATURES Readily available Flexible No floatation cost
- 14. Public deposits It refers to unsecured deposits invited from the public. FEATURES Need no security as raised from public Simple procedure to raise fund for the duration of six months to 3 years. Reduction in tax liability No dilution of control
- 15. Commercial paper It is an unsecured promissory note issued by private and public sector companies with a fixed maturity period of 3 to 12 moths. These are generally issued by companies having a good reputation. FEATURES These are freely negotiable instruments Cost of issuing is very low Continuous source of fund Companies can also invest their money in discounting the commercial paper.
- 16. share Share is the smallest unit in which owner’s capital of the company is divided. According to companies act, a public company can issue two types of shares: Equity shares Preference shares
- 17. Equity shares It is a common security issued under permanent or owner’s fund capital. Equity shareholders are called the real owners of the company. FEATURES Primary risk bearers of the company Claim over the left over income only Equity shareholders have the control over the activities of the company At the time of high profit, shareholders enjoy higher profit
- 18. Preference shares These are those share which get preference over equity shares in respect to: The payment of dividend Repayment during winding up FEATURES Fixed rate of dividend No security Voting power Help to collect large amount of funds
- 19. debentures They are common securities of borrowed fund capital. It can be defined as ‘ a document or a certificate’ issued by a company under its seal as an acknowledgement of its debt FEATURES Fixed rate of interest No voting rights Security required Redeemable i.e. can be redeemed or pay back on expiry of fixed period
- 20. Commercial banks They provide funds for different purposes and different period. Generally commercial banks provide short and medium term loans. MERITS Bank keep the information of borrower confidential No formalities of issue of prospectus Very flexible source of loan
- 21. Financial institutions They are leading institution or development banks that provide financial assistance and guidance to industries and business enterprises. FEATURES Provide medium and long term loan Provide financial as well as managerial advice Underwrite the public issue of shares and debentures Provide loan guarantee
- 22. International source of finance The main securities used by Indian companies to tap international source of finance are given below: Loans from commercial bank International agencies and development banks International capital market 1. GDR 2. ADR 3. FCB
- 23. Financial management It refers to efficient acquisition of finance, efficient utilization of finance and efficient distribution and disposal of surplus for smooth working of company. OR It is mainly concerned with efficient acquision and allocation of funds.
- 24. Objectives of financial management PROFIT MAINTENANCE OF MAXIMISATION LIQUIDITY Maximization of wealth of equity shareholder PROPER MEETINGS OF UTILISATION OF FINANCIAL FUNDS COMMITMENTS
- 25. FINANCIAL DECISIONS: INVESTMENT DECISION a) Capital budgeting b) Working Capital ) FINANCING DECISION a) Debt b) Equity ) DIVIDEND DECISION a) Profit b) Retained earning
- 26. Capital structure It means the proportion of debt and equity used for financing the operations of business CAPITAL STRUCTURE= DEBT/ EQUITY Capital structure should be such that it increases the value of equity share as maximizes the wealth of equity shareholders
- 27. Working capital It refers to excess of current assets over current liabilities GROSS WORKING CAPITAL: This refers to investment in all the current assets such as cash, prepaid expenses. NET WORKING CAPITAL This refers to excess of current assets over current liabilities. It indicates the liquidity position of the company,
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