Capital Market: Capital market is a market for long-term debt and equity shares.

In this market, the capital funds comprising of both equity and debt are issued and traded. Capital market is of two types : I. Primary market ; ii. Secondary market The primary market deals with the issuance of new securities. Methods of issuing securities in the primary market are: • Initial public offering; • Rights issue (for existing companies); • Preferential issue Secondary market is a market where investors purchase securities or assets from other investors, rather than from issuing companies themselves. The national exchanges - such as the NSE and the BSE are secondary markets. The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. The secondary market, also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. Inflation : The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services increase, the value of a rupee is going to fall because a person won't be able to purchase as much with that rupee as he/she previously could. Mutual Fund : A mutual fund is made up of money that is pooled together by a large number of investors who give their money to a fund manager to invest in a large portfolio of stocks and / or bonds We have already mentioned that like all other investments in equities and debts, the investments in Mutual funds also carry risk. However, investments through Mutual Funds is considered better due to the following reasons :Your investments will be managed by professional finance managers who are in a better position to assess the risk profile of the investments; Your small investment cannot be spread into equity shares of various good companies due to high price of such shares. Mutual Funds are in a much better position to

the result will be different. Sensex It is an index that represents the direction of the companies that are traded on the Bombay Stock Exchange [ Images ]. Nifty It is the Sensex's counterpart on the National Stock Exchnage. The word Sensex comes from sensitive index. all the 30 stocks that make up the Sensex have reached a value of 14. Adopting different methods of calculation. signed document that promises to pay the bearer a sum of money at a future date or on demand. so the methods of calculating depreciation is very important.355 points. The only difference between the two indices (the Sensex and Nifty) is that the Nifty comprises of 50 companies and hence is more broad-based than the Sensex. This is called risk diversification and can effectively shield the steep slide in the value of your investments. TYPES OF MUTUAL FUNDS (a) EQUITY FUNDS / SCHEMES (b) DEBT FUNDS / SCHEMES (also called Income Funds) (c ) DIVERSIFIED FUNDS / SCHEMES (Also called Balanced Funds) (d) GILT FUNDS / SCHEMES (e) MONEY MARKET FUNDS / SCHEMES (f) SECTOR SPECIFIC FUNDS (g) INDEX FUNDS Negotiable Instruments: A transferable. The Sensex captures the increase or decrease in prices of stocks of companies that it comprises.Having said that one must remember that the Sensex is the benchmark that represents Indian equity markets globally. . Choosing the fit methods of calculating depreciation. The charge of depreciation can impact the net profit in the income statement. it need to be faced by the finance staff. bills of exchange. BSE. NSE. And it'll refer to the expense and tax in the income statement.effectively spread your investments across various sectors and among several products available in the market. A number represents this movement. Examples include checks. Currently. and promissory notes.The Nifty 50 or the S&P CNX Nifty as the index is officially called has all the 30 Sensex stocks.

The accounting cycle is the series of steps that take place in order for financial statements to be accurately and uniformly produced at the end of an accounting period which is typically the length of one month. Revaluation method When a non-current asset has been revalues. Take all of your entries and categorize them by the account. This transaction could be the revenue from the sale of a product or a payment to another business for services. Analyze the transaction and how it related to the accounting balance sheet. Record the transaction to the general ledger. And in the first year the percentage is applied to cost but in subsequent years it's applied to the asset's net book value (alternatively known as written down value). Here needs a percentage to apply. Below is a list of the steps you would take to complete the accounting cycle. and with a brief summary of each step. Annual depreciation charge = (Orginal . or a whole year. Identify the transaction.Residual value)/Estimated useful value Reducing balance method Under this method the depreciation charge will be higher in the earlier years of the life of the asset. Under this method the depreciation charge is constant over the life of the asset. daily. 1. determine which accounts are affected by the transaction and how they are affected. And we need know three pieces of information: the original (historical) cost of the asset an estimate of its useful life to the business an estimate of its residual value at the end of its useful life. Journals are kept in chronological order and may be updated continuously. the charge fro depreciation should be based on the revalued amount and the remaining useful economic life of the asset. or however often it is necessary. 4. quarter of a year.There are several possible methods of calculating depreciation: Straight line method It's the simplest amd most popular methods of calcuating depreciation. 3. For example. 2. listed in the order that you would perform them. . Record the transaction to a journal such as a sales journal. Sum of the digits method The aim of this method is to show a higher depreciation charge in the early years of the life of an asset.

so adjust the entries accordingly. 6. 9. 7. Types of financial ratios: 1. Current ratio 3. From the adjusted trial balance. then you need to adjust them to make sure they do match. Debits and credits need to be equal at the end of an accounting cycle.liquid ratio etc. 8.e. does not mean the work has been performed. accounts payable.. Take the adjustments from Step 6 and prepare a trial balance. short term paying capacity of and ability to meet its current obligations. Perform trial balance with adjustments.5. leases.like current ratio. and total assets Supplement to liquidity ratios: focus on the composition of current assets . Close the accounts in preparation of the next accounting cycle. fixed financial charges) • Times interest earned ratio • Fixed-charge coverage ratio 3. activity ratio: Definition: Activity ratios measure the firm’s effectiveness at managing accounts receivable. Revenues and expenses need to be closed out. so calculate the entries to ensure they match. Prepare financial statements. Quick ratio (acid test) 2 leaverage ratio: Definition: Amount of debt used in an attempt to maximize shareholders’ wealth Two types: – Capitalization ratios: How a firm has financed its investment • Debt ratio • Debt/Equity ratio – Coverage ratios: Assess the firm’s ability to service the source of financing (payment debt. Activity 3. If the debits and credits do not match. Types of ratios used for analyzing liquidity 1. Perform a trial balance. Balances are moved to the next cycle. Just because entries are recognized. these corrected balances are used to prepare the financial statements. interest. dividend payments i. Leverage 4. Net working capital (not a ratio) 2. fixed assets. Profitability 1 liquidity ratio: measures the short term solvency or financial position of a firm. which means they need to have zero balances. Liquidity 2. Prepare adjustments. Revenue can only be recognized when the work has been completed. inventory.

This risk can be avoided by issuing another types of cheque called ‘Crossed cheque’. A bearer cheque can be transferred by mere . Average payment period 4. A cheque can be crossed by drawing two transverse parallel lines across the cheque. It is only credited to the bank account of the payee. Price/Earning (P/E) ratio Banks: An organization. A cheque is a written instruction you give to your banker to make payment by debit to your account on demand. The payment of such cheque is not made over the counter at the bank. 4. which does most or all of the following: receives demand deposits and time deposits. with or without the writing ‘Account payee’ or ‘Not Negotiable’. drafts. and b) Crossed cheque. Return on total assets (ROA) 3. Pass it to some one else by signing on the back of a cheque. cheques are of four types. collects checks. The holder of an open cheque can do the following: i. makes loans. Fixed and total asset turnover. c) Bearer cheque d) Order cheque a) Open cheque: A cheque is called ‘Open’ when it is possible to get cash over the counter at the bank. and pays interest on them. usually a corporation. Earnings per share (EPS) 5. c) Bearer cheque: A cheque which is payable to any person who presents it for payment at the bank counter is called ‘Bearer cheque’. Types of Cheque Broadly speaking. Average age of inventory 2. Deposit the cheque in his own account iii. and issues drafts and cashier's checks. and invests in securities. honors instruments drawn on them.Four ratios: 1. profitability ratio: Concerned with evaluating a firm’s earnings with respect to a given level of sales / assets / owners’ investment or share value 1. ii. chartered by a state or federal government. it is dangerous to issue such cheques. Common-size income statements 2. b) Crossed cheque: Since open cheque is subject to risk of theft. discounts notes. Return on equity (ROE) 4. a) Open cheque. certifies depositor's checks. Receive its payment over the counter at the bank. and notes. Average collection period 3.

Casher’s Cheque is a check guaranteed by a bank. Those funds are then set aside in the bank's internal account until the check is cashed or returned by the payee. They are usually treated as cash since most banks clear them instantly. in this manner. at the time the check is written. the cards are designed exclusively for use on the Internet. As traveler's cheques can usually be replaced if lost or stolen (if the owner still has the receipt issued with the purchase of the cheques showing the serial numbers allocated). A debit card (also known as a bank card or check card) is a plastic card that provides an alternative payment method to cash when making purchases. Thus. it is a more trusted method of payment than a personal check. its liquidity is similar to cash traveler's cheque : is a preprinted. In such a cheque the word ‘bearer’ may be cut out or cancelled and the word ‘order’ may be written. However. which can bounce A certified check is a form of check for which the bank verifies that sufficient funds exist in the account to cover the check. banks are permitted to take back money from a "cleared" check one or two weeks later if subsequent processing finds it to be fraudulent. it can be called an electronic cheque.delivery and requires no endorsement. . and. In this situation a person is said to be "overdrawn". Merchants welcome the extra security of a pre-paid money order instead of a personal check. a certified check cannot "bounce". and the amount overdrawn is within this authorised overdraft limit. Because it is required that the funds be prepaid for the amount shown on it. they are often used by people on vacation in place of cash. It is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user. as the funds are withdrawn directly from either the bank account. then fees may be charged and higher interest rate might apply. fixed-amount cheque designed to allow the person signing it to make an unconditional payment to someone else as a result of having paid the issuer for that privilege. then interest is normally charged at the agreed rate. A credit card is part of a system of payments named after the small plastic card issued to users of the system. The payee can transfer an order cheque to someone else by signing his or her name on the back of it. A money order is a payment order for a pre-specified amount of money. and so there is no physical card An overdraft occurs when withdrawals from a bank account exceed the available balance. If the balance exceeds the agreed terms. and so certifies. In some cases. If there is a prior agreement with the account provider for an overdraft protection plan. Functionally. or from the remaining balance on the card. d) Order cheque: An order cheque is one which is payable to a particular person.

In terms of RBI directives the minimum period for which term deposits can be accepted is 15 days. 4. The person wishing to do a transfer (or someone they have appointed and empowered financially to act on their behalf) approaches a bank and gives the bank the order to transfer a certain amount of money. The sending bank transmits a message. The banks generally do not accept deposits for periods longer than 10 years. 2. IBAN and BIC code are given as well so the bank knows where the money needs to be sent to. Banks generally insist on a higher minimum balance to be maintained in current account. A Savings bank account is the most common operating account for individuals and others for non-commercial transactions. for further benefit to the ultimate recipient. defined as a bill of exchange drawn on a banker and payable on demand. A promissory note. Banks pay interest on term deposits based on the period of deposits and normally pay higher interest for longer term deposits. A wire transfer can be made from one bank account to another bank account or through a transfer of cash at a cash office.Wire transfer or credit transfer is a method of transferring money from one person or institution (entity) to another. a correspondent bank. 3. under specific terms A bill of exchange or "draft" is a written order by the drawer to the drawee to pay money to the payee. referred to as a note payable in accounting. via a secure system (such as SWIFT or Fedwire). or the payment must be sent to a bank with such an account. A Savings account helps people to put through day-to-day banking transactions besides earning some return on the savings made. Bank wire transfers are often the most expedient method for transferring funds between bank accounts. either at a fixed or determinable future time or on demand of the payee. requesting that it affect payment according to the instructions given. Either the banks involved must hold a reciprocal account with each other. A common type of bill of exchange is the cheque. The actual transfer is not instantaneous: funds may take several hours or even days to move from the sender's account to the receiver's account. is a contract where one party (the maker or issuer) makes an unconditional promise in writing to pay a sum of money to the other (the payee). or commonly as just a "note". to the receiving bank. . A bank wire transfer is effected as follows: 1. Bills of exchange are used primarily in international trade. Current accounts are cheque operated accounts maintained for mainly business purposes. The message also includes settlement instructions. Fixed Deposits or Term Deposits : Time deposits are deposits accepted by banks for a specified period of time. Banks also stipulate certain minimum balance to be maintained in savings accounts. Unlike savings bank account no limits are fixed by banks on the number of transactions permitted in the Account. and are written orders by one person to his bank to pay the bearer a specific sum on a specific date. Banks generally put some ceilings on the total number of withdrawals permitted during specific time periods.

A voting share (also called common stock or ordinary share) is a share of stock giving the stockholder the right to vote on matters of corporate policy and the composition of the members of the board of directors. A hundi is the oldest known instrument used for the purpose of transfer of money without its actual physical movement. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. The stock or capital stock of a business entity represents the original capital paid into or invested in the business by its founders. Preferred stock differs from common stock in that it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders. Convertible preferred stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed .Hundis A Hundi is a negotiable instrument by usage. Some times it can also be in the form of a promissory note. It is often in the form of a bill of exchange drawn in any local language in accordance with the custom of the place.

or. The investment banks markets the derivatives through traders to the clients like hedge funds and the rest. The Types of Derivative Market The Derivative Market can be classified as Exchange Traded Derivatives Market and Over the Counter Derivative Market. a bond is a debt security. Derivatives are one type of securities whose price is derived from the underlying assets. in the case of government bonds. Govt. It is a financial contract with a value linked to the expected future price movements of the asset it is linked to . Bonds provide the borrower with external funds to finance long-term investments.number of common shares. One party who purchases future contract is said to go “long” and the person who sells the future . Commercial Banks. currencies. depending on the terms of the bond. Sponsored Enterprises and Hedge Funds. the scope of all derivatives possible is near endless. commodities and market indices. The Derivatives can be classified as Future Contracts. and options. Swaps and Credit Derivatives. A bond is a formal contract to repay borrowed money with interest at fixed intervals. The Derivatives Market is meant as the market where exchange of derivatives takes place. is obliged to pay interest (the coupon) and/or to repay the principal at a later date. interest rates.or more simply. to finance current expenditure. in which the authorized issuer owes the holders a debt and. Options and Forward Contracts are traded in Over the Counter Derivatives Market or OTC market. and the coupon is the interest.such as a share or a currency. There are many kinds of derivatives. an agreement between two people or two parties . and swaps. futures. And value of these derivatives is determined by the fluctuations in the underlying assets. Options. exchange acts as the main party and by trading of derivatives actually risk is traded between two parties. forwards. termed maturity. Exchange Traded Derivatives are those derivatives which are traded through specialized derivative exchanges whereas Over the Counter Derivatives are those which are privately traded between two parties and involves no exchange or intermediary. anything like weather data or amount of rain can be used as underlying assets. since a derivative can be placed on any sort of security. with the most notable being swaps. a derivative is a financial instrument . options. However. the holder is the lender (creditor). Forward Contracts. Derivatives are financial instruments whose value changes in response to the changes in underlying variables. usually anytime after a predetermined date.that has a value determined by the price of something else (called the underlying). These underlying assets are most commonly stocks. Shares of such stock are called "convertible preferred shares" In finance. Swaps. The main participants of OTC market are the Investment Banks. As Derivatives are merely contracts between two or more parties. In the Exchange Traded Derivatives Market or Future Market. bonds.[1] Thus a bond is like a loan: the issuer is the borrower (debtor). The main types of derivatives are futures.

the cash flow statement is concerned with the flow of cash in and cash out of the business. is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents. the most. whether there is profit or loss will not affect the payment of interest on debentures. have shown a steady growth rate over the years around the world. not by collateral. The trading of foreign exchange traded derivatives or the future contracts has emerged as very important financial activity all over the world just like trading of equity-linked contracts or commodity contracts. the total position in the contract is zero as no one is holding that for short or long. or limited partnership The income received from shares is called a dividend. One example is an unsecured bond. Shareholder will get a portion of the profits called dividend which is dependent on the profits of the company. Equity investments generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gain as the value of the stock rises. that money can be put to two uses: it can either be re-invested in the business (called retained earnings). a cash flow statement. and documented by an agreement called an indenture. as he has already sold the future contract. As . The statement captures both the current operating results and the accompanying changes in the balance sheet. When a corporation earns a profit or surplus. and financing activities. Interest rate is the parameter which influences the global trading of derivatives. On the contrary. It can be declared by the directors of the company out of profits only. also known as statement of cash flows or funds flow statement. Essentially. Share: is Certificate representing one unit of ownership in a corporation. The derivatives whose underlying assets are credit.contract is said to go “short”. or it can be paid to the shareholders as a dividend Financial Statements In financial accounting. and a person owning shares is called a shareholder. energy or metal. holder of the “short” position is in a profitable position if the price of the underlying security goes down. Dividends are payments made by a corporation to its shareholder members. Debenture holders will get interest on debentures and will be paid in all circumstances. and breaks the analysis down to operating. Shares cannot be converted into debentures whereas debentures can be converted into shares. It is the basic distinction between a debenture and a share. investing. mutual fund. The holder of the “long” position owns the future contract and earns profit from it if the price of the underlying security goes up in the future. • • • Debenture holder is a creditor of the company and cannot take part in the management of the company while a shareholder is the owner of the company. It is the portion of corporate profits paid out to stockholders. when a new future contract is introduced. So. Debenture Is Unsecured debt backed only by the integrity of the borrower.

is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out. dividends paid. the adding together of interest or different investments over a period of time. Income statement. including write-offs (e. where it can refer to accounts on a balance sheet that represent liabilities and non-cashbased assets used in accrual-based accounting. such as profits or losses from operations. also known as the "top line" is transformed into the net income (the result after all revenues and expenses have been accounted for. deferred tax liability and future interest expense . It holds specific meanings in accounting. and any other items charged or credited to retained earnings Accrual (accumulation) of something is. accounts receivable. also known as the "bottom line"). and the cost and expenses charged against these revenues. for a single proprietorship. It displays the revenues recognized for a specific period.. depreciation and amortization of various assets) and taxes. accounts payable. in finance. and Statement of Retained Earnings and Stockholders' Equity for corporation) is one of the basic financial statements as per Generally Accepted Accounting Principles.g. among others. and it explains the changes in a company's retained earnings over the reporting period. also referred as profit and loss statement (P&L). particularly its ability to pay bills. goodwill. operating statement or statement of operations. the statement of cash flows is useful in determining the short-term viability of a company. These types of accounts include. It breaks down changes affecting the account. earnings statement. Statement of Partner's Equity for partnership. The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported Statement of Retained Earnings (also known as Equity Statement.an analytical tool.

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master Your Semester with a Special Offer from Scribd & The New York Times

Cancel anytime.