Basics of Business

Finance

Episode 1
Motilal wanted to start a jewellery shop. He

required money for following:

Buy a shop worth Rs.10 Lac
Buy furniture for shop worth Rs.1 Lac
To run the business he needs some inventory,
pay bills, day to day expenses, salary of
employees he needs Rs.4 Lac.

Terms to Catch
Fixed Assets: Shop, Furniture, Machinery
Working Capital: Amount required to run the

business (Rs.4 Lac)

Capital: Combined amount required to start
and run the business

Episode 2
During the course of business, Motilal bought

raw material of Rs.1 Lac from suppliers on

credit
Also, he took a loan of Rs.5 Lac from bank to
expand business for 5yrs
Also, he started a EMI scheme in which is he
sold jewellery to customers worth Rs.5 Lac
with only Rs.1 L upfront payment

Terms to Catch
Current Liability: Amount Payable to Suppliers
Current Assets: Amount Receivable from

Customer
Long term Liability: Loan from bank (more
than 1 yr)
Debt: Loan + Any other borrowed money

Episode 3
Motilal wanted to expand his and for that he

thought of bringing in more money and

partners
He values his business at Rs.20 L and gives
half portion in his business
His cousin approached him to join his
business by giving him Rs.10L and asks for
50% share.

Terms to Catch
Equity/ Share: Part ownership in a company
Motilal divided his company into equal parts.
Therefore, 2 shares of his company exist.

Episode 4
The company made a sales of Rs.20 Lac
The expenses for buying raw materials and

making the goods are Rs.12 Lac

The other expenses such as sales employee
salaries and advertising costs are Rs.3L

Terms to Catch

Sales/ Revenue: Amount of goods sold (Rs.20

Lacs)
Cost of Goods Sold (COGS): Cost directly
related to making of goods sold (12L)
Operating Profit: Amount left after removing
the COGS = Revenue COGS = 20-12 = 8L
Other Expenses: Amount spent on running the
business (called as overheads) (3L)
EBITDA: Operating Profit Other Expenses

Episode 5

Motilal has to pay interest to bank of Rs.50k

to bank on borrowed money

The value of his furniture decreases to Rs.80k
The company pays some taxes to the
government on the profit made

Terms to Catch
Depreciation: Decrease in the value of fixed

assets (Furniture value decreased from 1L to

80k)
Interest Expense: Interest paid on the
borrowed money
Profit Before Tax (PBT): The amount left after
removing interest and depreciation
Profit After Tax (PAT)/ Net Profit:

Episode 6
Motilal decides to take only 1L from the final

profit and remaining is left as it is

The 1L is equally divided between Motilal and
his cousin as they both own 1 share each of
the company. They both get 50k

Terms to Catch
Distributed Profit/ Dividend: The amount given

by the company to the shareholders from the

net profit is the dividend. Here the dividend
was Rs.50k per share
Retained Earnings: The amount left with the
company after giving dividend is called
retained earnings = Net Profit Dividend = 4L
1L = 3L