unit 2

1. capital market
the part of a financial system concerned with raising capital by
dealing in shares, bonds, and other long-term investments.
2. money Market
the trade in short-term loans between banks and other financial
institutions.
3. share
The capital of a company is divided into shares. Each share
forms a unit of ownership of a company and is offered for sale
so as to raise capital for the company.
4. debenture
a type of loan, often used by companies to raise money, that
is paid back over along period of time and at
a fixed rate of interest.
5. Rights issue:
an issue of shares offered at a special price by a company to its
existing shareholders in proportion to their holding of old
shares.
6. Sweat Equity shares
Sweat equity shares means such equity shares as are issued by
a company to its directors or employees at a discount or for
consideration, other than cash, for providing their know-how or
making available rights in the nature of intellectual property
rights or value additions, by whatever name called
7. IPO and FPO
initial public offer and follow on public offer
8. hybrid financing
Hybrid financing instruments are those sources of finance
which possess characteristics of both equity and debt. Some
well-known hybrid financing instruments are preference shares,
convertible debentures, warrants, options etc.
9. convertible debenture
A debenture or loan stock which can be exchanged for ordinary
shares at a later date.
10. cumulative preference share
a preference share whose annual fixed-rate dividend, if it
cannot be paid in any year, accrues until it can.

11. lessee
one that holds real or personal property under a lease.
12. lease financing
Lease financing is one of the important sources of medium- and
long-term financing where the owner of an asset gives another
person, the right to use that asset against periodical payments.
The owner of the asset is known as lessor and the user is called
lessee.
13. operating lease
Operating lease is a contract wherein the owner, called the
Lessor, permits the user, called the Lesse, to use of an asset for
a particular period which is shorter than the economic life of
the asset without any transfer of ownership rights.
14. venture capital
capital invested in a project in which there is a substantial
element of risk, typically a new or expanding business.
15. hire purchase system
Hire Purchase System is a special system of purchase and sale.
When goods are purchased on hire-purchase system, purchaser
pays the price in instalments, these instalments may be
Monthly, Quarterly or Yearly etc. Goods are delivered to the
purchaser at the time of Hire Purchase Agreement* but
purchaser will become the owner of goods only on the payment
of the last instalments. All the instalments paid are treated as
hire till the last instalment is paid off.
16. treasury bills
Treasury Bills, also known as T-bills are the short-term money
market instrument, issued by the central bank on behalf of the
government. These are government bonds or debt securities
with maturity of less than a year.
17. commercial paper
Commercial paper is an unsecured and discounted
promissory note issued to finance the short-term credit needs
of large institutional buyers. Banks, corporations and foreign
governments commonly use this type of funding.
18. certificate of deposits
A certificate of deposit (CD) is a relatively low-
risk debt instrument purchased directly through a commercial
bank or savings and loan institution.

UNIT 3
1. capital structure of a firm
the particular distribution of debt and equity that makes up the
finances of a company.
2. optimum capital strucuture
Optimal capital structure is a financial measurement that firms
use to determine the best mix of debt and equity financing to
use for operations and expansions
3. difference between capital structure and financial strucuture
The combination of long term sources of funds, which are
raised by the business is known as Capital Structure.
The combination of long term and short term financing
represents the financial structure of the company.
4. different patterens of capital and financial strucuture

i. Equity Shares and Debentures

ii. Equity Shares and Preference Shares,

iii. Equity Shares, Preference Shares and Debentures

5. sources of finance for a sole tradership

A) personal fund -by own saving

B) hire on purchase

C) credit cards

D) bank loans

6. Cost of capital

This term refers to the cost an organization pays to raise funds,

for example, through bank loans or issuing bonds. Cost of
capital usually appears as an annual percentage.

7. Net Income Approach

Net Operating Income Approach to capital structure believes

that the value of a firm is not affected by the change of debt
component in the capital structure.

8. Net Operating Income approach

Net Operating Income Approach suggests that change in debt

of the firm/company or the change in leverage fails to affect the
total value of the firm/company.

9. Modigigilliani Miller approach

The Modigliani-Miller theorem (M&M) states that the market

value of a company is calculated using its earning power and
the risk of its underlying assets and is independent of the way it
finances investments or distributes dividends.
 10. traditonal approach theory of capital structure

Diagrammatic Representation of Traditional Approach to Capital Structure

11. difference between debt and equity sources of finance.

debt : Funds owed by the company towards another party is

known as Debt
equity : Funds raised by the company by issuing shares is
known as Equity.

12. debt source

Money raised by the company in the form of borrowed capital is

known as Debt.
example : Individuals, businesses and governments use
common types of debt instruments, such as loans, bonds and
debentures, to raise capital or generate investment income

13. equity source of finance

Owners who invest money in the business. ...

 Loans from a bank or from family and friends.
Debentures are loans made to a company

14. redeemable preference share

The preference shares can be of various types. These are:

i) Redeemable Preference Shares: A company may issue this
type of shares on the condition that the company will repay the
amount of share capital to the holders of this category
ofshares after the fixed period or even earlier at the discretion
of the company.

15. convertible debenture

a debenture or loan stock which can be exchanged for ordinary
shares at a later date.

UNIT-4
1. working capital
the capital of a business which is used in its day-to-day trading
operations, calculated as the current assets minus the current
liabilities.
2. long term capital
In the capital account of the balance of payments, long-term
capital movements include FDI and movements of financial
capital with maturity of more than one year (including equities).

3. permanent working capital

Permanent working capital is the minimum investment required

in working capital irrespective of any fluctuation in business
activity. Also known as fixed working capital, it is that level of
net working capital below which it has never gone on any day
in the financial year.
4. temporary working capital
Temporary working capital (TWC) is the temporaryfluctuation of
net working capital over and above the permanent working
capital.

5. Gross working capital

Gross working capital is the sum of all of a company's current
assets (assets that are convertible to cash within a year or
less). Gross working capital includes assets such as cash,
checking and savings account balances, accounts receivable,
short-term investments, inventory and marketable securities
6. Net working capital
Net working capital is the aggregate amount of all current
assets and current liabilities. It is used to measure the short-
term liquidity of a business, and can also be used to obtain a
general impression of the ability of company management to
utilize assets in an efficient manner
7. working capital cycle
Working Capital cycle (WCC) refers to the time taken by an
organisation to convert its net current assets and current
liabilities into cash. It reflects the ability and efficiency of the
organisation to manage its short-term liquidity position.
8. components of working capital
There are three main components associated with working
capitalmanagement: accounts receivable, accounts payable
and inventory.
9. working capital management
The goal of working capital management is to ensure that a
firm is able to continue its operations and that it has sufficient
ability to satisfy both maturing short-term debt and upcoming
operational expenses.
 10. inventory policy
This policy outlines guidelines and accounting policies to ensure
that inventory is properly controlled and costed, and losses or
shortages are prevented. It applies to all inventory items,
including raw materials/parts, work in progress, and finished
goods and consigned inventory.
11. credit policy
A company's policy on when its customers should pay for
goods or services they have ordered a government's policy at a
particular time on how easy or difficult it should be for people
and businesses to borrow and how much it should cost.
12. current assets and current liabilities

Definition: A current asset is an item on an entity's balance

sheet that is either cash, a cash equivalent, or which can be
converted into cash within one year. Examples of current assets
are:

Cash, including foreign currency

Accounts receivable

current liablities: A current liability is an obligation that is

payable within one year.

Accounts payable

Customer deposits.

13. what is Just in time and Just in case

just in time : denoting a manufacturing system in which
materials or components are delivered immediately before they
are required in order to minimize storage costs.
just in case : The inventory management strategy that
companies use when they store a large amount of inventory
because they are likely to run out of stock.
UNIT-5
1. time value of money
The time value of money (TVM) is the idea thatmoney available
at the present time is worth more than the same amount in the
future due to its potential earning capacity.
2. capital expenditure
money spent by a business or organization on acquiring or
maintaining fixed assets, such as land, buildings, and
equipment.
3. recurring expenditure
A recurrent budget consists of regular revenues and ongoing
expenses. Companies may use a recurrent budget to account
for expenses that occur monthly, quarterly, semi-annually or
annually.
4. pay back period
the length of time required for an investment to recover its
initial outlay in terms of profits or savings.
5. internal rate of return
Internal rate of return (IRR) is the interest rate at which the net
present value of all the cash flows (both positive and negative)
from a project or investment equal zero.Internal rate of return is
used to evaluate the attractiveness of a project or investment.
6. Net Present Value (NPV) is the difference between the
present value of cash inflows and the present value of cash
outflows. NPV is used in capital budgeting to analyze the
profitability of a projected investment or project.
7. formula for calculating ARR
Average Accounting Profit
ARR =
Average Investment

8. formula for calculating Pay back period

Payback Period = Initial Investment / Cash Inflow per Period
9. capital budgeting
Capital budgeting (or investment appraisal) is the process of
determining the viability to long-term investments on purchase
or replacement of property plant and equipment, new product
line or other projects.