Finance assignment help

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.

C O S L N O A U S T R S H C I E F S I B C A O A S F T I I S F O I O N F A N P C E R I O D

Types of business finance on the basis of period:

Long

term finance Medium term finance Short term finance

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

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

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

TYPES OF BUSINESS FINANCE ON THE BASIS OF OWNERSHIP:

Owners

fund Borrowed fund

Owners 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

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.

METHODS OF RAISING FINANCE

Retained

earning Trade credit Public deposits Commercial paper Shares Debentures Commercial bank Financial institution International financing

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

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

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

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.

share
Share is the smallest unit in which owners capital of the company is divided. According to companies act, a public company can issue two types of shares: Equity shares Preference shares

Equity shares
It is a common security issued under permanent or owners 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

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

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

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

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

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

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.

Objectives of financial management

PROFIT MAXIMISATION MAINTENANCE OF LIQUIDITY

Maximization of wealth of equity shareholder

PROPER UTILISATION OF FUNDS

MEETINGS OF FINANCIAL COMMITMENTS

FINANCIAL DECISIONS:
INVESTMENT
a)Capital

budgeting b)Working Capital

FINANCING
a)Debt b)Equity a)Profit

DECISION

DECISION

DIVIDEND
b)Retained

DECISION

earning

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

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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