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°ash management

°oncept 
Used in 2 sense
1. Narrow sense
2. Broader sense

to meet routine cash requirement (operating expense)  Precautionary motive .Minimum balance of cash at bank .For unanticipated and unpredictable(strikes)  Speculative motive -to gain advantage of opportunities(purchase at favorable prices)  °ompensative motive .Motives of Holding °ash  Transactional motive .

 To prevent bankruptcy  Good relation with bank  Good relation with trade creditors & suppliers  To lead strong credit rating  To maintain balance level .

Goods sold F. Payments D. Funds collected . °ustomer mails payment G. °ash °ycle A. Material ordered B. Payment received H. °heque clearance E. °heques deposited I. Material received °.

ãays of improving net cash flow  Increase sales  Reduce direct & indirect cost and OH expenses  Increase prices especially to slow prayers  Reduce the amount/time of credit given to the customer  Bill as soon as work has been done or order is fulfilled  Improve systems for paying suppliers .

continued  Use of 80/20 rule to control inventories. receivables and payables  Improve systems for paying suppliers  Use more proactive collection techniques  Add late payment charges or fees where possible  Re-negotiate bank facilities to reduce charges  Seek to extent debt repayment periods  Sell off surplus assets or make them productive  Raise additional equity .

. Sample Question  'ED ltd wishes to arrange for overdraft facilities with its bankers during the period April to June of a particular year when it will be manufacturing mainly for stock. Prepare a cash budget for the above period from the following data . Indicating the extent of bank facilities the company will require at the end of each month.

Source of finance  Equity Equity shares are also termed as ordinary shares or common shares and the holders of such shares are known as shareholders or stockholders .

͞ share means share in the share capital of the company and includes stock except where a distinction between stock and share is expressed or implied͟ . 1956. Shares  Under section 2 clause 46 of the Indian companies act.

ãho is Shareholder  Subscribers to the memorandum of a company  Other persons. who agree in writing to become the members of the company `     .

     Minimum 2 7 Maximum 50 Unlimited .

Equity share  _  .

  capital is also called as the     capital of the company and the equity share holders as the real risk bearers of the company.  Do not enjoy special rights  In profit is not adequate they may not receive any dividend  In     of the company the equity share holder is the last person to receive back his capital .

   .

   Unit value of the capital of a ltd comp  It represents the interests of its share holder in the capital of the comp. › .

. !   It is maximum capital a company can raise.

ð    The balance of authorised capital which is not issued to the prospective investors. .   3. "   It is the part of authorized capital which is actually offered to the prospective investors for subscription 4.

Basic concepts ]    The portion of the issued capital which has been subscribed by the investors/public. ß #    It is that part of the uncalled capital which may only be demanded on winding up or liquidation but not when the company is going concerned .

°alls in arrears:  It is that part of called-up capital which has not been paid by the share holders .   7. Paid-up share capital:  It is that portion of the subscribes share capital on which money hav been collected by the issuing company. Here the balance is the unpaid amount or calls in arrears. 8.

It cost is very high 2. It represents of permanent source of finance 2. Issue of equity to outsiders causes dilution of control . Advantages of Equity Shares 1. It does not carry any fixed burden 3. It enhances the credit worthiness of the firm Disadvantages of Equity Shares 1.

͞acknowledgement of debt. given under the seal of the company and containing a contract for the repayment of the principal sum at a specified date and for the payment of interest at fixed rate percent untill the principal sum is repaid.Debentures: As a source of finance  Defined as an. and it may or may not give the charge on the assets to the company as security of the loan͟ .

Features of Debentures 1. Debenture holders have a prior claim over the share holders in the event of liqiudation regarding the repayment of the money . Debenture holders have no voting rights 4. Interest of debentures has to be paid irrespective of the fact whether the company has made any profit or suffered a loss 3. Debenture holders are the creditors of the company 2.

Features of Debentures 5. Debentures are generally secured on the assets of the companies and therefore there is less risk .

Types of Debentures  Redeemable Debentures  Irredeemable Debentures  °onvertible Debentures  Nonconvertible Debentures  Secured Debentures  Unsecured Debentures .

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    :ong term capital  Safety and security of  Tax benefits investment  No interference in  Fixed income management and control  :iquidity ʹ easy sale in stock  :ower rate of interest than exchange the rate of dividend  °onversion into shares .

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    Fixed financial burden  No control  Decrease in credit  No extra profit even worthiness company earns huge  Danger to existence of the amount of profit also. company .

.$      Term loans typically carry fixed interest rates. and some loan fall as long as 20 years. Intermediate term loans : Usually running less than 3 years and generally paid in monthly installments 2. 1. Most are between 3 and 10 years. monthly or quarterly repayment schedules and the set maturity date. :ong term loans : These loans commonly set for more than 3 years.

 Medium term loans : repayable in more than 36 months and less than 72 months. Types of term loan  Short term loan : repayable within a period of 36 months. .  :ong term loans : repayable in more than 72 months.

Basic features of term loan  Maturity : mostly for a period of 6-10 years  Direct negotiation : It avoids underwriting commission and other floatation costs  These are provided on the basis of formal agreement which consist of term and conditions.  These are granted on the basis of a detailed appraisal of the project .

. Basic features of term loan  Security : There are 2 types of security  Primary security : they are secured by the assets acquired using term loan funds  Secondary security : They are secured by company͛s current and future assets.