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102601081
102601081
SUSHEEL- 102601081
1. Gross working capital 2. Net Working Capital 3. Permanent Working Capital 4. Temporary Working Capital 5. Length of manufacturing values 6. Length of operating cycle 7. Production policies
The working capital needs of a firm are influenced by numerous factors. The important ones are : i) Nature of business ii) Seasonality of Operation iii) Production Policy. iv) Market Conditions.
Trade credit Customer advances Public deposits Bank credit ESTIMATION OF WORKING CAPITAL Working Capital= current assets current liabilities + safety margins or provisions
Meaning: tool for financial planning. It measures the relative changes profits due to changes in sales. Indicative of both the expected return as well as the risk to the shareholders.
Types of Leverages
Financial leverage: indicates the percentage change in earning per share in relation to percentage changer in earnings before interest and tax. Financial leverage= operating profit/EBIT Taxable income/EBT
Operating leverages: indicates the effect of change in sales on the operating profit.(EBIT) Operating leverage= contribution EBIT/operating profit Combined leverages: It is the combination of operating leverage and financial leverage. It is used to indicate the relationship between a change in sales and the corresponding changes in the taxable profits. Combined leverage= operating leverage x financial leverages
Meaning: it is the annual payment payable by a company on the long term securities issued. It may be the dividend payable on ownership funds like equity shares or preference shares, the annual interest payable on debt securities like debentures, loans etc.
Cost of equity shares: it is the annual cost payable by the company on its equity shares. Dividend payable by a company on the face value of shares. Methods of computation of cost of equity shares: 1) Dividend yield method 2) Dividend growth method 3) Earning per share
1) Dividend yield method: Ke = D x 100 P Ke = cost of capital D = dividend per share P = market price per share 2) Dividend growth method: Ke = (D x 100) + g P 3) Earning per share: Earning per share x 100 market price
2nd component of cost of capital cost of preference shares: Kp = D x 100 P Cost of redeemable preference shares: Kp = D + (R-P) n R+P 2 3rd component of cost of capital Cost of Debentures Kd = I(I-T) P
C1 C3 C2 Cn NPV ! . C0 2 3 n (1 k ) (1 k ) (1 k ) (1 k ) n Ct NPV ! C0 t t !1 (1 k )
Payback is the number of years required to recover the original cash outlay invested in a project.
C0 Initial Investment ! Payback = Annual Cash Inflow C