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Financial Management Archives - Page 28 of 49 - MBA Knowledge Base

Working Capital Concepts

Working Capital, being lifeblood for any enterprise, its management becomes a crucial exercise for the Financial Manager of a firm. The need of working capital is directly linked to the growth of the firm. Working Capital refers to the funds invested in the current assets of a firm such as raw materials, work-in-progress, finished goods, receivables, cash etc.   From the viewpoint of manufacturing process, working capital means that part of capital, which is required to keep the flow of production smooth and continuous.

For day-to-day operations, a business needs to carry certain amount of raw material of all sorts so that commencement of production is not delayed, certain amount of work-in-process so that production operations go smoothly, certain amount of finished goods so that supply to market is not hampered by fluctuations in production, certain amount of book debts so that sales take place continuously and certain amount of cash and bank balance for meeting daily routine payments and for providing for any unforeseen contingencies.… Read the rest

Capital Sources for Business: Preference Shares

Preference shares are those which carry priority rights in regard to the payment of dividend and return of capital and at the same time are subject to certain limitations with regard to voting rights.   The preference shareholders are entitled to receive the fixed rate of dividend out of the net profit of the company. Only after the payment of dividend at a fixed rate is made to the preference shareholders, the balance of profit will be used for paying dividend to ordinary shares. The rate of dividend on preference shares is mentioned in the prospectus. Similarly in the event of liquidation the assets remaining after payment of all debts of the company are first used for returning the capital contributed by the preference shareholders.… Read the rest

Goals of Financial Management

The goals of financial management can be classified in many ways. Official goals, operative goals and operational goals are one classification. Official goals are the general aims of the organization. Maximization of return on investment and market value per share may be termed as official goals of financial management. Operative goals indicate what the organization is really attempting to do. They are focused and help in choice making. Expected return on investment, cost of capital, debt-equity norms, etc dong with time horizon are specified or their acceptable ranges/limits are static keeping in view the official goals. The operational goals of financial management  are more directed quantitative and verifiable.… Read the rest

Capital Sources for Business: Equity Shares

Equity shares are financial instruments to raise equity capital. The equity share capital is the backbone of any company’s financial structure. Equity capital represents ownership capital. Equity shareholders collectively own the company. They enjoy the reward of ownership and bear the risk of ownership. The equity share capital is also termed as the venture capital on account of the risk involved in it. The equity shareholders’ liability, unlike the liability of the owner in a proprietary concern and the partners in a partnership concern, is limited to their capital subscription and contribution.

In India, under the Companies Act 1956, shares which are not preference shares are called equity shares.… Read the rest

Convertible Issues

A convertible issue is a bond or a share of preferred stock that can be converted at the option of the holder into common stock of the same company. Once converted into common stock, the stock cannot be exchanged again for bonds or preferred stock. Issue of convertible preference shares and convertible debentures are called convertible issues. The convertible preference shares and convertible debentures are converted into equity shares. The ratio of exchange between the convertible issues and the equity shares can be stated in terms of either a conversion price or a conversion ratio.

  • Convertible Preference Shares: The preference shares which carry the right of conversion into equity shares within a specified period, are called convertible preference shares.
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Financial Statements – Definition and Meaning

Past events and performances serve as background for making projections if they are to be realistic. The financial statements provide important information  concerning past financial transactions and their effects om the  profitability and the financial position of the business. Various users of financial statements such as owners, investors, creditors, management etc. must make an analysis of financial statements to make right decision. Therefore financial statements are the means of conveying to owners, management or to interested outsiders a concise picture of profitability and financial position of the business. Financial statements are the end products of the  accounting process  which give a concise accounting information of the period after the accounting period is over.… Read the rest