What are financial markets and why it is important for savers and borrowers? A financial market is a system that includes individuals and institutions, and procedures that together borrowers and savers and it is no matter where is the location between the savers and borrowers. The main role of the financial market is to facilitate the funds from the individuals and businesses that have the majority fund to individuals, businesses, and governments to fulfill their needs of income. The financial institution is a process used by an organization that provides various types of financial services to their customers. The government authorities have controlled and supervised the institution according to the rules and regulations. The financial institution is giving different types of economic ideas for an organization to carry out their business. A financial institution is an establishment that gives financial services. Financial institutions based on banks, credit unions, asset management Continue reading
Financial Concepts
Advantages and Disadvantages of Different Sources of Finance
Finance is essential for a business’s operation, development and expansion. Finance is the core limiting factor for most businesses and therefore it is crucial for businesses to manage their financial resources properly. Finance is available to a business from a variety of sources both internal and external.  It is also crucial for businesses to  choose the most appropriate source of finance for its several needs as different sources have its own benefits and costs. 1. Personal Savings This is the amount of personal money an owner, partner or shareholder of a business has at his disposal to do whatever he wants.When a business seeks to borrow the personal money of a shareholder, partner or owner for a business’s financial needs the source of finance is known as personal savings. Advantages; The owner would not want collateral to lend money to the business. There is no paperwork required. The money need Continue reading
Earnings Management – Definitions, Reasons and Examples
Earnings Management (EM) is the term used to describe the process of manipulating earnings of the firm to meet management’s predetermined target. The flexibility of accounting standards may cause some variability in earnings to occur as a result of the accounting choices made by management. However, earnings management that falls outside the generally accepted accounting choice boundaries is clearly unethical. The intent behind the earnings management also contributes to the questionable ethics of the practice. Some managers use EM as a means of deceiving shareholders or other stakeholders of the organization, such as creating the appearance of higher earnings to increase compensation or to avoid default on a debt covenant. The intent to use EM to deceive stakeholders implies that it can be unethical, even if the earnings management remains within the boundaries of GAAP or IAS. Earnings management has been defined as management’s exploitation of accounting flexibility to meet Continue reading
Ethical Issues in Cost Allocation
A cost is generally understood to be that sacrifice incurred in an economic activity to achieve a specific objective, such as to consume, exchange, or produce. All types of organizations- businesses, not-for-profits, governmental- incur costs. To achieve missions and objectives, an organization acquires resources, transforms them in some manner, and delivers units of product or service to its customers or clients. Costs are incurred to perform these activities. For planning and control, decisions are made about areas such as pricing, program evaluation, product costing, outsourcing, and investment. Different costs are needed for different purposes. In each instance, costs are determined to help management make better decisions. When incurred, costs are initially reviewed and accumulated by some classification system. Costs with one or more characteristics in common may be accumulated into cost pools. Costs are then reassigned, differently for specified purposes, from these cost pools to one or more cost objects. Continue reading
Dividend Decision
Meaning and Definition of  Dividend Dividend is defined as the distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted  in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield. Dividend is a taxable  payment  declared by a  company’s  board of directors  and given to its  shareholders  out of the company’s  current  or  retained earnings, usually quarterly. Dividends are usually given as  cash  (cash dividend), but they can also take  the  form  of  stock  (stock dividend) or other  property. Dividends provide an incentive  to  own  stock in  stable  companies even if they are not experiencing much  growth. Companies are not  required  to  pay  dividends. The companies that offer  dividends are most often Continue reading
Lease vs Hire Purchase
The concept of leasing can be understood by comparing the lease to the purchase of a specific asset. If a firm wishes to obtain the service of a specific asset, it has two alternatives: Purchase or Lease. To purchase the asset, the firm must payout a lump sum or agrees to some type of installment plan that involves incurring a long term liability. Leasing the assets, on the other hand, provides the firm with asset’s services without necessarily incurring any capital liability. Leasing is a source of financing as it enables the firm to obtain the use of assets in exchange for agreeing to pay lease rentals. In case of leasing, the asset is handed over by the lessor to the lessee in return for a lease rental. The ownership and the title to the assets remain with the lessor. The lessor, however, recovers the cost of the assets as Continue reading