GROUP 7 CAPITAL

Nijo Jacob Merin Elza Koshy Sameena.V.Y Alex.B.Thomas Shijith.S.Shaji

ACCOUNTING
Accounting is an art of recording, classifying, summarizing business transaction in a significant manner and in terms of money transactions . It helps to record and classify the various business transactions. It helps in knowing the actual profit and loss of the business. Helps in budgeting.

It

records only transactions which can be recorded in monetary terms. Accounting is a post mortem survey. It provide the information about the concern as a whole. Effect of price level change are not considered here.

FUND FLOW STATEMENT

INTRODUCTION
A

statement showing the sources of funds and how these funds were used
Measures

the changes that have taken place in the financial position of a firm between 2 balance sheet dates
In

India it is not compulsory to prepare a funds flow statement..

OBJECTIVES OF PREPARING FUNDS FLOW STATEMENT

To know the changes in working capital during a period To understand the working capital position of a firm To assess the financial condition of a firm To anticipate the working capital position To provide a basis for budgeting

BENEFITS OF FUNDS FLOW STATEMENT

To share holders To long-term creditors and debenture holders

To short term creditors, banks and financial institutions Useful to management

LIMITATIONS OF FUNDS FLOW STATEMENT

Shows what happened in the past. Hence it is historical in nature Only a secondary data. Because it is only a rearrangement of data given in financial statements Cannot reveal continuous changes Not a substitute for income statement or balance sheet

STEPS

Statement of changes in working capital Adjusted P & L a/c Funds flow statement

CASH FLOW STATEMENT

CASH FLOW STATEMENT

Statement showing the changes in cash position from one period to another Inflows and outflows of cash and cash equivalents If the effect of transaction results in increase of cash and its equivalents, it is called an inflow (i.e.. source) If it result in the decrease of cash, it is called outflow (i.e. application)

PREPARATION OF CASH FLOW STATEMENT

Adjusted P & L a/c

Calculation of cash from operations

Cash flow statement

LIMITATIONS

Ignores non cash transactions Not a substitute for income statement

Historical in nature
Limited scope

TREND RATIOS

INTRODUCTION

Important tool for horizontal financial analysis.

Ratios of different items are for various period are

calculated and then a comparison is made.

This comparison helps in the suggestion of upward and

downward trends of the concern.

Helps the management to compare the concerns position.

ADVANTAGES OF TREND ANALYSIS

Helpful in forecasting and budgeting. Helps in comparing one period with another. Makes data brief and easily understandable. finding the upward or downward movement of business.

CALCULATION OF TRENDS

One year is taken as the base year. Usually the

first year is taken as the base year.

The figure of the base year are taken as 100.

Trend Ratios are calculated in relation to the

base year and the current year. And current year is divided by the base year and will be multiplied by 100 to get the trend ratio.

CAPITAL STRUCTURE

CAPITAL STRUCTURE

CAPITAL STRUCTURE REFER TO THE MIX OF SOURCES FROM WHERETHE LONG TERM FUND REQUIRED IN A BUSINESS MAY BE RAISED .SO IT REFERS TO THE PROPORTION OF DEBT,PREFERENCE CAPITAL AND EQUITY CAPITAL.

CONT.
Raising of capital from different sources and their use in different assets by a company is made on the basis of certain principles that provide a system of capital so that the maximum rate of return can be earned at a minimum cost. This sort of system of capital is known as capital structure.

FEATURES OF APPROPRIATE CAPITAL STRUCTURE

PROFITABILITY FLEXIBILITY CONSERVATION SOLVENCY CONTROL

TOTAL REQUIRED CAPITAL

From Shares

Equity Share capital Preference Share Capital

From Debentures

OPTIMAL CAPITAL STRUCTURE

It is that mix of debt and equity which maximizes the value of the company and minimizes the cost of capital. For example, a business might have an optimal capital structure that consists of 30 percent debt, 10 percent preferred stock, and 60 percent common equity.

ESSENTIALS OF A SOUND OR OPTIMAL CAPITAL STRUCTURE

Minimum Cost of Capital Minimum Risk Maximum Return Maximum Control Safety Simplicity Flexibility Attractive Rules and Legal Requirements Provision for growth Maneuverability

MAJOR CONSIDERATION IN CAPITAL STRUCTURE PLANNING RISK COST CONTROL

BUDGETARY CONTROL

BUDGET
Quantitative and financial expression of a plan. Prepared for a period of time, policy to be pursued for attaining desired objective.

CHARACTERISTICS OF BUDGET
Prepared in terms of quantity and money. Prepared for a fixed and set period of time. Prepared before a definite period of time. Gives objectives to be attained.

ADVANTAGES
Fix target in physical and financial terms. Coordinate efforts of various divisions and departments. Performance evalution,cost control,maximisation of profits. Communication between all levels of management.

BUDGETARY CONTROL AND ITS CHARACTERISTICS

Establishment of budgets- describes responsibility towards a policy-monitoring of performance. Continous comparison of actual with budgeted result. Computation and analysis of variations and actions for maintaining them.

OBJECTIVES OF BUDGETARY CONTROL SYSTEM

To forecast operating activities. To provide coordination of various activities. To serve as an ideal means of communication To serve as a measure of performance. To serve as a means of control.

ESSENTIALS OF GOOD BUDGETARY CONTROL SYSTEM

Plan of operation should be well defined. Should be supported by top management. Provisions for comparing actual with budgeted results. System should be flexible.

BENEFITS
Co-ordinates and controls policy,plans and actions. Indication of good management. Corporate planning and budgetary control can be linked. Costs ,wastage etc can be reduced. Help to achieve maximum profits. Cash budget. Sales forecast. Acts as means of declaration of policies.

WEAKNESSES
All the systems may not be equally efficient. Persons handling the system.