Beruflich Dokumente
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°oncept
Used in 2 sense
1. Narrow sense
2. Broader sense
Motives of Holding °ash
Transactional motive
- to meet routine cash requirement (operating expense)
Precautionary motive
- For unanticipated and unpredictable(strikes)
Speculative motive
-to gain advantage of opportunities(purchase at favorable
prices)
°ompensative motive
- Minimum balance of cash at bank
To prevent bankruptcy
Good relation with bank
Good relation with trade creditors & suppliers
To lead strong credit rating
To maintain balance level
°ash °ycle
A. Material ordered
B. Material received
°. Payments
D. °heque clearance
E. Goods sold
F. °ustomer mails payment
G. Payment received
H. °heques deposited
I. Funds collected
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
Shares
`
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.
3. "
It is the part of authorized capital which is
actually offered to the prospective investors
for subscription
4. ð
The balance of authorised capital which is
not issued to the prospective investors.
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
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. °alls in arrears:
It is that part of called-up capital which has
not been paid by the share holders
Advantages of Equity Shares
Redeemable Debentures
Irredeemable Debentures
°onvertible Debentures
Nonconvertible Debentures
Secured Debentures
Unsecured Debentures
$ $
: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
u
$ $
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,
monthly or quarterly repayment schedules and
the set maturity date.
1. Intermediate term loans :
Usually running less than 3 years and generally
paid in monthly installments
2. :ong term loans :
These loans commonly set for more than 3
years. Most are between 3 and 10 years, and
some loan fall as long as 20 years.
Types of term loan