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
Business Finance
Business Finance is that business activity which is concerned with the acquisition and conservation of capital funds in meeting financial needs and overall objectives of business enterprises.
Indian Banking Sector Reforms: Special Tribunals and Asset Reconstruction Funds
Setting up of special tribunals to speed up the process of recovery of loans and setting up of Asset Reconstruction Funds (ARFs) to take over from banks a portion of their bad and doubtful advances at a discount was one of the crucial recommendations of the Narasimham Committee. To expedite adjudication and recovery of debts due to banks and financial institutions (FIs) at the instance of the Tiwari Committee (1984), appointed by the Reserve Bank of India (RBI), the government enacted the Debt Recovery Tribunal Act, 1993 (DRT). Accordingly, DRTs and Appellate DRTs have been established at different places in the country. The act was amended in January 2000 to tackle some problems with the old act. DRTs — a compulsion One of the main factors responsible for mounting non-performing assets (NPAs) in the financial sector has been the inability of banks/FIs to enforce the security held by them on Continue reading
Financial derivative types: Forward Contracts
Forward contracts: Forwards are the oldest of all the derivatives. Forwards are contracts to buy or sell an asset on or before a future date at a price specified today or an agreement between two parties to exchange an agreed quantity of an asset for cash at a certain date in future at a predetermined price specified in that agreement. The promised asset may be currency, commodity, instrument etc. Eg: On January 1, Mr. X enters into an agreement to buy 5 sacks of basmati rice on June 1 at Rs. 3000/- per sack from Mr. Y, a wholesaler. It is a case of a forward contract where Mr. X has to pay Rs. 15,000/- on June 1 to Mr. Y and Mr. Y has to supply 5 sacks of basmati rice. In a forward contract, a user (holder) who promises to buy the specified asset at an agreed price Continue reading
Objectives of Budgetary Control
Budgetary Control is the process of establishing of departmental budgets relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objectives of that policy, or to provide a firm basis for its revision. The primary objective of budgetary control is to help the management in systematic planning and in controlling the operations of the enterprise. The primary objective can be met only if there is proper communication and coordination amongst different within the organization. Thus the objectives of budgetary control can be stated as: Planning: Business requires planning to ensure efficient and maximum use of their resources. The first step in planning is to define the broad aims and objectives of the businesses. Then, strategies to achieve the e desired goals are formulated and tentative schedule of the proposed combinations of the various Continue reading
How Public Key Infrastructure (PKI) Works?
It is necessary to understand some of the basics of encryption, digital certificates, and digital signatures before examining the components of a Public Key Infrastructure (PKI). Encryption Overview “Encryption” is the term used to describe the process of taking legible data, and scrambling it into a form that is non-intelligible to anyone who doesn’t know how to unscramble (or “decrypt”) it again. Encryption processes usually involve a method for encrypting the data and one or more “keys”. The keys are usually a very long number and are used during the encryption or decryption process. In most cases, the method (or “algorithm”) that is used by an application to encrypt data is common knowledge and the key that is used is kept private. There are two main types of encryption – “symmetric encryption” (the same encryption key is used for encryption and decryption), and “asymmetric encryption” (different keys are used for Continue reading
Exit Price Accounting – Definition and Criticisms
Exit Price Accounting (EPA) also known as Continuously Contemporary Accounting (CoCoA) has been proposed by researchers such as McNeal, Sterling, and especially Raymond Chambers. It’s an accounting theory that prescribes that assets should be valued at exit prices and that financial statements should function to inform about an organization’s capacity to adapt. Chambers described the entity’s capacity to adapt as the cash that could be obtained if the entity sold its assets. Chambers believed that economic survival of the entity depends on the amount of cash it can command and the balance sheet is crucial to these decisions. Chambers used the term ‘current cash equivalents’ to refer to the amount that was expected to be generated through the orderly sale of assets. He believe that the information about current cash equivalent were fundamental to effective decision making. Chambers stated that ‘the accounting rules used were so different in effect that Continue reading