Financial statements entail the end products which are prepared from the adjusted trial balance. Financial statements play an important role of communicating key accounting information concerning a business organization to those people who are interested in the business. The financial statements act as a model of a business enterprise by showing the business organization in financial terms. The major financial statements includes income statements or profit and loss account, the balance sheet or statement of financial position, the cash flow statement and changes in owner’s equity. The income statement or the profit and loss account summarizes the expenses and revenues that a business incurs in a particular accounting period. Income statement is an important financial statement as it enables people to determine as to whether the business has attained its profitability objectives or not. The balance sheet main purpose is to explain the position of a firm at a particular 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.
Commercial Credit Analysis: Debt Covenants
Conditions imposed on facilities extended by banks, also known as covenants (here Debt Covenants) are imposed by bankers upon a borrower to: Preserve the financial strength of the borrower. Maintain the borrower’s ability to refinance itself – the borrower (being a limited company or a business) continuing as a going concern. Control the assets – prevent the borrower from selling assets thereby ensuring that assets are not dissipated, Ensure that the borrower does not do something that would be detrimental to the interests of the Bank. Debt covenants, therefore, are from a banker’s perspective extremely important in the structuring of a loan.While a risky, unsound loan will not become good by covenants, they will afford some comfort and a degree of control including providing warning signs should the financial position of the company deteriorate. The amount of covenants that can be imposed on a borrower would depend on: The antecedents Continue reading
The Role and Responsibilities of Finance Managers
Role and responsibilities of a finance manager have undergone a remarkable transformation during the past four decades. Not too many years ago, finance manager had a very limited role in a business enterprise. Finance manager was responsible only for maintaining financial records, preparing reports on the company’s status and performance and arranging funds needed by the company so that it could meet its obligations in time. Finance manager, as a matter of fact, was regarded as specialized staff officer in the company concerned only with administering sources of funds. Finance manager was called upon only when his specialty was needed. For example, when the company experienced the problem of dearth of funds, the management expected the finance manager to locate suitable sources of funds and procure additional funds. However, the finance manager transcended his traditional role of garnering external funds for the enterprise following technological changes in major industries, increased Continue reading
Difference Between Forwards and Futures Contract
For all practical purposes, when a forward contract is standardized and dealt in an organized exchange, it becomes a future contract. Basically, they both seem to be one and the same. However, they differ from each other in the following respects: Nature of the Contract: A forward contract is not at all a standardized one. It tailor made contract in the sense that the terms of the contract like quantity, price, period, date, delivery conditions etc. can be negotiated between the parties according to their convenience. On the other hand, a futures contract is a highly standardized and they can not be altered to the requirements of the parties to the contract. Existence of Secondary Market: Since forward Contract is a customized contract, it is not a standard one. So, it cannot be traded on an organized exchange. With a result, there is no secondary market for a forward Continue reading
Finance Lease – Definition and Features
A lease is defined as finance lease if it transfers a substantial part of the risks and rewards associated with ownership from the lessor to the lessee. According to the International Accounting Standards Committee (IASC), there is a transfer of a substantial part of the ownership-related risks and rewards if: i. The lease transfers ownership of the asset to the lessee by the end of the lease term; (or) ii. The lessee has the option to purchase the asset at a price which is expected to be sufficiently lower than the fair market value at the date the option becomes exercisable and, at the inception of the lease, it is reasonably certain that the option will be exercised; (or) iii. The lease term is for a major part of the useful life of the asset. The title may or may not eventually be transferred; (or) iv. The present value of Continue reading
Role of NBFCs in the Indian Financial Sector
The financial institutions are usually classified as banking institutions and non-banking financial institutions (NBFCs). The banks subject to legal reserve requirements can advance credit by creating claims against themselves, while the non-banking financial institutions can lend only out of resources put at their disposal by the ultimate savers. The distinction between the two has been highlighted by savers while characterizing the former as “creators” of credit, and the letter as mere “purveyors” of credit. NBFCs and Monetary Policy The proliferation of NBFCs in India has coincided with a major structural transformation in the Indian financial system, which has an important bearing on the conduct of monetary policy. NBFCs started functioning in the sphere of mobilization of dormant assets and tapping of new users of credit. In the process, they channelized savings in the economy by collecting funds from savings surplus units and allocating them to savings deficit units for investment Continue reading