Catastrophe Bonds (or CAT Bonds) are high-yield, risk-linked securities used to transfer explicitly to the capital markets major catastrophe exposures such as low probability disastrous losses due to hurricanes and earthquakes. It has a special condition that states that if the issuer (Insurance or Reinsurance Company) suffers a particular predefined catastrophe loss, then payment of interest and/or repayment of principal is either deferred or completely waived. These bonds were first introduced as a solution to problems resulting from traditional insurance market capacity constraints, excessive insurance premia, and insolvency risk due to catastrophic losses. Catastrophe Bonds or CAT Bonds are complex financial tools which transfer peril specific risks to the capital markets instead of an insurance company. The peril risk is transferred through a complex system of events which include creation of a special purpose vehicle by a sponsor, modeling event scenarios by qualified risk management firms, drafting of a bond Continue reading
Financial Management
Financial management entails planning for the future of a person or a business enterprise to ensure a positive cash flow, including the administration and maintenance of financial assets. The primary concern of financial management is the assessment rather than the techniques of financial quantification. Some experts refer to financial management as the science of money management. The five basic components of the Financial Management Framework are: Planning and Analysis, Asset and Liability Management, Reporting, Transaction Processing and Control.
Inventory Management
What is inventory? What are its varieties? Inventory is the buffer between two related sequential activities. Between purchase and production, between the beginning and completion of production, and between production and marketing, buffers are needed. Buffer means a cushion to fall back on. Production should not suffer due to some difficulty in purchase of raw materials. Marketing should not suffer due to some difficulty in production. If the business has some stock of raw materials, a temporary difficulty in purchase will not effect production since the stock of raw materials can be used. If there is a stock of finished goods marketing will not be effected due to any temporary hurdle in production. The stocks of raw materials and finished goods, therefore serve as buffers absorbing the difficulties in purchase and production respectively. So, inventory takes different forms. Stocks of raw materials, work-in-process and finished goods are prime inventory. Stocks Continue reading
Functions of Finance Manager
The twin aspects, procurement and effective utilization of funds are crucial tasks faced by a finance manager. The financial manager is required to look into the financial implications of any decision in the firm. Thus all decisions involve management of funds under the purview of the finance manager. A large number of decisions involve substantial or material changes in value of funds procured or employed. The finance manager, has to manage funds in such a way so as to make their optimum utilization and to ensure their procurement in a way that the risk, cost and control are properly balanced under a given situation. He may not, be concerned with the decisions, that do not affect the basic financial management and structure. The nature of job of an accountant and finance manager is different, an accountant’s job is primarily to record the business transactions, prepare financial statements showing results Continue reading
Mergers and Amalgamations
The terms merger and amalgamation are used interchangeably as a form of business organization to seek external growth of business. A merger is a combination of two or more firms in which only one firm would survive and the other would cease to exist, its asset/ liabilities being taken over by surviving firm. Amalgamation is an arrangement in which the asset/liability of to or more firm to form a new entity or absorption of one/more firm with another. The out come of this arrangement is that the amalgamating firm is dissolved/wound-up and losses it identity and its shareholders become shareholders of the amalgeted firm. Although the merger/amalgamation of firm in India is governed by he provision of the companies act, 1956, it does not defined this term. The income tax act , 1961, stipulates to pre-requisite for amalgamation through which the amalgeted company seeks to avail the benefit of set Continue reading
Accounting Errors – Meaning, Causes and Types
The errors or mistakes which are committed in the journal, ledger and any other financial statements are known as accounting errors. Accounting errors may be defined as those mistakes which are generally committed while recording the financial transactions in the book of accounts. These errors may be committed while recording the transactions in the journal and posting them in the ledger accounts. Such errors may be technically committed or committed due to lack of the knowledge of accounting principles and rules. Generally, accounting errors are unintentional. However, it may intentionally be committed so as to take some undue advantage. Accounting errors distort the true business results. Therefore, these errors must be properly located and rectified for ascertaining the true profit or loss and financial position of the business. Major Causes of Accounting Errors There can be several causes of accounting errors. The following are the important ones: Lack of Knowledge: Continue reading
Importance of an Accounting System
Business enterprises are created for achieving one or more objectives — profit motive being the most dominant among all objectives. For accomplishing objectives efficiently and effectively, the firm needs resources which must be optimally utilized. The firm faces the question of the use and allocation of resources at two levels. First, at the macro level, the firm has to compete for resources with other firms in the capital market. The criterion used by the capital market to allocate resources is efficiency, which is conventionally measured in terms of profits. A firm would thus succeed to obtain funds from the capital market if it has been profitable in the past, or has a profit making potential in the future. The capital market consists of investors-individuals and institutional-who decide about the allocation of funds to the firms on the basis of information regarding the financial performance of the firms. Continue reading