In last many years, few management accounting innovations has been developed. Managers have to make decision on a daily basis as well make decisions regarding the future and how to survive and grow in an energetic market place with ever growing uncertain circumstances. Traditional and modern management accounting system give relevant information to all levels of management, financial and other information to make decisions about planning, control of operations and identifying opportunities to add value. The modern management accounting practices are typically different from that of traditional management accounting as they enable managers to make sound decisions to minimize cost as well in the same time add value to the products and services by improving the quality of products, which is required by the customers, and reduce waste. In addition, the modern management accounting systems allow the organisation as whole to develop the innovative capacity of the organisation and flexibility 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.
Internal Check – Definition, Objectives, Advantages and Limitations
Internal check is an arrangement of duties of members of staff in such a manner than the work performed by one person is automatically and independently checked by the others. According to ‘F.R.M.De PAULA’, “Internal check means practically a continuous internal audit carried on by the staff it self, by means of which the work of each individual is independently checked by other members of the staff.” According to ‘D.R. DAVAR,’ “Internal check is a system or method introduced with defined instructions given to staff as to their sphere of work with a view to control and verification of their work and also maintenance of accurate records as the ultimate aim.” Objectives of Internal Check To exercise moral pressure over staff. To ensure that the accounting system produces reliable and adequate information. To provide protection to the resources of the business against fraud, carelessness and inefficiency. To distribute the work Continue reading
Key Indicators in Cash Management
Cash management is the process of forecasting, collecting, disbursing, investing, and planning for cash a company needs to operate smoothly. Cash management is a vital task because it is the most important yet least productive asset that a small business owns. A business must have enough cash to meet its obligations or it will be declared bankrupt. Creditors, employees and lenders expect to be paid on time and cash is the required medium of exchange. However, some firm retain an excessive amount of cash to meet any unexpected circumstances that might arise. These dormant cash have an income-earning potential that owners are ignoring and this restricts a firm’s growth and lowers its profitability. Investing cash, even for a short time, can add to company’s earning. Proper cash management permits the owner to adequately meet cash demands of the business, avoid retaining unnecessarily large cash balances and stretch the profit generating Continue reading
The Cost of Equity Capital
Firms may raise equity capital internally by retaining earnings. Alternatively, they could distribute the entire earnings to equity shareholders and raise equity capital externally by issuing new shares. In both cases, shareholders are providing funds to the firms to finance their capital expenditures. Therefore, the equity shareholders required rate of return will be the same whether they supply funds by purchasing new shares or by foregoing dividends which could have been distributed to them. There is, however, a difference between retained earnings and issue of equity shares from the firm’s point of view. The firm may have to issue new shares at a price lower than the current market price. Also, it may have to incur flotation costs. Thus, external equity will cost more to the firm than, the internal equity. Is Equity Capital Free of Cost? It is sometimes argued that the equity capital is free of cost. The Continue reading
Important Considerations in Determining Capital Structure of a Company
The determination of capital structure involves additional considerations in addition to the concerns about EPS, value and cash flow. A firm may have enough debt servicing ability but it may not have assets to offer as collateral. Some of the most important considerations are discussed below: 1. Assets – The form of assets held by a company are important determinants of its capital structure. Tangible fixed assets serve as collateral to debt. In the event of financial distress, the lenders can access these assets and liquidate them to realize funds lent by them. Companies with higher tangible fixed assets will have less expected costs of financial distress and hence, higher debt ratios. Companies have intangible assets in the form of human capital, relations with stakeholders, brands, reputation etc., and their values start eroding as the firm faces financial difficulties and its financial risk increases. 2. Growth Opportunities – The nature Continue reading
Bankruptcy Recovery Strategies
A firm is said to be bankrupt or in financial distress if it is unable to meet its current obligations to the creditors. Bankruptcy may occur because of a number of external and internal factors. The primary cause of a firm encountering financial distress starts when it finds it difficult to meet the scheduled payments or when the cash flow projections of the firm are indicative of the fact that it will soon be unable to do so. Some important business bankruptcy recovery strategies are: 1. Settlements without going through Formal Bankruptcy When a firm goes through the period of financial distress, it is very important for its management and creditors to decide whether the problem is a temporary one and it is possible for the firm to continue its operations or whether the problem is more serious and permanent in nature that has the possibility of endangering the life Continue reading