“Accountability breeds responsibility” – This is a famous quote by Dr. Stephen R. Covey gives the meaning of accountability in rather general terms. The concept of accountability can be defined as the process through which a person is held answerable for his actions and deeds. Under the umbrella of the organization the notion of accountability can be stated as the phenomenon through which whether a person at the higher level of hierarchy or at the lower level is accountable for his works and services that he renders to the organization. Accountability from the organizational perspective bears great importance as it is the measure through which the performance of the organization and a person serving can be judged and analysed. Accountability has different forms. First, the individualizing form of accountability can be studied in which the accountability contributes in making the realization of the image an individual perceives about it. This 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.
Money Market in India – Development, Features and Instruments
Money market is an important segment of the financial market (system) as it provides avenue for equilibrating the short term (ranging from overnight up to an year) demand for and supply of funds. It also plays an important role in the transmission mechanism of monetary policy, as it acts as a medium through which the central bank can influence the short term liquidity and interest rates in the financial system. As per Reserve Bank of India (RBI) definition, a Money market is “a market for short terms financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market”. Indian money market was highly regulated and was characterized by limited number of participants. The limited variety and instruments were available. Interest rate on the instruments was under the regulation of Reserve Bank of India. The sincere efforts for developing the money market were made when the Continue reading
Accounting Standards Approach: Principles-Based vs Rules-Based
Accounting standards plays a vital role in financial accounting and reporting in order for investors to make good decisions. Rules-based accounting is generally a list of detailed rules that must be followed when preparing financial statements. Principle based standards derive from a conceptual framework that provides for broad ‘principles’ to be adopted within standards and also requires professional and managerial judgment in relevance to particular transactions and events. The difference between rules-based and principles-based standards is not clear and is subject to a variety of interpretations. But there is a generally held outlook that the FASB’s standards are rules-based and the IASB’s standards are principles-based. Principles-Based Accounting Standard Principles-based accounting standards are based on a conceptual framework. Such standards require a clear hierarchy of overarching concepts, principles that reflect the overarching concepts and limited further guidance. The principles-based deliver a comprehensive way in preparing the financial statement yet has the Continue reading
Concept of Capitalization in Financial Management
Meaning of Capitalization Capitalization is an important constituent of financial plan. ln common parlance, the phrase ‘Capitalization’ refers to total amount of capital employed in a business. However, scholars are not unanimous in so far as capitalization is concerned. The term capitalization connotes the process of determining the quantum of funds that a firm would require to run its business. Capitalization is distinct from share capital which refer only to the paid-up value of shares issued and definitely excludes bonds and other forms of borrowings. Similarly, it should be distinguished form ‘capital’. The term capital refers to the total investment of a company in money, tangible assets like goodwill. It is in a way the total wealth of a company. When used in the sense of net capital, it indicates the excess of total assets over liabilities. Here, then, it includes “the gains or profits from the use and Continue reading
Components of Cost of Capital
The term cost of capital refers to the maximum rate of return a firm must earn on its investment so that the market value of company’s equity shares does not fall. This is a consonance with the overall firm’s objective of wealth maximization. This is possible only when the firm earns a return on the projects financed by equity shareholders funds at a rate which is at least equal to the rate of return expected by them. If a firm fails to earn return at the expected rate, the market value of the shares would fall and thus result in reduction of overall wealth of the shareholders. Thus, a firm’s cost of capital may be defined as “the rate of return the firm requires from investment in order to increase the value of the firm in the market place”. The three components of cost of capital are: 1. Cost of Continue reading
Impact of Financial Management Practices on Organizational Performance
Financial Management is the deliberate management of planning and organizing of financial activities. It applies the basic management principle to control the flow of funds and properly utilizes financial resources. It sets the financial goals by properly analyzing the available data. The common methods to carry out financial activities like accounting and budgeting are considered to be the financial management practice. Financial management practices is the discipline dealing with the financial decisions for long and short-term goals to ensure the return on capital exceeds the cost without taking an excessive financial risk. It clarifies the efficient financial management practices and is used in the business to respond to another business environment. It also entails practices across the other organizations to provide an evaluating approach to financial management. It has some impact on the organizational performance because of the relationship between them. Effective management leads to the successful growth of an Continue reading