As per section 65(10) of the Finance Act, 1994, “banking and financial services” means the following services provided by a banking company or a financial institution including a non banking financial company, namely; (i) financial leasing services including equipment leasing and hire-purchase by a body corporate; (ii) credit card services; (iii) merchant banking services; (iv) securities and foreign exchange (forex) broking; (v) asset management including portfolio management, all forms of fund management, pension fund management, custodial depository and trust services, but does not include cash management; (vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisition and advice on corporate restructuring and strategy; and vii) provision and transfer of information and data processing. Financial services can be defined as the products and services offered by institutions like banks of various kinds for the facilitation of various financial transactions and other Continue reading
Business Finance Concepts
Capital Structure of a Company
The assets of a company can be financed either by increasing the owners’ claims or the creditors’ claims. The owners claim increase when the firm raises funds by issuing ordinary shares or by retaining earnings; the creditors’ claims increase by borrowing. The various means of financing represent the financial structure or capital structure of a company. The term capital structure is used to represent the proportionate relationship between debt and equity. Equity includes paid-up share capital, share premium and reserve and surplus (retained earnings). The company will have to plan its capital structure initially at the time of its promotion. Subsequently, whenever funds have to be raised finance investment, a capital structure decision is involved. Capital structure of a company refers to the mix of sources from where the long-term funds required in the business may be raised. A demand for raising funds generates a new capital structure a decision Continue reading
Corporate Advisory Services
With the growing importance of investment banking across the globe, its advisory functions are beginning to find worldwide acceptance. People are looking at these advisory functions, with increased confidence. One of such functions is corporate advice. However, these services are spread over a vast spectrum of corporate activity. Some of them are very well suited for investment banks, with the rest finding place with specialist advisory firms. The essence of corporate advisory services for investment banking relates to Business advisory, Restructuring advisory, Project advisory and Merger & Acquisition advisory. Corporate Advisory Services is an umbrella term that encompasses specialized advice’s rendered to corporate houses by professional advisers such as accountants, investment banks, law practitioners and host of similar service providers. Importance of Corporate Advisory Services The factors that necessitate the need for corporate advisory services are. With the world growing at a rapid pace, the company would not want Continue reading
Factors Affecting Dividend Policy
Dividend is the amount paid out to the shareholders out of the earnings for equity shareholders. That part of the total earnings, which is not paid out as dividend, is the retained earnings (RE), which is ploughed back or reinvested in the business. The higher the amount of dividend, the lower the retained earnings and vice versa. Retained profit increases the long-term capital base of the company and thus increases the potential of future earning capacity. On the other hand, the higher the dividend, the higher the earnings of the equity shareholders at present. The question is what is the trade-off between present earnings and higher future earnings; what is the optimum dividend policy. As in other matters, that dividend policy is optimum, which maximizes the net wealth of equity shareholders. The issue before dividend policy is to determine the best distribution of profit between dividend per share (DPS) and Continue reading
Commercial Credit Analysis: Sources of Repayment
The main concern that a banker has when facilities are extended is on the repayment of the monies advanced. This is the question that he will invariably zero in on and it would be prudent for the prospective borrower to advise him upfront on how he intends to repay the facility. In ideal circumstances there should be more than one source of repayment so that should there be, for some reason, a delay or a problem, the repayment commitment can still be honored. Bankers too, if presented with a well structured plan/ plans of repayment would be more willing to listen and even advance facilities. Primary Source: The primary source of repayment should be directly related to the kind of loan given i.e. for facilities extended (overdraft) for working capital or to finance trade the repayment should be from the proceeds of the goods sold. If a bridge loan prior Continue reading
Introduction to Venture Capital
Concept of Venture Capital The term venture capital comprises of two words that is, “Venture” and “Capital”. Venture is a course of processing, the outcome of which is uncertain but to which is attended the risk or danger of “loss”. “Capital” means resources to start an enterprise. To connote the risk and adventure of such a fund, the generic name Venture Capital was coined. Venture capital is considered as financing of high and new technology based enterprises. It is said that Venture capital involves investment in new or relatively untried technology, initiated by relatively new and professionally or technically qualified entrepreneurs with inadequate funds. The conventional financiers, unlike Venture capitals, mainly finance proven technologies and established markets. However, high technology need not be pre-requisite for venture capital. Venture capital has also been described as ‘unsecured risk financing’. The relatively high risk of venture capital is compensated by the possibility of Continue reading