From the company’s point of view, public deposits are a major source of finance to meet the working capital needs. Due to the credit squeeze imposed by the Reserve Bank of India on bank loans to the corporate sector during 1970s – 1980s and also due to the recommendations of the Tandon Committee, restricting credit, many companies were not getting as much money in the 1980s as they used to get, in the past, from the banks. So, public deposits came handy as working capital fund for businesses. While to the depositor, the interest rate offered is higher than that offered by banks, the cost of deposits to the company is less than the cost of borrowings from bank. Moreover, the availability and volume of bank credit are restricted by consideration of margin, security offered, periodical submission of statements etc. The credit available to companies through public deposits is not Continue reading
Business Finance Concepts
Business Valuation Methods
The cardinal rule of business valuation is, that the value of something cannot stated in an abstract form; all that can be stated is the value of a thing in a particular place, at a particular time, in particular circumstances. Valuation of the target requires valuation of the totality of the incremental cash flows and earnings. Valuation of a target is based on expectations of both the magnitude and the timing of realization of the anticipated benefits. Where, these benefits are difficult to forecast, the valuation of the target is not precise. This exposes the bidder to valuation risk. The degree of this risk depends on the quality of information available to the bidder, which, in turn, depends upon whether the target is a private or a public company, whether the bid is hostile or friendly, the time spent in preparing the bid and the pre-acquisition audit of the target. Continue reading