Agency theory is often described in terms of the relationships between the various interested parties in the firm. The agency theory examines the duties and conflicts that occur between parties who have an agency relationship. Agency relationships occur when one party, the principal, employs another party, called the agent, to perform a task on their behalf. Agency theory is helpful in explaining the actions of the various interest groups in the corporate governance debate. For example, managers can be seen as the agents of shareholders, employees as the agents of managers, managers and shareholders as the agents of long and short-term creditors, etc. In most of these principal-agent relationships conflicts of interest is seen to exist. It has been widely observed that the conflicts between shareholders and managers and in a similar way the objectives of employees and managers may be in conflict. Although the actions of all the parties Continue reading
Business Finance Concepts
Types of Credit Cards
There are many types of credit cards which are used by different types of customers and account holders. Mostly business personnel use credit cards which are convenient in their use and which suit businessmen. Similarly students would use student credit cards and a layman will use general purpose cards. There are some most used types of credit cards. For example Interest Credit Cards are mostly used by businessmen and company CEOs because there is a charge of interest if credit card payment has not been annulled in time. Another important and commonly used type of credit cards is those in which 0 APR (Annual Percentage Rate) is charged as its introductory price similarly cash cards are also used which are just like cash but in the form of plastic card. It is because the cash card holder has paid the cash price of that card and he can use it Continue reading
The Concept of Receivables
Accounts receivables (also properly termed as receivables) constitute a significant portion of the total currents assets of the business next after inventories. They are a direct consequences of “trade credit” which has become an essential marketing tool in modern business. When a firm sells goods for cash, payments are received immediately and, therefore, no receivables are credited. However, when a firm sells goods or services on credit, the payments are postponed to future dates and receivables are created. Usually, the credit sales are made on open account, which means that, no, formal acknowledgements of debt obligations are taken from the buyers. The only documents evidencing the same are a purchase order, shipping invoice or even a billing statement. The policy of open account sales facilities business transactions and reduces to a great extent the paper work required in connection with credit sales. Meaning of Receivables Receivables are assets accounts Continue reading
The Importance of Liquidity for Commercial Banks
Banks are considered to be as safe deposit for customers associated with them for both short and long term basis. It has increased liability over banks to make sure that they are able to fulfill all the demands of the customers. Also several acts passed in many countries has reduced the dependency that commercial banks used to possess over Central Banks to make sure that their needs are sufficed in case some emergency arrives. Thus to maintain certain level of stake in the company, it is mandatory for commercial banks to retain appropriate liquidity ratios such that any ambiguous situation could be avoided. If any disturbance is encountered in these ratios, there is a problem of funding that comes into picture and hampers bank’s credibility among its stakeholders. Liquidity control is also necessary for proper structuring of the bank along with looking after all the complexities related to the size Continue reading
5 Different Types of Budgets in Business
Budgets are integral parts of planning for business and attaining its perceived objectives. Accordingly business activities involving future planning use the budgetary control process. Different types of budgets to serve business purposes are in vogue, but uses of some budgets that are invariably used by businesses are taken up in detailed manner in this write up. 1. Sales Budget Sales budget is an estimate of expected sales revenue for ensuing financial period. Estimates of sales are budgeted on the basis of variety of factors like earlier period sales, production capacities, existing and expected sales environments, economic factors like trade policies of the Governments, seasonal fluctuations, entity’s capacity to create new markets, financing, advertisements and other marketing plans, and many other factors. The cornerstone of budgeting process is the sales budget because the usefulness of entire operating budget depends on it. Some important uses of sales budget are enumerated as under: Continue reading
Term Loan Appraisal
The primary task of a lending institutions before granting a term loan is to assure itself that the anticipated rise in the income of the borrowing unit would materialize, thus providing the necessary funds for repaying the loans according to the terms of amortization. The liquidity of term loans depends not so much on the short-run sale ability of the goods and commodities as on the increased term loan income of borrowing units resulting from a higher level of utilization of existing installed capacity. For assessing the risks involved in term lending, the normal criteria used for judging the soundness of short-term loans are often unreliable and inadequate. The methods of analysis and the standard to be adopted for appraisal of term loans are more similar to investment decisions than to short-term lending. Appraisal of term-loans requires a dynamic approach involving, inter alia, a projection of future trends of Continue reading