Equity shares are financial instruments to raise equity capital. The equity share capital is the backbone of any company’s financial structure. Equity capital represents ownership capital. Equity shareholders collectively own the company. They enjoy the reward of ownership and bear the risk of ownership. The equity share capital is also termed as the venture capital on account of the risk involved in it. The equity shareholders’ liability, unlike the liability of the owner in a proprietary concern and the partners in a partnership concern, is limited to their capital subscription and contribution. In India, under the Companies Act 1956, shares which are not preference shares are called equity shares. The equity shareholders get dividend after the payment of dividend to the preference shareholders. Similarly, at the event of the winding up of the company, capital is returned to them after the return of capital to the preference shareholders. The equity Continue reading
Business Finance Concepts
Sources of Long Term Finance
Based upon the time, the financial resources may be classified into long term and short term sources of finance. Long term sources of finance are those that are needed over a longer period of time – generally over a year. A business requires funds to purchase fixed assets like land and building, plant and machinery, furniture etc. These assets may be regarded as the foundation of abusiness. The capital required for these assets is called fixed capital. A part of the working capital is also of a permanent nature. Funds required for this part of the working capital and for fixed capital is called long term finance. The sources from which a finance manager can raise long-term funds are discussed below: 1. Issue of Shares The amount of capital decided to be raised from members of the public is divided into units of equal value. These units are known as Continue reading
Credit Management – Managing Trade Credit and Accounts Receivable in Business
“The purpose of any commercial enterprise is the earning of profit, credit in itself is utilized to increase sale, but sales must return a profit.” – Joseph L. Wood The primary objective of management of receivables should not be limited to expansion of sales but should involve maximization of overall returns on investment. So, receivables management should not be confined to mere collection or receivables within the shortest possible period but is required to focus due attention to the benefit-cost trade-off relating to numerous receivables management. Principles of Credit Management In order to add profitability, soundness and effectiveness to receivables management, an enterprise must make it a point to follow certain well-established and duly recognized principles of credit management. The first of these principles relate to the allocation of authority pertaining to credit and collections of some specific management. The second principle puts stress on the selection of proper credit Continue reading
Purpose of Keeping Financial Records
Financial recording is a process and procedure that is used by an organisation to control finance and accountability. This process and procedure include recording, verification and timely reporting of transactions that affect revenues, expenditures, assets, and liabilities. To develop business and making profit accountants have to keep financial records or information. There are some techniques for recording financial information that are given below: Double entry book keeping: It is an account technique which records each transaction as a credit and a debit. Day books and ledgers: A book with an account of sales and purchases made each day is called day books. For example: sales day books, sale return day books etc. On the other hand ledger is an accounting book of final entry where transactions are listed in different accounts. For instance: sales ledger, purchase ledger and general ledger etc. The trial balance: It is totaling of debit balance Continue reading
Financial Reporting – Meaning, Objectives, Characteristics, and Principles
Financial statements entail the end products which are prepared from the adjusted trial balance. Financial statements play an important role of communicating key accounting information concerning a business organization to those people who are interested in the business. The financial statements act as a model of a business enterprise by showing the business organization in financial terms. The major financial statements includes income statements or profit and loss account, the balance sheet or statement of financial position, the cash flow statement and changes in owner’s equity. The income statement or the profit and loss account summarizes the expenses and revenues that a business incurs in a particular accounting period. Income statement is an important financial statement as it enables people to determine as to whether the business has attained its profitability objectives or not. The balance sheet main purpose is to explain the position of a firm at a particular Continue reading
The Role and Responsibilities of Finance Managers
Role and responsibilities of a finance manager have undergone a remarkable transformation during the past four decades. Not too many years ago, finance manager had a very limited role in a business enterprise. Finance manager was responsible only for maintaining financial records, preparing reports on the company’s status and performance and arranging funds needed by the company so that it could meet its obligations in time. Finance manager, as a matter of fact, was regarded as specialized staff officer in the company concerned only with administering sources of funds. Finance manager was called upon only when his specialty was needed. For example, when the company experienced the problem of dearth of funds, the management expected the finance manager to locate suitable sources of funds and procure additional funds. However, the finance manager transcended his traditional role of garnering external funds for the enterprise following technological changes in major industries, increased Continue reading