Budgeting is a basic and essential process in a business which allows businesses to gain many goals in one course of action. The budgeting process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses. There are several purposes to create and implement a budget include control and evaluation, planning, communication, and motivation. Control and Evaluation This is most important matter after finalized a budget is providing sufficient control and evaluating its performance.If performance does not meet the budget, action can be taken immediately to adjust activities. Budgeting allows a company to have a certain range of control over costs, such as reducing many types of unnecessary expenses or assigning responsibility for these expenses. A budget also gives a company a benchmark by which to evaluate business units, departments, and even individual managers. Unfortunately this purpose Continue reading
Business Finance Terms
Capital Sources for Business: Bonds
A bond is a type of loan. Bonds are certificates of debt that is issued by a government or corporation in order to raise money with a promise to pay a specified sum of money at a fixed time in the future and carrying interest at a fixed rate. Generally, a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity). The main types of bonds are corporate bond, municipal bond, Treasury bond, Treasury note, Treasury bill, and zero-coupon bond. It is a tradable debt instrument that might be sold at above or below par (the amount paid out at maturity), and are rated by bond rating services to specify likelihood of default. Bonds are relatively more secured than equity and has priority over shareholders if the company becomes insolvent and its assets are distributed. There is no legal distinction between a debenture Continue reading
Interest Rate Concepts
In market economy, there are many economic-financial categories, including credit and credit interest rate which are two of the most important ones. Credit activities are borrowing and lending activities. The capital-using relationship between borrowers and lenders bases on the principles of reimbursement. Lenders who are in excess of capital have opportunities not only to preserve but also capital get profit. Borrowers who are short of capital have chances to get additional capital to meet production, business or living needs. Therefore, owing to the credit activities that a large proportion of capital in the economy are mobilized, concentrated and distributed from temporary capital surplus sections to shortage ones to meet different needs of all entities in the economy. Indispensable leverage and tool in credit activities is interest rate. Interest rate of bank credit is the ratio in percentage between income and amount of loan for a certain period. Thus, interest rate Continue reading
Labor Cost Control – Meaning and Need
Labor cost covers one of the major portion of the total cost of a product or job. It may increase unnecessarily due to inefficiency of workers, wastage of materials by workers, idle time, unusual overtime work and high labor turnover. Hence, the management should devise effective techniques for controlling labor cost to ensure maximum outputs of better quality at low cost through proper utilization of the labor force. Basically, management is concerned with controlling labor cost. Labor cost control involves such systems, procedures, techniques and tools used by the management in order to keep the labor cost of the product or job as minimum as possible. Labor cost control consists of a number of such regular activities which are carried on by various departments of the organization in a coordinated manner to ensure the availability of the best employees and their optimum utilization. It is the system followed by the Continue reading
An Overview of Electronic Cash
The World is moving rapidly with vastly changing technological developments and innovations. We are currently experiencing an era, where everything is getting automated and digitalized. Along with this technological transition, international monetary system is one significant aspect that is getting transferred from its current state of paper based monetary system to electronic monetary/cash system. According to the 1994 report of European Central bank, electronic cash can be defined as an electronic store of monetary value on a technical device that may be widely used for making payments to undertakings other than the issuer without necessarily involving bank accounts in the transaction, but acting as a prepaid bearer instrument. Like the serial number on general dollar bills, electronic cash issued by a bank or any other institution will also consist a unique number and will represent a specified value of real money. Hence with the current accelerated phase of changes and Continue reading
Debt Instruments – Meaning, Objectives and Features
The debt markets today are a major source of financing than the banking system. It is any market situation where debt instruments are traded. It establishes a planned environment where the debts are traded amongst the interested parties. The debt markets are known by other names based on the types of instruments are traded. For example when municipal or corporate bond are traded, debt market is called bond market whereas if notes or securities or mortgages are traded market is called credit market. The debt market is three times larger than stock/equity market. The debt markets are categorized into two other markets called money market and capital market. Money market is a subsection of the fixed income market. It specializes in short-term debts with the maturity of one-year. Capital markets specialize in long-term debts. It is a market in which financial instruments are traded by the institutions and individuals. Institutions Continue reading