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
Financial Concepts
Life Insurance – Definition, Need and Benefits
Human life is subject to risks of death and disability due to natural and accidental causes. When human life is lost or a person is disabled permanently or temporarily, there is a loss of income to the household. The family is put to hardship. Sometimes, survival itself is at stake for the dependents. Risks are unpredictable. Death/disability may occur when one least expects it. An individual can protect himself or herself against such contingencies through life insurance. Though Human life cannot be valued, a monetary sum could be determined which is based on loss of income in future years. Hence in life insurance, the Sum Assured (or the amount guaranteed to be paid in the event of a loss) is by way of a ‘benefit’ in the case of life insurance. It is the uncertainty that is risk, which gives rise to the necessity for some form of protection against Continue reading
Shareholder Value Approach
Nowadays shareholder value approach reflects to a modern management philosophy, which implies that an organization measures its success by enriching its shareholders. Shareholders or stockholders are individuals or institutions that owns in a legally form shares of a corporation. They are considered to be a subset of stakeholders, which are all individuals or communities, who have a direct or indirect interest in the business entity (e.g. suppliers, customers, government, competitors etc.). The philosophy of the shareholder value approach attempts to increase the organization’s value by enhancing firm’s earnings, by increasing the market value of corporation’s shares and by increasing also the frequency or amount of dividend paid. The idea is that shareholder’s money should be used to earn a higher return than it could by investing in other assets with same amount of money and risk. Furthermore according to many business analysts shareholder value approach provides managers with clear mission Continue reading
Financial System – Meaning, Functions and Services
A financial system is a network of financial institutions, financial markets, financial instruments and financial services to facilitate the transfer of funds. The system consists of savers, intermediaries, instruments and the ultimate user of funds. The level of economic growth largely depends upon and is facilitated by the state of financial system prevailing in the economy. Efficient financial system and sustainable economic growth are corollary. The financial system mobilizes the savings and channelizes them into the productive activity and thus influences the pace of economic development. Economic growth is hampered for want of effective financial system. Broadly speaking, financial system deals with three inter-related and interdependent variables, i.e., money, credit and finance. The financial system provides channels to transfer funds from individual and groups who have saved money to individuals and group who want to borrow money. Saver (refer to the lender) are suppliers of funds to borrowers in return 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