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7/30/2019 SP Chapter 1
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Secretarial Practice
1. Business Finance
STD. XII
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Introduction
Business finance is a broad concept. It deals with all
financial activities of the business. The term business
covers both commerce and industry. In simple words,
business finance applies to all financial activities ofagriculture, industry, banking, transport, insurance,
etc. Thus the scope of business finance includes
commercial finance, industrial finance, property
finance, corporate finance and agricultural finance.
In an academic world, the term corporate finance is
now known as financial management.
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Financial Management
Financial management is a specialised function of
general management. It refers to management of
business funds. It is mainly concerned with raising of
finance and its effective utilization for achievementof goals of the organization.
Definition
Kuchal S.C,
Financial management deals with procurement of
funds and their effective utilization in business.
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Role of financial management
Functions
1. Routine functions:
Record keeping and reporting
Preparation of various financial statements
Cash planning
Credit Management
Providing information to BOD on currentfinancial position for making decisions of
purchases , marketing , pricing, etc.
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2. Executive Functions:
Forecasting financial requirements
Deciding sources of funds
Investment decisions
Dividend policy
Checking and analysis of financialperformance
Advising BOD
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Objectives of financial management
1. Profit Maximization
2. Wealth Maximization:value maximization
maximising market value of shares
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Financial Planning
Financial planning is an important function offinancial management. It is a continuous processin day to day administration of business.
It is not possible for business manager to goahead unless he prepares financial plan.
FP is not only required for profit making but evenfor survival of a firm.
The term FP refers to assessment of financialrequirements and arranging the sources ofcapital.
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Definition
J.H. Boneville
The financial plan of a corporation has two foldaspects, it refers not only to capital structure of
the corporation but also to the financial policies
which corporation has adopted or intends to
adopt.
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Significance of FP
Elimination of waste
Co-ordination
Dynamism Communication
Decision making
Integration Futuristic
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Capital Structure
Capital structure constitutes two wards i.e. capital
and structure. Capital refers to investment of funds
in the business while structure means arrangement
of different components in proper proportion. Thuscapital structure means mix-up of various sources of
funds in desired proportion.
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Definition
Weston and Bringham
Capital structure is the permanent financing offirm represented by long term debt ,preferred
stock and net worth.
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Components of capital structure
Equity share capital
Preference share capital
Retained earnings Borrowed capital
(a)Debentures
(b)Term loan
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Factors influencing capital
structureInternal Factors
1. Requirement of capital
2. Size and nature of business
3. Growth of business firm
4. Adequate and stable earning
5. Cash position
6. Period of finance
7. Future plan
8. Trading on equity
9. Capital earing
10. Attitude of management
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External factors
1. Market condition
2. Attitude of investors
3. Cost of capital
4. Government regulations5. Attitude of financial institutions
6. Rate of interest
7. Taxation
8. Competition
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Fixed Capital
The concept of fixed capital was first theoretically
analysed by David Recardo. It refers to any kind of
real or physical capital i.e. fixed assets. It is not used
for the production of goods. Fixed capital is thatportion of total capital which is invested in fixed
assets such as land, building, equipment, etc.
According to Karl Marx,
Fixed capital also circulates, except that the
circulation time is much longer.
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Factors affecting requirement of fixed
capital
Nature of business
Size of business
Growth and expansion of business
Stage of development of business
Business cycle
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Working Capital
There is no universally accepted definition of workingcapital. Various financial experts have used this term indifferent ways.
difference between current assets and current
liabilities.
Gerstenbergh,
The excess of current assets over current liabilities
Western and Brigham,
WC refers to the firms investment in short term assets cash, short term securities, accounts receivables andinventories.
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Factors affecting the requirement of
Working Capital
Nature of business
Size of business
Volume of sale
Production cycle
Business cycle
Term of purchase and sale
Credit control
Growth and expansion
Management ability
External factors
Requirement of cash
Seasonal fluctuation