INTRODUCTION TO BUSINESS FINANCE

BANKING SECTOR The  banking sector  is the section of the economy devoted to the holding of financial assets for others, investing those financial assets as leverage to create more wealth and the regulation of those activities by government agencies 1-       Public banks 2-       Private banks 3-       Foreign banks EXPLANATION A      P ublic bank  is a  bank , a financial institution, in which a state or  public  actors are the owners. It is a company under state control       The term  private banking  refers to a customized line of banking  & financial services offered to  private  individual  banking  clients that earn high levels of income and/ or owning sizable investment assets A      foreign bank  is a type of International  Bank  that is obligat...

FINANCIAL MARKET ( INTRODUCTION ) Financial market is a market which help to get funds to those who have surplus usually household and those who have shortage usually business office etc. Financial market is a place where buying and selling of securities, stock and bonds took place Facilities of financial market 1-       Raising of capital 2-       Transfer of risk 3-       Matching those capital Classification of FM 1-       Primary market 2-       Secondary market Primary market is the market where the share floats for the first time Secondary market is the market where share float for the second or more times

FINANCIAL MANAGEMENT IMPORTANT KEY TERMS • Common shareholder • Preferred shareholder • Bonds • Debenture • Financial market • Cost of money • Banking and non banking sector • Stock market • Capital • Budgeting • Dividend policy • financial report • Long and short term financing • Inventory management Common shareholders -       Common shareholders are the owner of company and as such they have certain rights. They have the right to elect the director of the company. -           In the small firm common shareholder hold the position of the company chairman and also hold the elections of directors periodically (once in a year). -           Each share holder has one vote.   Preferred Shareholder -           It is similar with the bondholder in some respect. - ...

IMPORTANCE OF WORKING CAPITAL MANAGEMENT 1-       Continuity in the business operation 2-       Dividend payments 3-       Repayments of long term loan 4-       Increase the reputation of company/ credit worthiness 5-       It boost efficiency and productivity 6-       It will increase the good will of the company 7-       It will help to find competition   EXPLANATION 1-       Working   capital keeps the business operation moving it is needed to purchased raw material to pay the worker and the staff and also to pay the utility expenses 2-       WC needed to pay dividend to shareholder the payments of dividend take place on the yearly or half yearly 3-       WC also used to repay long...

WORKING CAPITAL MANAGEMENT Working capital is a requirement of funds to company to meet day to day expenses. Some time liquidity (a currency of money that people have in their pocket is known as liquidate ) is very less and unable to meet. It is also known as current assets and current liabilities. There are three conditions   to identify the working capital ·          If current asset are more the then current liabilities then you are doing good and working capital is high ·          If current asset are less the then current liabilities then you are doing poor and working capital is low ·          If current asset are equal to the then current liabilities then you are doing fine and working capital is equal Without working capital an enterprise is failed. For that you need money to run your business and fulfill the daily needs.

PROJECT CLASSIFICATION There are three types of classification the project 1-       Replacement and modern organization decision 2-       Expansion decision 3-       Diversification decision Replacement and modern organization decision Our aim to improve operating efficiencies and to reduce cost and at the same time our aim is to reduce the cost. Generally all types of replacement and modernization are in the business requires the replacement either because of the economic life is over or because it has become technological outdated. The formal decision is known as replacement decision and later is known as modernization both the decision are called cost of reduction decisions Expansion decision The expansion decision are aimed to meet the increase demand of the firms product to import production facility and to increase market share of exiting product Diversification decision ...

QUESTIONS RELATED TO   K-Budgeting Question number 1 The company is considering an investment proposal to initial new milling's controls. The project will cost RS. 50,000/-. The facility has a live expectancy of 5 years and no salvage value. The tax from the proposed investment proposal are as foll,000/-. The facility has a live expectancy of 5 years and no salvage value. The tax from the proposed investment proposal are as follow Years Profit before depreciation 1 10,000 2 11,000 3 14,000 4 15,000 5 25,000 Compute the following 1-       Payback period (PBP) 2-       Average rate of return ( ARR) 3-       Net present value at 10% discount rate (NPV) 4-       Internal rate of return at 8% discount rate (IRR) 5-     ...