1. Financial Management

2. Capital Generation & Management
The Money invested in a business is known as capital.
Every business or organization requires capital to carry out its operations.
Capital is required to -
Start a business,
Run a business and
Expand the business

3. Types Of Capitals Fixed Capital Working Capital
Permanent Working Capital
Seasonal Working Capital

4. Fixed Capital Also called as Block Capital.
It is required in the starting phase of industry.
It is large amount invested in
Land,
Plant set up,
Machinery & Equipment,
Furniture set up,
Building constructions, etc.
Once invested can not be easily converted back to money that’s why it is called Fixed or Block capital.

5. Working Capital
The capital required to meet day-to-day needs and expenditure.
Also called as circulating capital.
Working capital is required for
Material purchasing
Payment/salary
Maintenance cost
Selling cost
Advertisement expenses
Transportation ,etc.
It involves short term funds in business.

6. Permanent Working Capital
This is obvious expenditure.
Its nature is permanent every year or month.
It is minimum capital required for day-to- day functioning.
Examples include:
Payments, salary,
Minimum stock of materials,
Electric and telephone bills, etc.

7. Seasonal Working Capital
This is expenditure due to seasonal happenings.
Sometimes unpredicted incidents happen which require capital to be used.
Examples include
Bonus pay,
Accident charges,
Special functions,
International conferences,
Sudden charges, etc.

8. Sources of Raising Capital
Sources of Fixed Capital
Shares
The amount to be collected by a company is divided in equal number of parts known as shares.
Shares represent ownership of assets of company.
Shares are issued when –
Company needs huge amount of money
Also while starting a company

9. Shares Initial Public Offer (IPO): Secondary Public Issue:
The first public offering of equity shares of company is called IPO.
With this company’s shares are listed on the stock market.
Secondary Public Issue:
As company grows they offer shares.
Such an offer to public is called Secondary Public Issue.
New offers may be made to existing shareholders.

10. Types of Shares Preference shares: Ordinary or Equity Shares:
They carry fixed dividend against profit.
When company goes out of existence, the preference share holder receive their amount first.
Ordinary or Equity Shares:
These shares are offered to general public.
The dividends are not fixed.
Deferred shares:
These are allocated to promoters of the company.
These give exceptional voting rights.
Dividends are paid after the ordinary shareholders.

11. 2. Debenture
A debenture is a bond of acknowledgement issued to the debenture holder by the company.
They are similar to fixed deposit.
The company pays fixed rate of interest.
Debenture holders get preference over share holders.

12. 3. Public Deposits
Company invites general public to deposit their savings for specified period and a declared rate of interest.
It is short or medium turn of finance.
Public deposits are unsecured loans.

13. 4.Term Loans Term loans are the money advances received by a company.
It may be granted by banks or by financial institutions.
The period of term loan is 3 to 10 years.

14. Inter Company Loans Foreign Investment
One company may invest in other company.
Foreign Investment
There could be a joint venture between an Indian company and its foreign partner.
The foreign company may provide patents, machinery and equipment.

15. Sources of Working Capital
Loans from commercial banks
Cash Credit:
In CC certain amount of loan is sanctioned to the company.
A company can withdraw the required amount.
Interest is charged on only amount withdrawn.
Overdraft:
An overdraft is facility in which one can withdraw more money than present in account.
Export Finance:
For fulfilling export orders banks can grant loans.

16. Internal Financing: Franchising:
Part of the profit earned by the company is reinvested.
Franchising:
Franchising is the right granted to market a company's products.
Franchisee pays the fees to franchisor.

17. Classification of Source of finance
Requirements of Finance
Long Term
Medium Term
Short Term
Long Term
Medium Term
Short Term
Preference Shares
Trade Credit
Equity Shares
Debentures
Customer Advances
Debentures
Public Deposits
Instalment's
Loans
Term Loans

18. Budgets and Accounts

19. Budgets Budget: Budget is the plan of next year.
Budget is financial statement of how money will come and how it will go in business functioning.
It represents financial requirements.
Budget is a well written plan.

20. Budgetary Control
Actual provisions in the budget and actual expenditure are compared to avoid deviations.
Helps to achieve target.

21. Types of Budget Budget Based on Flexibility Based on Mechanism
Based on Functions
Fixed Budget
Variable budget
Appropriation
Performance
Zero Base
Production
Sales
Cash
Labour
Material
Capital Expenditure
Financial
Master

22. Fixed Budget
Fixed Budget is used for a business where the future income and expenditure can be predicted with higher degree of certainty.
Such business is said to have a fixed level of activity.
The budgeted output and actual output do not vary.
Simple to prepare and less complicated.

23. Variable Budget
The future income and expenditure in a particular business cannot be correctly predicted.
It needs to prepare budgets which are flexible to accommodate the variations.
Variable budget is designed to change in relation with level of activity.
It is difficult to prepare and more complicated.

24. Production Budget
It is a forecast of the number of products that must be manufactured.
The total cost expected in producing this output is calculated.
It takes into consideration Labour Cost, Material cost, Manufacturing Cost, maintenance cost, etc.
It expects maximum utilization of production facilities through a smooth operation.

25. Production Budget Format
Production Budget Month Year Product X Product Y Anticipated Sales + Desired Closing Stock + + Less: Opening Stock - - Production During Month

26. Production Budget Format
Production Budget Month Year Product X Product Y Anticipated Sales + Desired Closing Stock + + Less: Opening Stock - - Production During Month
June
2014
4000
5000
300
500
4300
5500
200
300
4100
5200

27. Labour Budget
This budget shows the estimate of labour needed to carry out budgeted output.
This budget prepared as follows:
The quantity to be produced is taken from prod Budget.
The type of labour (skills) required is determined.
Man-hours required is estimated.
Compute direct labour needed as follows
= total man hours time available per month in hours

28. Direct labour budget Sr. No. Perticulars Product A B C 1.
Quantity to be produced
1000
800
1200 2.
Direct Man hour per unit 2
1.5 1 3.
Total direct man hours needed =(1x2)
2000 4.
Total direct Labour needed 10 6 5
Direct labour cost per hour
60/-
50/-
55/- 6.
Total Direct Labour Cost (3 X 5)
120000/-
60000/-
66000/-

29. Accounts An account is a record of income and expenses of a business.
It is record of debit and credit.
Journal:
Every business transaction is entered in a book known as a journal.
Ledger:
Financial transactions are entered in this book in the form of debits and credit.
The ledger contains separate accounts of a items or a person or a concern.

30. Profit and Loss Account
According to the Section 211 of the Companies Act, 1956 every profit and loss account of a Company should give a ‘true and fair’ view of the Net Profit or Net Loss of the Company.

31. Why produce a profit and loss account?
It is a legal requirement. Tax is paid on the profit.
It summarises all the year’s transactions – as recorded in documents such as invoices.
It shows the financial ‘health’ of the business.
It is studied by managers, shareholders, banks, financiers and other relevant groups of people.

32. The structure of a profit and loss account
Top part is concerned with gross profit, e.g.
Sales ,000
Cost of sales ,000
Gross profit 200,000
Note: cost of sales is the same as ‘cost of purchases’. It is deducted from sales.

33. The structure of a profit and loss accounts 2
Second part is concerned with net profit, i.e. gross profit minus expenses.
Gross profit 200,000
Expenses
Salaries 55,000
Rent 10,000
Other 5,000
Total expenses 70,000
Net profit 130,000

34. Balance Sheet

35. Basic principles of a balance sheet
Most businesses borrow money to help them to operate.
A balance sheet has a special section – called liabilities.
This shows how much money has been borrowed or invested – and where it came from.
The term ‘balance’ means that all the money invested or borrowed must be accounted for in another section, called assets.

36. The key principle of a balance sheet
All assets
All liabilities
must equal

37. What are assets? Fixed assets are items owned by the
lasts a long time, eg. buildings, vehicles, computers
cost a lot of money
could be sold to increase capital (ie money owned by the business)

38. What are assets? Current assets include:
Items used and replaced regularly, eg raw materials or stock
Customers who owe money (called debtors) for goods they have bought
Money in the current bank account.

39. What are liabilities? Current liabilities are:
Money the business owes to suppliers (called creditors) for goods purchased on credit
Short term loans

40. What are liabilities? Liabilities also includes capital and reserves.
Share capital is money which shareholders have invested in the business
Reserves = profit from previous years kept to finance future developments
Profit and loss account = money kept back from the current year’s profits.

41. The structure of a profit and loss account 1 – Assets
Fixed assets £
Buildings 60,000
Equipment 20,000
Total fixed assets 80,000
Current assets
Stock ,000
Debtors 10,000
Cash at bank 10,000
Total current assets 40,000
(Total assets = £120,000 but this figure doesn’t show)

42. Net current assets/liabilities 30,000
The structure of a profit and loss account 2 – Current liabilities
LIABILITIES
Current liabilities
Creditors -10,000
Net current assets/liabilities 30,000
(This is the current assets - £40,000 - minus the current liabilities)
Total assets less current liabilities 110,000
(This is the total assets - £120,000 - minus the current liabilities)

43. Profit and loss account 10,000 Shareholders’ funds 110,000
The structure of a profit and loss account 3 – Capital and reserves
Capital and reserves £
Share capital 70,000
Reserves 30,000
Profit and loss account 10,000
Shareholders’ funds 110,000
(This is the total amount in capital and reserves. It must equal the same amount as the total assets minus current liabilities)

44. Key aspects on a balance sheet
Fixed assets – is there enough money secured in items which could be sold to raise capital?
Cash in bank – is there enough to cover a short-term crisis?
Net current assets/liabilities – if this figure is negative, the business hasn’t enough money to pay all the creditors in a reasonable time
Shareholders’ funds – are these increasing? Shareholders want their investment to grow.

45. TAXES

46. Taxes
The government undertakes monumental projects to uplift the development of nation.
Such products include:
Infrastructure : Roads, Rail N/w, bridges, airports.
Construction of Dams, power plants and irrigation facility.
Waste management projects,
Education and health facilities,
Development of weapons,
Space research programs, etc.

47. Taxes
Tax revenue comes from three sources:
Taxes on income and expenditure
Taxes on property and capital
Taxes on Commodities and services
Indian constitution has three-tier government
Central Government
State government
Local Self Government
India’s Tax structure is progressive in nature i.e. small incomes are exempted from tax.

48. Types of Taxes Direct Taxes Indirect Taxes Taxes Income tax
The tax that is charged directly on personal or corporate income is called direct tax.
Indirect Taxes
The tax that is charged to piece of goods or service is called an indirect tax. It can be transferred to customer.
Taxes
Income tax
Customs duties
Central Excise and Sales Tax,
Wealth Tax
Gift Tax
Service Tax

49. Excise Tax
Excise tax is an indirect tax levied on all goods manufactured.
It is commodity tax.
Central government levies excise duty on all kinds of goods (Except liquor –by State Govt.)
Item Excise Duty
Small cars %
Cars with length<4m, engine<1500cc -20%
Cars with length>4m, engine>1500cc -24%
Small 19 inch LCD TV -No excise duty

50. Service Tax
Service tax is payable on services provided by the service provider.
Services are taxed on production and sale.
It is Indirect Tax.
Example Include:
Telephone
General Insurance
Stock brokerage services
Service tax not applicable in Jammu & Kashmir
Effective rate is 12.36%

51. Income Tax Income tax is Annual direct Tax on the income.
It is levied on Individuals and Corporations.
Income from following sources is included
Income from Salary
House Property
Business / profession Profits
Income from capital gain
Income from other sources.

52. Value Added Taxes(VAT)
In production distribution chain goods get resold many times.
Original manufactures ->Distributors ->retailers -> customers.
At every stage the seller adds processing charge and his commission to purchase price.
The “value addition” means the increase in value of goods and services.
VAT aims at taxing the original price and every value addition.
VAT is Indirect Tax
Was introduced in year 2005.

53. Custom Duty These are the taxes related to Import-Export.
Duties are levied on commodities imported into India or exported from India.
Various types of duties under Customs law are:
Basic Duty- basic import duty levied in the range of 5% to 40% on all kinds of duties.
Additional Duty
Anti-dumping Duty: exported goods sold at lower price.
Protective duty: to protect Indian industry.
Duty on Bounty(subsidy) : given by foreign country.
Export Duty: Export of goods.