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Inter_P6A_FM_Mod1_Chapter_1_Scope_and_Objectives_of_Financial_Management.pdf
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[Concept: Theory] ## 12. AGENCY PROBLEM AND AGENCY COST <!-- image --> Though in a sole proprietorship firm, partnership etc., owners participate in management but in corporates, owners are not active in management so, there is a separation between owner/ shareholders and managers. In theory manag...
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Inter_P6A_FM_Mod1_Chapter_1_Scope_and_Objectives_of_Financial_Management.pdf
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[Concept: Theory] ## Addressing the agency problem The agency problem arises if manager's interests are not aligned to the interests of the debt lender and equity investors. The agency problem of debt lender would be addressed by imposing negative covenants i.e. the managers cannot borrow beyond ...
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Inter_P6A_FM_Mod1_Chapter_1_Scope_and_Objectives_of_Financial_Management.pdf
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[Concept: Theory] ## SCOPE AND OBJECTIVES OF FINANCIAL MANAGEMENT 1.25 However, following efforts have been made to address these issues: - ♦ Managerial compensation is linked to profit of the company to some extent and also with the long term objectives of the company. - ♦ Employee is also designed to address ...
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Inter_P6A_FM_Mod1_Chapter_1_Scope_and_Objectives_of_Financial_Management.pdf
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[Concept: Theory] ## SUMMARY - ♦ Financial Management is concerned with efficient acquisition (financing) and allocation (investment in assets, working capital etc) of funds. - ♦ In the modern times, the Financial Management includes besides procurement of funds, the three different kinds of decisions as well n...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## After studying this chapter, you would be able to - - ♦ Describe the different sources of finance available to a business, both internal and external. - ♦ Discuss the various long term, medium term and short-term sources of finance. - ♦ Discuss in detail some of the important sources of finance, t...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Financial Needs of a Business Business enterprises need funds to meet their different types of requirements. All the financial needs of a business may be grouped into the following three categories: - (i) Long-term financial needs: Such needs generally refer to those requirements of ...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Basic Principle for Funding Various Needs The basic principle for meeting the short-term financial needs of a concern is that such needs should be met from short term sources, and medium-term financial needs from medium term sources and long term financial needs from long term sources. Accordingly...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## 3. LONG-TERM SOURCES OF FINANCE There are different sources of funds available to meet long term financial needs of the business. These sources may be broadly classified into: - ♦ Share capital (both equity and preference) &amp; - ♦ Debt (including debentures, long term borrowings or other debt ...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## 3.1 Owners Capital or Equity Capital A public limited company may raise funds from promoters or from the investing public by way of owner's capital or equity capital by issuing ordinary equity shares. Some of the characteristics of Owners/Equity Share Capital are: - ♦ It is a source of permanent ...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Advantages of raising funds by issue of equity shares are: - (i) It is a permanent source of finance. Since such shares are not redeemable, the company has no liability for cash outflows associated with its redemption. In other words, once the company has issued equity shares, they are tradable...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Disadvantages of raising funds by issue of equity shares are: Apart from the above mentioned advantages, raising of funds through equity share capital has some disadvantages in comparison to other sources of finance. These are as follows: - (i) Investors find ordinary shares riskier because of un...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## 3.2 Preference Share Capital These are special kind of shares; the holders of such shares enjoy priority, both as regard to the payment of a fixed amount of dividend and also towards repayment of capital on winding up of the company. Some of the characteristics of Preference Share Capital are as f...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Various types of Preference shares can be as below: | Sl. No. | Type of Preference Shares | Salient Features | |-----------|-----------------------------|--------------------------------------------------------------------------...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Advantages of raising funds by issue of preference shares are: - (i) No dilution in EPS on enlarged capital base - On the other hand if equity shares are issued it reduces EPS, thus affecting the market perception about the company. - (ii) There is also the advantage of leverage as it bears a fix...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Disadvantages of raising funds by issue of preference shares are: - (i) One of the major disadvantages of preference shares is that preference dividend is not tax deductible and so does not provide a tax shield to the company. Hence preference shares are costlier to the company than debt...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Difference between Equity Shares and Preference Shares are as follows: | Sl. No. | Basis of Distinction | Equity Share | Preference Share | |-----------|------------------------|-----------------------------...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## 3.3 Retained Earnings Long-term funds may also be provided by accumulating the profits of the company and by ploughing them back into business . Such funds belong to the ordinary shareholders and increase the net worth of the company. A public limited company must plough back a reasonabl...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## 3.4 Debentures Loans can be raised from public by issuing debentures or bonds by public limited companies. Some of the characteristics of debentures are: - ♦ Debentures are normally issued in different denominations ranging from ` 100 to ` 1,000 and carry different rates of interest. - ♦ Normally...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Debentures can be divided into the following three categories based on their convertibility: - (i) Non-convertible debentures These types of debentures do not have any feature of conversion and are repayable on maturity. - (ii) Fully convertible debentures Such debentures are converted into equity...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Other types of Debentures with their features are as follows: | Sl. No. | Type of Debenture | Salient Feature | |-----------|---------------------|------------------------------------------| | 1 | Bearer | Transferable like negotiable instruments |...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Advantages of raising finance by issue of debentures are: - (i) The cost of debentures is much lower than the cost of preference or equity capital as the interest is tax-deductible. Also, investors consider debenture investment safer than equity or preferred investment and, hence, may require a lo...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Disadvantages of debenture financing are: - (i) Debenture interest and the repayment of its principal amount is an obligatory payment. - (ii) The protective covenants associated with a debenture issue may be restrictive. - (iii) Debenture financing enhances the financial risk associated ...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Difference between Preference Shares and Debentures | Basis of difference | Preference shares | Debentures ...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## Types of Bonds Based on call, Bonds can be categorized as: - (i) Callable bonds, (ii) Puttable bonds - (i) Callable bonds: A callable bond has a call option which gives the issuer the right to redeem the bond before maturity at a predetermined price known as the call price (Generally at a premi...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## (i) Foreign Bonds | Sl. No. | Name of Bond | Salient Features ...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## FINANCIAL MANAGEMENT | 3. | Convertible Floating Rate Notes (FRN) | • A convertible FRN is issued by giving its holder an option to convert it into a longer term debt security with a specified coupon • It protects an investor against falling interest rate • The long- term debt security can be ...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## TYPES OF FINANCING | | | • This works like inverse floater ...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## (ii) Indian Bonds | Sl. No. | Name of Bond | Salient Feature | |-----------|----------...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## (i) Financial Institution: National | Sl. No. | Name of the Financial Institution | Year of Establishment | Remarks | |-----------|---------------------------------------------------------------|-------------------------|------------------...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## (ii) Financial Institution: International Institutions | Sl. No. | Name of the Financial Institution | Year of Establishment | |-----------|------------------------------------------------------------------------------|-------------------------| | ...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## 3.7 Loans from Commercial Banks The primary role of the commercial banks is to cater to the short-term requirements of industry. Of late, however, banks have started taking an interest in long term financing of industries in several ways. - (a) The banks provide long term loans for the purpose of...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## 4.1 Meaning of Venture Capital Financing The venture capital financing refers to financing of new high risky venture promoted by qualified entrepreneurs who lack experience and funds to give shape to their ideas. In broad sense, under venture capital financing, ventur...
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Inter_P6A_FM_Mod1_Chapter_2_Types_of_Financing.pdf
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[Concept: Theory] ## 4.2 Characteristics of Venture Capital Financing Some of the characteristics of Venture Capital financing are: - ♦ It is basically an equity finance in new companies. - ♦ It can be viewed as a long-term investment in growth-oriented small/medium firms. - ♦ Apart from providing funds, the inv...
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[Concept: Theory] ## 4.3 Methods of Venture Capital Financing Some common methods of venture capital financing are as follows: - (i) Equity financing: The venture capital undertakings generally require funds for a longer period but may not be able to provide returns to the investors during the initial stages. Therefo...
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[Concept: Theory] ## Meaning of Debt Securitisation Securitisation is a process in which illiquid assets are pooled into marketable securities that can be sold to investors. The process leads to the creation of financial instruments that represent ownership interest in, or are secured by a segregated income...
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[Concept: Theory] ## Example of Debt Securitisation A finance company has given a large number of car loans. It needs more money so that it is in a position to give more loans. One way to achieve this is to sell all the existing loans. But, in the absence of a liquid secondary market for individual car loans, this is ...
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[Concept: Theory] ## 6. LEASE FINANCING Leasing is a general contract between the owner and user of the asset over a specified period of time. The asset is purchased initially by the lessor (leasing company) and thereafter leased to the user (lessee company) which pays a specified rent at p...
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[Concept: Theory] ## 6.1 Types of Lease Contracts Broadly lease contracts can be divided into following two categories: - (a) Operating Lease (b) Financial Lease - (a) Operating Lease: An operating lease is a form of lease in which the right to use the asset is given by the lessor to the lessee. However, the ownershi...
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[Concept: Theory] ## FINANCIAL MANAGEMENT - (b) Financial Lease: In contrast to an operating lease, a financial lease is long term in nature and non-cancelable i.e. the lessee cannot terminate the lease agreement subsequently So, the period of lease is generally the full economic life of the leased asset. In other wor...
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[Concept: Theory] ## Comparison between Financial Lease and Operating Lease | Financial Lease | Financial Lease | Operating Lease ...
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[Concept: Theory] ## 6.2 Other Types of Leases - (a) Sales and Lease Back: Under this type of lease, the owner of an asset sells the asset to a party (the buyer), who in turn leases back the same asset to the owner in consideration of a lease rentals. Under this arrangement, the asset is not physically exchanged b...
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[Concept: Theory] ## 7. SHORT-TERM SOURCES OF FINANCE There are various sources available to meet short-term needs of finance. The different sources are discussed below: - (i) Trade Credit: It represents credit granted by suppliers of goods, etc., as an incident of sale. The usual duration of such credit ...
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[Concept: Theory] ## TYPES OF FINANCING - (iii) Advances from Customers: Manufacturers and contractors engaged in producing or constructing costly goods involving considerable length of manufacturing or construction time usually demand advance money from their customers at the time of accep...
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[Concept: Theory] ## FINANCIAL MANAGEMENT - (vii) Bank Advances: Banks receive deposits from public for different periods at varying rates of interest. These funds are invested and lent in such a manner that when required, they may be called back. Lending results in gross revenues out of which costs, ...
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[Concept: Theory] ## Some of the facilities provided by banks are: - (a) Short Term Loans: In a loan account, the entire advance is disbursed at one time either in cash or by transfer to the current account of the borrower. It is a single advance and given against securities like shares, government securities, life in...
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[Concept: Theory] ## Types of Packing Credit - (a) Clean packing credit: This is an advance made available to an exporter only on production of a firm export order or a letter of credit without exercising any charge or control over raw material or finished goods. It is a clean type of export advance. Ea...
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[Concept: Theory] ## FINANCIAL MANAGEMENT - (d) E.C.G.C. guarantee: Any loan given to an exporter for the manufacture, processing, purchasing, or packing of goods meant for export against a firm order qualifies for the packing credit guarantee issued by Export Credit Guarantee Corporation. - (e) Forw...
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[Concept: Theory] ## Other facilities extended to the exporters are as follows: - (i) On behalf of approved exporters, banks establish letters of credit on their overseas or up country suppliers. - (ii) Guarantees for waiver of excise duty, etc. due performance of contracts, bond in lieu of cash securit...
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[Concept: Theory] ## 8. OTHER SOURCES OF FINANCING - (i) Seed Capital Assistance: The Seed Capital Assistance scheme is designed by IDBI for professionally or technically qualified entrepreneurs and/or persons possessing relevant experience, skills and entrepreneurial traits but lack adequate financial resour...
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[Concept: Theory] ## FINANCIAL MANAGEMENT - (viii) Zero Interest Fully Convertible Debentures: These are fully convertible debentures which do not carry any interest. The debentures are compulsorily and automatically converted after a specified period of time and holders thereof are entitled to new eq...
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[Concept: Theory] ## 9. INTERNATIONAL FINANCING The essence of financial management is to raise and utilise the funds raised effectively. There are various avenues for organisations to raise funds either through internal or external sources. The sources of external financing include: - (i) Comm...
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[Concept: Theory] ## FINANCIAL MANAGEMENT - (i) Foreign Currency Futures: FC Futures are obligations (and not the right) to buy or sell a specified foreign currency in the present for settlement at a future date. - (j) Foreign Euro Bonds: In domestic capital markets of various countries the Bonds i...
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[Concept: Theory] ## TYPES OF FINANCING <!-- image --> - ♦ Green bonds: These are the most popular ESG bonds that are issued by a financial, non-financial or public institution, where the bond proceeds are used to finance 'green projects'. Green projects are aimed at positive environmental and/o...
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[Concept: Theory] ## FINANCIAL MANAGEMENT issue of Foreign Currency Convertible Bonds (FCCB) to foreign investors i.e. institutional investors or individuals (including NRIs) residing abroad. Such investment is treated as Foreign Direct Investment (FDI). The government guidelines on these issues are covered...
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[Concept: Theory] ## 10. CONTEMPORARY SOURCES OF FUNDING - (i) Crowd funding: In simple terms, crowdfunding means raising money for an individual or organisation from a group of people to fund a project, typically via internet (social media and crowdfunding websites). It generally involves collecting funds from family...
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[Concept: Theory] ## SUMMARY - ♦ There are several sources of finance/funds available to any company . - ♦ All the financial needs of a business may be grouped into the long term or short-term financial needs. - ♦ There are different sources of funds available to meet long term financial needs of the busine...
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[Concept: Theory] ## . After studying this chapter, you would be able to - - ♦ Discuss Sources of financial data for Analysis. - ♦ Discuss financial ratios and its types. - ♦ Discuss use of financial ratios to analyse the financial statement. - ♦ Analyse the ratios from the perspective of investors, lenders, suppli...
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[Concept: Theory] ## 1. INTRODUCTION The basis for financial analysis, planning and decision making is financial statements which mainly consist of Balance Sheet and Profit and Loss Account. The profit &amp; loss account shows the operating activities of the concern over a period of time ...
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[Concept: Theory] ## 2.1 Definition of Ratio A ratio is defined as 'the indicated quotient of two mathematical expressions and as the relationship between two or more things.' Here, ratio means financial ratio or accounting ratio which is a mathematical expression of the relationship between two ...
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[Concept: Theory] ## a. Calculation Basis (Basis of Calculation): -  A relationship expressed in mathematical terms -  Between two individual figures or group of figures -  Connected with each other in some logical manner -  Selected from financial statements of the concern
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[Concept: Theory] ## b. Objective for financial ratios is that all stakeholders (owners, investors, lenders, employees etc.) can draw conclusions about the: -  Performance (past, present and future) -  Strengths &amp; weaknesses of a firm -  Can take decisions in relation to the firm Ratio analysis is based on ...
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[Concept: Theory] ## 2.3 Sources of Financial Data for Analysis The sources of information for financial statement analysis are: - i. Annual Reports - ii. Interim financial statements - iii. Notes to Accounts - iv. Statement of cash flows - v. Business periodicals. - vi. Credit and investment advisory services <!--...
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[Concept: Theory] ## 3.1 Liquidity Ratios The terms 'liquidity' and 'short-term solvency' are used synonymously. Liquidity or short-term solvency means ability of the business to pay its shortterm liabilities. Inability to pay-off short-term liabilities affects its credibility as well as its cr...
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[Concept: Theory] ## Various Liquidity Ratios are: - (a) Current Ratio - (b) Quick Ratio or Acid test Ratio - (c) Cash Ratio or Absolute Liquidity Ratio - (d) Basic Defense Interval or Interval Measure Ratios - (e) Net Working Capital - (a) Current Ratio : The Current Ratio is one of the best known measures...
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Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation A generally acceptable current ratio is 2:1. But whether or not a specific ratio is satisfactory depends on the nature of the business and the characteristics of its current assets and liabilities. - (b) Quick Ratio: The Quick Ratio is sometimes called the "a...
[ 0.06069100648164749, 0.05137349292635918, 0.00989531073719263, 0.010644068941473961, -0.05411161109805107, -0.006272840779274702, 0.06827246397733688, 0.018273476511240005, 0.018646201118826866, 0.08690647035837173, 0.037545327097177505, 0.001836489769630134, 0.0015593997668474913, 0.00149...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## FINANCIAL ANALYSIS AND PLANNINGRATIO ANALYSIS 3.7 - (c) Cash Ratio/ Absolute Liquidity Ratio: The cash ratio measures the absolute liquidity of the business . This ratio considers only the absolute liquidity available with the firm. This ratio is calculated as: Cash Ratio = =
[ 0.032379843294620514, 0.07189184427261353, 0.040004633367061615, -0.0030034147202968597, -0.025226270779967308, -0.017179880291223526, 0.028304332867264748, 0.014530744403600693, -0.015609236434102058, 0.06729601323604584, 0.011350810527801514, 0.02317480742931366, -0.011476470157504082, -...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## (d) Basic Defense Interval/ Interval Measure: Basic Defense Interval = Cash and Bank balances + Net Receivables + Marketable Securities Operating Expenses÷ No. of days (say 360) Or = Current Assets - Prepaid expenses - Inventories Daily OperatingExpenses Daily Operating Expenses=
[ 0.028149398043751717, 0.040706146508455276, 0.010328519158065319, 0.022052904590964317, -0.05537762492895126, -0.06984952837228775, 0.016212431713938713, -0.0013993846951052547, 0.007393110543489456, 0.07388804852962494, 0.03814518079161644, -0.0014091490302234888, 0.018391428515315056, -0...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation If for some reason all the company's revenues were to suddenly cease, the Basic Defense Interval would help determine the number of days for which the company can cover its cash expenses without the aid of additional financing. Cost of Goods Sold + Selling Administartio...
[ 0.0008739627664908767, 0.03677241876721382, 0.005030013620853424, -0.002443530596792698, -0.03296508267521858, -0.050035592168569565, 0.009703299961984158, -0.0025284327566623688, -0.010436725802719593, 0.07661940902471542, 0.03893506899476051, -0.0016068805707618594, 0.010145203210413456, ...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## FINANCIAL MANAGEMENT - (e) Net Working Capital: Net working capital is more a measure of cash flow than a ratio. The result of this calculation must be a positive number. However, in certain business models it may be negative. It is calculated as shown below: Net Working Capital = C...
[ 0.019968455657362938, 0.061820097267627716, -0.033622775226831436, -0.000706064107362181, 0.004401215352118015, -0.06267766654491425, 0.052405256778001785, -0.028324857354164124, 0.018428798764944077, 0.052708324044942856, 0.02335677295923233, 0.009997837245464325, 0.027879981324076653, -0...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## 3.2 Long-term Solvency Ratios/ Leverage Ratios The leverage ratios may be defined as those financial ratios which measure the long-term stability and capital structure of the firm . These ratios indicate the mix of funds provided by owners and lenders and assure the lenders of the longterm funds...
[ 0.02693680301308632, 0.04546375572681427, 0.006858068984001875, 0.028840921819210052, 0.03406982123851776, 0.007872075773775578, 0.024133820086717606, -0.02595413848757744, -0.007680879440158606, 0.02621583826839924, 0.01782216504216194, -0.015071109868586063, -0.010360535234212875, -0.012...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## 3.2.1 Capital Structure Ratios These ratios provide an insight into the financing techniques used by a business and focus, as a consequence, on the long-term solvency position . From the balance sheet, one can get only the absolute fund employed and its sources but only capital s...
[ 0.03414033353328705, 0.00536009855568409, 0.016572877764701843, 0.0013488349504768848, 0.007337385322898626, -0.008803300559520721, -0.010574194602668285, -0.019910486415028572, -0.008992895483970642, 0.04350562021136284, 0.030498331412672997, -0.008531151339411736, 0.006797778885811567, -...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## (a) Equity Ratio: <!-- formula-not-decoded --> The shareholder's equity is Equity share capital and Reserves &amp; Surplus (excluding fictitious assets etc). Net Assets or Capital employed includes Net Fixed Assets and Net Current Assets (Current Assets - Current Liabilities). This rati...
[ 0.019539538770914078, 0.030407626181840897, -0.012383703142404556, -0.03017069771885872, -0.0010376552818343043, -0.04744579643011093, 0.06323704868555069, 0.009577779099345207, 0.005410985089838505, 0.07144797593355179, 0.06794727593660355, -0.006697806995362043, 0.023254483938217163, 0.0...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## (b) Debt Ratio: <!-- formula-not-decoded --> 3.9 Total debt or total outside liabilities includes short and long term borrowings from financial institutions, debentures/bonds, deferred payment arrangements for buying capital equipment, bank borrowings, public deposits and any other inte...
[ -0.003423249116167426, 0.01897042989730835, 0.012719872407615185, 0.008587622083723545, -0.011803056113421917, 0.003609929932281375, 0.05059978738427162, -0.012677516788244247, 0.025233779102563858, 0.09087264537811279, 0.04353083670139313, 0.011588826775550842, 0.018081417307257652, 0.009...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## (c) Debt to Equity Ratio: | Debt to Equity Ratio | = | Total Outside Liabilities | = Total Debt* Shareholder's Equity | |------------------------|-----|---------------------------------------|--------------------------------------| | Debt to Equity Ratio | | Shareholders' E...
[ 0.02774454653263092, 0.02711782418191433, 0.006483912002295256, 0.016895582899451256, 0.00534037733450532, -0.030874591320753098, 0.028619782999157906, -0.01583840511739254, 0.006024535745382309, 0.066985584795475, 0.02735992707312107, 0.027772115543484688, 0.03253430873155594, -0.02441356...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation A high debt to equity ratio here means less protection for creditors, a low ratio, on the other hand, indicates a wider safety cushion (i.e., creditors feel the owner's funds can help absorb possible losses of income and capital). This ratio indicates the proportion of debt f...
[ 0.00793069414794445, 0.025352979078888893, 0.008049684576690197, 0.030597753822803497, -0.009954454377293587, -0.03881227225065231, 0.04896111786365509, 0.005334178917109966, -0.0100313825532794, 0.039575085043907166, 0.03777064010500908, -0.01871367357671261, 0.0022928169928491116, 0.0098...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## FINANCIAL ANALYSIS AND PLANNINGRATIO ANALYSIS 3.11 - (e) Capital Gearing Ratio : In addition to debt-equity ratio, sometimes capital gearing ratio is also calculated to show the proportion of fixed interest (dividend) bearing capital to funds belonging to equity shareholde...
[ 0.011618595570325851, 0.05002861097455025, 0.0031004168558865786, -0.02909732609987259, -0.011488232761621475, -0.03287164121866226, 0.02847820706665516, -0.021494261920452118, 0.0017871289746835828, 0.05466579273343086, 0.023933112621307373, 0.014271164312958717, 0.02612335979938507, -0.0...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## 3.2.2 Coverage Ratios The coverage ratios measure the firm's ability to service the fixed liabilities . These ratios establish the relationship between fixed claims and what is normally available out of which these claims are to be paid. The fixed claims consist of: - (i) Interest on lo...
[ -0.005220277234911919, 0.022247498854994774, 0.025664841756224632, -0.011884882114827633, -0.019204186275601387, -0.005016243550926447, 0.02957637794315815, -0.023744376376271248, 0.02136939764022827, 0.07079329341650009, 0.01852523349225521, 0.0210270956158638, 0.05424448847770691, 0.0074...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Earnings available for debt service* - = Net profit (Earning after taxes) + Non-cash operating expenses like depreciation and other amortizations + Interest + other adjustments like loss on sale of Fixed Asset etc. * Fund from operations (or cash from operations) before interest and taxe...
[ -0.04363428056240082, 0.01693928986787796, -0.02486453391611576, -0.0045560747385025024, -0.012158125638961792, -0.01977473311126232, -0.01989034377038479, 0.005684878211468458, -0.0007030156557448208, 0.04417244717478752, 0.004020747262984514, 0.050693023949861526, 0.0606641061604023, -0....
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation Normally DSCR of 1.5 to 2 is satisfactory. You may note that sometimes in both numerator and denominator lease rentals may also be added. - (b) Interest Coverage Ratio: This ratio also known as 'times interest earned ratio' indicates the firm's ability to meet interest (and other f...
[ -0.0028531330171972513, 0.019805364310741425, 0.002799538429826498, -0.020489362999796867, -0.05278877541422844, -0.007716623600572348, 0.0366923026740551, -0.02348046377301216, -0.0042900205589830875, 0.08361156284809113, 0.06832553446292877, 0.02235267125070095, 0.01799331232905388, -0.0...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation Earnings before interest and taxes are used in the numerator of this ratio because the ability to pay interest is not affected by tax burden as interest on debt funds is deductible expense. It measures how many times a company can cover its current interest pay...
[ -0.0038568275049328804, 0.01919558458030224, 0.020167114213109016, 0.00873137079179287, -0.03588850423693657, -0.010056502185761929, 0.01922037824988365, -0.0022947783581912518, -0.002068065805360675, 0.028840821236371994, 0.05446963012218475, 0.014019125141203403, 0.02138560265302658, 0.0...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation This ratio indicates margin of safety available to the preference shareholders. A higher ratio is desirable from preference shareholders point of view. Similarly, Equity Dividend coverage ratio can also be calculated as: <!-- formula-not-decoded --> - (d) Fixed Charges Coverage R...
[ -0.010130459442734718, 0.02532150223851204, 0.021320488303899765, 0.014654742553830147, -0.017676131799817085, -0.024577436968684196, 0.04785392805933952, 0.008134054951369762, -0.002470567123964429, 0.00942107941955328, 0.054185640066862106, 0.040216632187366486, 0.04468682408332825, 0.01...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Notes for calculating Ratios: 1. EBIT (Earnings before interest and taxes) = PBIT (Profit before interest and taxes), EAT (Earnings after taxes) = PAT (Profit after taxes) - EBT (Earnings before taxes) = PBT (Profit before taxes) 2. Ratios shall be calculated based on requirement and availab...
[ -0.014146444387733936, 0.020276620984077454, -0.00202887412160635, -0.03472534194588661, -0.02785097248852253, -0.022585412487387657, 0.0062115988694131374, 0.013664435595273972, 0.003177864709869027, 0.039242222905159, 0.006359643768519163, 0.013859843835234642, 0.0145748695358634, -0.018...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## 3.3 Activity Ratios/ Efficiency Ratios/ Performance Ratios/ Turnover Ratios These ratios are employed to evaluate the efficiency with which the firm manages and utilises its assets. For this reason, they are often called as 'Asset management ratios'. These ratios usually indicate t...
[ 0.008669997565448284, 0.03540089353919029, -0.005074070766568184, 0.0035385782830417156, -0.030871670693159103, -0.005169754847884178, 0.021750573068857193, -0.010022896341979504, -0.0009118409943766892, 0.0525377094745636, -0.002297854283824563, 0.037234652787446976, -0.01434924267232418, ...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Activity Ratios/ Efficiency Ratios/ Performance Ratios/ Turnover Ratios: - (a) Total Assets Turnover Ratio - (b) Fixed Assets Turnover Ratio - (c) Capital Turnover Ratio/ Net Assets Turnover Ratio - (d) Current Assets Turnover Ratio - (e) Working Capital Turnover Ratio - (i) Inventory/ Stock Turno...
[ 0.006299247033894062, 0.028707187622785568, -0.00643773190677166, 0.0175485759973526, -0.005155946593731642, -0.0302180927246809, 0.01871659606695175, -0.00010957499034702778, 0.006861249916255474, 0.06699979305267334, 0.002896904246881604, 0.04290670529007912, 0.012274336069822311, -0.019...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation A high total assets turnover ratio indicates the efficient utilisation of total assets in generation of sales. Similarly, a low asset turnover ratio indicates total assets are not efficiently used to generate sales. - (b) Fixed Assets Turnover Ratio: It measures the efficie...
[ -0.0008208133513107896, 0.01646813377737999, -0.007918260991573334, 0.01446356438100338, -0.030021660029888153, -0.07088249176740646, 0.03080933354794979, 0.011522706598043442, -0.0059393905103206635, 0.056895434856414795, 0.018206559121608734, 0.023707997053861618, -0.017809566110372543, ...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation A high fixed assets turnover ratio indicates efficient utilisation of fixed assets in generating sales. A firm whose plant and machinery are old may show a higher fixed assets turnover ratio than the firm which has purchased them recently.
[ -0.013416263274848461, -0.0008538783877156675, -0.008096856996417046, 0.018581626936793327, -0.014160030521452427, -0.0522085502743721, 0.023236803710460663, 0.0056730094365775585, -0.0019629199523478746, 0.04473086819052696, 0.02329113334417343, 0.017337195575237274, 0.007391209714114666, ...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation Since Net Assets equals to capital employed it is also known as Capital Turnover Ratio. This ratio indicates the firm's ability of generating sales/ Cost of Goods Sold per rupee of long-term investment. The higher the ratio, the more efficient is the utili...
[ -0.008667875081300735, 0.025036467239260674, -0.019211336970329285, 0.00017348738037981093, -0.020620934665203094, -0.05839065834879875, 0.031520698219537735, -0.00023241696180775762, -0.0025248120073229074, 0.06997933983802795, 0.050907425582408905, 0.007408255711197853, -0.0007233431097120...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation The higher the ratio, the more efficient is the utilisation of current assets in generating sales. - (e) Working Capital Turnover Ratio: It measures how effective a company is at generating sales for every rupee of working capital put to use. <!-- formula-not-decoded -->
[ -0.003073302563279867, 0.019507480785250664, -0.007495872210711241, -0.010862029157578945, -0.021689606830477715, -0.05591174215078354, 0.04023625701665878, 0.010523809120059013, -0.0010005405638366938, 0.05533389747142792, 0.03344712778925896, 0.024287808686494827, -0.008020873181521893, ...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## FINANCIAL MANAGEMENT Working Capital Turnover is further segregated into Inventory Turnover, Debtors Turnover, and Creditors Turnover. Note: Average of Total Assets/ Fixed Assets/ Current Assets/ Net Assets/ Working Capital also can be taken in the denominator for the above rati...
[ -0.027942785993218422, 0.042168159037828445, -0.003315362147986889, 0.013525259681046009, 0.005831580143421888, -0.035267215222120285, 0.019794823601841927, -0.013435950502753258, 0.009052708745002747, 0.09066388010978699, 0.037548478692770004, 0.018672823905944824, -0.0006496697315014899, ...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation This ratio indicates that how fast inventory is used or sold. A high ratio is good from the view point of liquidity and vice versa. A low ratio would indicate that inventory is not used/ sold/ lost and stays in a shelf or in the warehouse for a long time. - (ii) Rece...
[ -0.011583016254007816, 0.023789729923009872, -0.010726324282586575, 0.03588710352778435, -0.043002620339393616, -0.06598283350467682, 0.035332903265953064, 0.022495895624160767, 0.0027792362961918116, 0.08149445801973343, 0.02213631011545658, 0.005430908408015966, -0.0008068338502198458, -...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## FINANCIAL ANALYSIS AND PLANNINGRATIO ANALYSIS 3.17 Receivables (Debtors) Turnover Ratio = Credit Sales Average Accounts Receivable A low debtors' turnover ratio reflects liberal credit terms granted to customers, while a high ratio shows that collections are made rapidly. Receivables...
[ -0.015488267876207829, 0.02556893415749073, 0.004695966839790344, 0.02465413510799408, -0.0040884544141590595, -0.019226012751460075, 0.035167377442121506, 0.004451404325664043, 0.014834986999630928, 0.07005526125431061, 0.01673586294054985, 0.021974531933665276, -0.009148502722382545, 0.0...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation The average collection period measures the average number of days it takes to collect an account receivable. This ratio is also referred to as the number of days of receivable and the number of day's sales in receivables. In determining the credit policy, debtor's ...
[ -0.01544253807514906, 0.03666367754340172, -0.01518676895648241, 0.037780892103910446, -0.0189419724047184, -0.018107794225215912, 0.02652786858379841, -0.0030759742949157953, 0.01944301277399063, 0.074710913002491, 0.013543874956667423, 0.012088526040315628, 0.02044259011745453, 0.0058260...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation The firm can compare what credit period it receives from the suppliers and what it offers to the customers. Also, it can compare the average credit period offered to the customers in the industry to which it belongs. The above three ratios i.e. Inventory Turnove...
[ 0.021346936002373695, 0.0266873762011528, -0.0011729401303455234, 0.007768592331558466, -0.0440656952559948, -0.03730817884206772, -0.007803240790963173, -0.013426516205072403, 0.003226111875846982, 0.1000080332159996, 0.016844891011714935, 0.00979374535381794, 0.01625700481235981, -0.0145...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Notes for calculating Ratios: 1. Only selling &amp; distribution expenses differentiate Cost of Goods Sold (COGS) and Cost of Sales (COS). In its absence, COGS will be equal to Cost of Sales. 2. We can consider Cost of Goods Sold/ Cost of Sales to calculate turnover ratios eliminating p...
[ 0.006116722244769335, 0.03612341731786728, -0.011227400042116642, -0.011620505712926388, -0.01833406835794449, -0.04852041229605675, 0.003648018231615424, 0.021135380491614342, 0.008679160848259926, 0.05346586927771568, 0.007384361699223518, 0.016476310789585114, -0.021845733746886253, -0....
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## 3.4 Profitability Ratios The profitability ratios measure the profitability or the operational efficiency of the firm. These ratios reflect the final results of business operations. They are some of the most closely watched and widely quoted ratios. Management attempts to maximize thes...
[ 0.02809140831232071, 0.01915300264954567, -0.016503309831023216, -0.017050204798579216, 0.010546309873461723, -0.03751348704099655, 0.024919776245951653, -0.016454782336950302, -0.003607513615861535, 0.050134312361478806, -0.013019658625125885, 0.04665356129407883, -0.010931519791483879, 0...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Profitability Ratios are as follows: - (i) Profitability Ratios based on Sales - (a) Gross Profit Ratio - (b) Net Profit Ratio - (c) Operating Profit Ratio - (d) Expenses Ratio - (ii) Profitability Ratios related to Overall Return on Assets/ Investments - (a) Return on Investments (ROI) - (i) Retu...
[ 0.036632657051086426, 0.04693218320608139, -0.000378141354303807, -0.0497165322303772, -0.02760087326169014, -0.019341344013810158, 0.02536831982433796, -0.019428830593824387, -0.010478157550096512, 0.07512287050485611, -0.0032597535755485296, 0.07894546538591385, -0.011844472028315067, -0...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation Gross profit margin depends on the relationship between sales price, volume and costs. A high Gross Profit Margin is a favourable sign of good management. - (b) Net Profit Ratio/ Net Profit Margin: It measures the relationship between net profit and sales of the business. ...
[ -0.013823128305375576, 0.022340202704072, -0.013216407038271427, -0.011035429313778877, -0.013225579634308815, -0.033474937081336975, 0.07042798399925232, 0.017270807176828384, -0.05211152508854866, 0.05408063158392906, 0.013250865042209625, 0.04792870208621025, 0.003962227143347263, -0.00...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## Interpretation Operating profit ratio measures the percentage of each sale in rupees that remains after the payment of all costs and expenses except for interest and taxes . This ratio is followed closely by analysts because it focuses on operating results. Ope...
[ -0.008212949149310589, -0.007082350552082062, -0.038367994129657745, -0.03516203537583351, -0.019229711964726448, -0.033790066838264465, 0.03421350196003914, -0.0018400572007521987, -0.013498881831765175, 0.048751600086688995, 0.04205593839287758, 0.04506571963429451, 0.0003014790127053857, ...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## 3.4.2 Profitability Ratios related to Overall Return on Assets/ Investments <!-- image --> - (a) Return on Investment (ROI): ROI is the most important ratio of all. It is the percentage of return on funds invested in the business by its owners . In short, this ratio tells the owner wh...
[ 0.012435777112841606, 0.051916301250457764, -0.039582427591085434, -0.04638258367776871, -0.02942677214741707, -0.05868232995271683, 0.042002055794000626, -0.014481134712696075, -0.011305480264127254, 0.03500884026288986, 0.0038872440345585346, 0.05137433856725693, -0.023789936676621437, -...
Inter_P6A_FM_Mod1_Chapter_3_Financial_Analysis_and_Planning_Ratio_Analysis.pdf
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[Concept: Theory] ## FINANCIAL ANALYSIS AND PLANNINGRATIO ANALYSIS - (i) Return on Assets (ROA), - (ii) Return on Capital Employed (ROCE) and - (iii) Return on Equity (ROE). We should keep in mind that investment may be Total Assets or Net Assets. Further, funds employed in net assets are also known a...
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