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format. If you prefer the old one, click here. Have any thoughts? Leave us your feedback. inShare Embed Doc Copy Link Readcast Collections 18 Go Back Download Long-term solvency position is indicated by the proprietary ratio & debtequity r atio.As a shareholder/debenture holder one will be concerned about the long-term solvency position of the company this is because theshareholders/debenture hold ers invest their money in long-term funds. Q)Differentiate between static and dynamic analysis Dynamic Analysis: (Also Called as Horizontal Analysis): Financial statements for a number of years are reviewed and analyzed. Thecurrent years figures are compared with the standard bases year. Theanalysis statement u sually contains figures for two or more years andchanges are shown regarding eac h item, from the base year, usually in theform of percentage. Such an analysis g ives considerable insight into levelsand areas of strength and weaknesses. E.g. Trend Analysis. Static Analysis: (Also Called as Vertical Analysis):Study of quantitative relationship of the var ious items in the financialstatement on a particular date. For example, the rati os of different items of costs for a particular period may be calculated with th e sales for thatperiod. Such an analysis is useful in comparing the performance of severalcompanies in the same group, or divisions or departments in the sameco mpany. Since this analysis depends on the data for one period, this is notvery c onducive to proper analysis of the companys financial position. E.g.Comparative s tatementsIt may be noted that these two types of analysis are not mutuallyexclus ive. They can be done simultaneously also. 1.What is opportunity cost of capital? Opportunity cost of capital is the rate of return associated with the bestinvestm ent opportunity for the firm and its shareholders the will beforegone if the pro ject presently under consideration by the firm wereaccepted. Its is also called a s Implicit Cost. In case of retained earnings,it is the income, which the sharehol ders could have earned if such earningswould have been distributed and invested by them. 2.Distinguish between cash budget and cash forecastCash BudgetCash forecast Cash Budget is usually preparedfor short periods ranging uptoone year.Cash forec ast is for longer termsexceeding one year such as 3years, 5 years, etc. -64Objective is to ensure short termliquidity and avoid default intimely discharge of currentliabilities.Objective is to study sources of funds for various futurer equirements.Thrust is on current assets andliabilities and maintaining cashcushi on for safety.Capital receipts and capitalexpenditure, investments dominatethis number game.Usually prepared by juniormanagement team for perusal of senior mana gers.Usually prepared by seniormanagement for perusal of Directors, Owners.It is working capitalmanagement activity.It is more of investment planningactivity. 3.

Distinguish between Cash Flow Statement and Cash Budget:Cash Flow StatementCash Budget Cash flow statement isprepared based on pastdata of Income Statementand Balance sheet.Cash Budget is prepared based onestimates of collection and outgo of cash. Is historical in nature.Is futuristic in nature.Analytical tool.Planning tool.Is based on real data.Is based on estimates. 4.What are marketable securities? Marketable securities are short-term investment instruments to obtain areturn on temporarily idle funds. They are securities, which can beconverted into cash in a short period of time, typically few days. To beliquid, it should have two bas ic characteristics.Basic Characteristics of Marketable securities: Ready market: Ready market reduces amount of time required to convert asecurity into cash. Rea dy market should have breadth (large number of participants scattered over large geographical area) and depth (ability toabsorb purchase/ sale of large number o f securities.) Safety of principal amount : There should not be any loss of principalamount invested in the security. Then o nly it is worth investing in suchsecurities. Otherwise, the investing firm is an yway better off maintainingidle cash/ bank balance. -65-

Examples of Marketable securities are: Treasury Bills, Commercial Paper,Bankers A cceptance, Repurchase agreements, Inter-corporate Deposits,Bill Discounting, cal l market, etc. 5. Lease and hire purchaseLease: A contract of lease may be defined as A contract whereby the ownerof an asset (le ssor) grants to another party (lessee) the exclusive right to usethe asset usual ly for an agreed period of time in return for the payment of rent. Important feat ures here are:1.Owner and User are different2.Depreciation claim is not with the user (lessee) as he is not the owner.Lessor (owner) claims the depreciation.3.L ease (rent) payment is a tax-deductible expense.4.In most transactions, asset is delivered directly to the lessee by themanufacturer/ supplier. Lessor makes pay ment to the supplier andreceives rent from lessee in future periods.5.Lease fund ed assets do not alter Debt: Equity ratio. Hire Purchase: In case of Hire Purchase transaction, the goods are deliveredby the owner to ano ther person on the agreement that such person pays theagreed amount in periodica l installment.Important features here are:1.Ownership of the asset is transferre d to the buyer only on payment of last installment.2.Buyer claims depreciation o n the asset. LeaseHire Purchase Lessor claims depreciationBuyer claims depreciationOn completion of contractresi dual (salvage) value goesto LessorOn completion of contractresidual (salvage) va lue goesto BuyerIn absence of specificagreement otherwise, asset isto be returne d to the lessorafter the lease period.Asset is conclusivelypurchased by the buye r atthe end of the agreementperiod. -66Lease payment is fullydeductible for tax.Only interest portion of EMI/Hire value is tax deductible. 6. ADR, GDR, ECB ADR: American depository receipt is a negotiable certificate thatrepresents a company's publicly traded equity or

debt. They are created whena broker purchases the company's shares on the home stock market anddelivers those to the depository's local custodian bank, which t hen instructsthe depository bank, to issue Depository Receipts. Depository recei pts couldbe traded freely just like any other security, either by exchange or in the over-the-counter market and could be used to raise capital. GDR Global Depository Receipts means any instrument in the form of adepository receipt or certificate created b y the Overseas Depository Bankoutside India and issued to non-resident investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of i ssuing company.A GDR issued in America is an American Depository Receipt (ADR). ECB: External Commercial Borrowing: It is a term loan denominated inforeign currency (eg. $, ). Firms having signific ant exports to foreigncountries earn the respective foreign currency inflow. Hen ce, it may bebeneficial for them to borrow in that currency, especially when int erest ratesare much lower there. In absence of exports, however, cost of hedging almostnullifies the advantage of lower interest rates . -67Points to remember: Leverages: Business Risk is risk due to fixed operating costs (operating leverage) Financial Risk is risk due to fixed financial costs (interest, preferencedividen d) i.e. due to financial leverage. Financial Leverage is also called as Trading on Equity Direct Costs usually would mean variable costsRatio Analysis: P/V Ratio is contribution /Sales Just Turnover Ratio is Capital Turnover Ratio i.e. Sales/ Capital Employed Net Assets = Fixed Assets + (Current Assets Current Liabilities) = CapitalEmploy ed Return on Investment (RoI) isReturn on Capital Employed = Return on Net Assets = PBIT / CapitalEmployedIf specified as post tax RoI: RoI = [PBIT (1- T)]/ Capital Employed {Sometimes RoI is also signified as Return on Total Assets : Use this only if sp ecified this way} Debtors Velocity = Debtors Collection Period = ACPDebtors Turnover = Sales / Deb tors = 12 / ACP months = 360 / ACP days M -6866 / 68

Leave a Comment Submit Characters: 400 that notes them na the eye! 4 days ago Pranathi Venkatappa Sathyam dis notes z too gud sidharth...can u pls mail me go my id...pranua5@gmail.com... .pls 02 / 14 / 2012 pandashrek Hi Sidarth, thanks for your explanation in details, really appreciate, could you pls email me your notes on financial management on my email lilac2vanilla@yahoo .co.uk. Thanks. Sharon 09 / 21 / 2011 RKGUPTA248 Sidharth, I I will greatly appreciate if you can email me Yr notes on Finanacial management on my email rkgupta248@gmail.com. thanks 09 / 05 / 2011 Emmanuel Adewale Sanda thank u 4 your note it okay 04 / 21 / 2011 deleted_fbuser_1303019786 This is just fantastic 04 / 07 / 2011 Abhijit Erande good doccument 04 / 05 / 2011 shw.dani Thanx... grt work 03 / 07 / 2011 Show More FINANCIAL MANAGEMENT Notes 92,797 Reads More Info Download or Print Uploaded by siddhu8531 Related Documents 54 p. final FM notes From Pawan Yadav 50 p. FM notes From Ekansh Dewan 50 p. (Q1.1)Important Functions of the Financial Manager: The Important F...

(Q1.1)Important functions of the Financial Manager: The important functions o... From SheerazAnwerSaeed Next Upload a Document Search Documents Follow Us!scribd.com/scribdtwitter.com/scribd facebook.com/scribd AboutPressBlogPartnersScribd 101Web StuffSupportFAQDevelopers / APIJobsTermsCopy rightPrivacy Copyright 2012 Scribd Inc.Language:English The Scribd Archive This document was uploaded by someone just like you and is now part of The Scrib d Archive*. Give back to the community and gain 24 hours of download access by u ploading something of your own. Subscribe to The Scribd Archive and download as many documents as you'd like. Monthly SubscriptionMost Popular$9/mo. 1 Day Pass$5 1 Year Pass$59 Choose payment option Pay with Credit Card Pay with PayPal or Credit * The Scribd Archive is a collection of millions of documents, including researc h reports, best-selling books, news source materials, and more. Read the Scribd Archive FAQ for more information.