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MODULE 1 Time Value of Money
Finance Function
Finance function is the process of acquiring and
utilising funds by a business.
Financial management
According to PJ Hastings, “Financial managemnt
is the art of raising and spending money.”
Nature/ Characteristics of financial management
1. Management of money. 2. Financial planning
and control. 3. Determination of business
success. 4. Focus on decision makin
5. Centralised in nature. 6. Multidisciplinary.
Importance of financial management
1. Successful promotion. 2. Smooth running of
business. 3. Coordination of functional activities.
4. Decision making. 5. Determinants of business
success. 6. Solution to financial problems.
Objectives / Goals of financial management
Financial Objectives
• Maximisation of profit • Value maximisation
• Non-financial objectives
• Employee satisfaction and welfare
• Maximisation of wealth Management
satisfaction • Quality services to customers.
Maximisation of profit
It is the main objective of the business
enterprises. According to this view, the aim of
financial management is to earn maximum rate of
profits on capital employed.
Advantages of profit maximisation
1. it is essential for survival. 2. Achievement of
social welfare. 3. It attract investors to invest their
savings in securities. 4. It is a measurement of
standard. 5.Its a sufficient fund for future expansion
Criticism of profit maximisation
1. It ignores time value of money. 2. It attracts cut-
throat competition. 3. It exploits workers and
consumers. 4. It does not take into consideration
the welfare of the society. 5. Profit cannot be
ascertain well in advance.
Maximisation of wealth
The wealth maximisation approach aims at
maximising the wealth of the shareholders by
increasing earnings per share.
Advantages of wealth maximisation
1. It considers the time value of money. 2. It is
universally accepted approach. 3. It consider the
risk factor. 4. It focuses long term growth of the
organisation. 5. It guides management in framing
suitable dividend policy.
Criticism of wealth maximisation approach
1. It is useful only in large business. 2. It is not
socially desirable. 3. It leads to confusion of
financial policy. 4. It is an indirect name of profit
maximisation.
Difference between profit maximisation and
wealth maximisation
Profit Wealth
Maximisation Maximisation
Short term Long term objective
objective
Aims at Aims at maximising
maximising profit wealth
It is a traditional It is a modern
approach approach
It ignores risk It consider risk
factor factor
It ignores society It considers society
It ignores time It considers time
value of money value of money
Value Maximisation
Another objective of financial management is to
increase the value of the organisation. It
maximises the long term market value of the
organisation.
Scope of financial management
1. Investment decision. 2. Working capital
decision.3. Financing decision. 4. Dividend
decision. 5. Ensure liquidity. 6. Profit
management. 7. Cash management
Role / Responsibilities of financial manager
1. Performing financial analysis and planning.
2. investment decision. 3. Financing decision.
4. Dividend decision. 5. Foreign exchange
management. 6. Investment planning.
Return
It simply refers to benefits accrued on original
investment made in an asset or investment
Approaches to measurement of return
1. Profit approach 2. Income approach 3. Cash
flow approach. 4. Ratio approach.
Risk-Return Trade-off A particular combination
where both risk and return are optimised is known
as risk-return trade off
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Urgency method
The concept of time value is based on the fact
money has a time value. This means value of
money depends upon time. The value of money
changes over a period.
Application / Uses of Time Value of Money
1. Bond valuation. 2. stock valuation.
3. Financial analysis of firms. 4. Accept or
rejection decisions for project management.
Techniques of time value of money
1. Compounding :- The process of calculating
future value of present money is called
compounding.
2.Discounting :- The process of calculating
present value of future money is called
discounting.
Risk
According to Roman, “Risk is the probability of
failure to accomplish an objective.”
Types of risk
1) Systematic Risk :- It is a non-diversifier risk.
It arises due to factors like economic,
sociological, political, etc.
a) Market risk : It refers to variability in stock
prices due to change in investors attitudes.
b) Interest rate risk : It refers to risk arises due
to change in value of security prices due to
change in interest rate in the market.
c) Purchasing power risk : It refers to risk arises
due to inflation. Its also known as inflation risk.
2) Unsystematic Risk :- It is a type of risk arises
due to factors peculiar to a particular firm such
as labour strike, change in management etc.
a) Business risk : It refers to variability in the
actual earnings of a firm from its expected
earnings.
b) Financial risk :-It refers to risk arises due to
the presence of debt I the capital structure of a
firm.
MODULE II
Capital budgeting
It is the process of making capital investment
decisions.
Nature / Features of capital budgeting
1. Funds are invested in long term activities.
2. it involves large outlays. 3. It involves high
degree of risk. 4. it requires careful planning.5.
Gestation period is long.
Role and importance of capital budgeting
1. It involves huge investment in assets. 2. It
has long term affect on future profitability.
3. Capital budgeting decision cannot be
reversed easily. 4. It involves greater risk. 5. It
affect the growth of a firm. 6. It is difficult to
make capital budgeting decision. 7. It facilitates
cost control.
Limitations of capital budgeting
1. High degree of risk. 2. It is difficult to
estimate cost of capital. 3. It is difficult to
estimate rate of return. 4. It is difficult to
estimate period of investment. 5. It is
expensive. 6. It is irreversible in nature.
Capital budgeting process/Steps
1. Project generation ;- Capital budgeting
process begins with identification of
investment proposals.
2. Project screening ;- Each proposal is subject
to a preliminary screening in order to assess
technical feasibility.
3. Project evaluation ;- It is the process of
evaluating profitability of each proposal.
4. Project selection ;- It is a process of selection
and approval of the best proposal.
5. Project execution ;- After the election of
project, funds are allocated for them and a
capital budget is prepared.
6. Performance review :- In this stage, progress
must be reviewed at periodical intervals.
Investment appraisal methods (Techniques of
capital budgeting)
★ Traditional Methods (Non-discounting
techniques)
• Average rate of return method • Urgency
method • Payback period method
★ Modern Methods (Discounting methods)
• Discount pay back method. • Net present
value method • Benefit cost ratio • Internal rate
of return • Net terminal value method
Net Terminal Value Method (NTV)
This method is based on the assumption that
each annual cash inflows is received at the end
of year and reinvested in another asset at a
certain rate of return from the moment it is
received till termination.
Difference between NPV and IRR
In this method most urgent projects are taken
up first.
Merits of urgency method
• It is a simple technique •It is useful to short
term projects
Demerits of urgency method
• It is not based on scientific tes • Selection is
based on situation.
Payback period method
It is the commonly used technique of evaluating
proposals. It is a cash-based technique. Pay
back period is the period required to recover the
initial cost of the projects
Advantages of payback period
• It is simple to understand • It is easy to apply
• It is important for cash budgeting, forecasting
etc.. • It considers liquidity • It is useful in case of
uncertainty.
Disadvantages of payback period
• It ignores time value of money • It does not
measure rate of return • It ignores profitability
• It completely ignores cash inflow after payback
Average rate of return method (ARR)
This method takes into account the earnings
expected from the investment over its whole life.
It is based on accounting profit.
Merits of ARR
• It is simple to understand • It is easy to apply
• It considers the profitability of investments
• It considers accounting income
Demerits of ARR
• It ignores cashflows • It ignores time value of
money •It doesnot consider the life of the project
• It ignored the fact profit can be reinvested
Net Present Value Method (NPV)
Net present value is equal to the present value of
all the future cash flows of a project less the
initial outlay of project.
Advantages of NPV
• It considers time value of money.• This method
suitable when cash inflows are not uniform • It is
highly useful in case of mutually exclusive
projects • considers cash flow of entire life of the
project •It focuses wealth maximisation objective.
Disadvantages of NPV
• Difficult to select discount rate • Complicated
calculations • This method is not suitable when
project having different amount of investment • It
is not suitable when project having different
useful lives.• Different discount rate will gives
different present values.
Profitability Index Method (Discounted benefit
cost Ratio)
It is the ratio of benefits to cost. It measures the
present value of returns. It is particularly useful
to compare project having different investment
outlays.
Advantages of Profitability Index
• It is scientific and logical. • It considers fair rate
of return. • It is useful in case of capital rationing.
• It considers time value of money • It considers
all cash flows during the life of the project
Disadvantages of Profitability Index
• It is a difficult method • This method is not
based on accounting principles and concepts
• Difficult to estimate effective life of a project.
•It cannotbe used for project having unequal lives
Internal Rate of Return Method (IRR)
IRR is the interest rate at which the net present
value of all the cash flows from a project equal
to zero.
Advantages of IRR
It considers time value of money. • Cost of
capital need not be calculated • Considers cash
flow of the project. • It gives a true picture of the
profitability of a project. • It shows return on
original money invested,
Disadvantages of IRR
• It involves complicated calculations
•Applicability mainly in large projects. • Mutually
exclusive projects are ignored, • Different terms
of project is not considered
Comparison between NPV and IRR Similarities
1. Both consider time value of money. 2. Both
use cash inflows after tax. 3. Both consider cash
inflow through out the life of the project. 4. Both
lead to same acceptance or rejection decision.
NPV IRR
It gives absolute It gives percentage
return return
It follows wealth It does not follow
maximisation wealth
objective maximisation
objective
NPV of different IRR of different
project can be projects cannot
added be added
Cost of capital is Cost of capital is to
assumed to be be determined
known
It makes decision It does not help in
making easy. decision making
MODULE III
Cost of capital
It refers to minimum required rate of return or
the cut off rate for capital expenditures.
Features of cost of capital
1. It is a rate of return required on the projects. 2.
It is the reward for business and financial risks.
3. It is the minimum rate of return on a firm. 4. It
is a riskless cost of particular source.
Importance of cost of capital
1. Useful in investment decision. 2. Useful in
designing capital structure. 3. Useful in deciding
method of finance. 4. Optimum mobilisation of
resources 5. Useful in evaluation of performance
of management.
Factors determining cost of capital
1. General economic conditions. 2. Risk.
3. Amount of finance required. 4. Floatation cost.
5. Taxes.
Classification of cost of capital
1. Historical cost : It refers to the cost which has
already been incurred for financing a project.
2. Future cost : It refers to the expected cost of
fund to be raised for financing a project.
3. Specific cost : It refers to the cost of a specific
source of a capital.
4. Composite cost : It refers to the combined
cost of various source of capital.
5. Average cost : It refers to weighted average
cost of capital calculated on the basis of cost of
each source of capital&weights assigned tothem
in the ration of their share to total capital fund
6. Marginal cost : It is the cost of obtaining an
extra one of finance.
7. Explicit cost : It is a discount rate which
equates the present value of cash inflows with
the present value of cash outflows.
8. Implicit cost : Implicit cost refers to rate of
return which can be earned by investing the
funds in alternative investment.
Cost of debt
It is the payment of interest on debentures or
bonds or loans from Financial institutions.
Irredeemable debt
These are the debts which are not repayable
during the life of the company.
Redeemable debt
These are the debt issued to be redeemed after
a certain period during the lifetime of a firm.
Capital Asset Pricing Model (CAPM)
This approach was developed by William S
Sharpe. According to this approach, return on
equity shares depends on amount of risks
associated with it. If more risk is associated with
it, it will provide more return. If less risk, it will
provide less return.
Weighted Average Cost of Capital (WACC)
It simply refers to average cost of various
sources of finance.
Merits of WACC
1. It is a straight forward approach. 2. It is useful
in capital budgeting. 3. It is more accurate when
profits are normal. 4. It consider all changes in
the capital structure.
Limitations of WACC
1. It is not suitable in case of low profits. 2. It is
very difficult to assign weights. 3. It is not
suitable in case of excessive low cost debt.
Optimum Capital Structure
It is the capital structure at which the weighted
average cost of the capital is minimum and value
of firm is maximum.
Essentials / requisites of optimal
capitalstructure
1. Economy 2. Liquidity and solvency 3. Flexibility
4. Simplicity 5. Safety 6. Maximum return.
7. Maximum control.
 ʀᴀsʜɪᴅ_ᴠᴇɴɢᴀʀᴀ | ʀᴀsʜɪᴅ_ᴠᴇɴɢᴀʀᴀ | ʀᴀsʜɪᴅ_ᴠᴇɴɢᴀʀᴀ | ʀᴀsʜɪᴅ_ᴠᴇɴɢᴀʀᴀ | ʀᴀsʜɪᴅ_ᴠᴇɴɢᴀʀᴀ | ʀᴀsʜɪᴅ_ᴠᴇɴɢᴀʀᴀ | ʀᴀsʜɪᴅ_ᴠᴇɴɢᴀʀᴀ

Source of Finance Difference between financial leverage and Dangers of Stable Dividend Policy Working capital
1) Share capital : The capital of a company is operating leverage 1) Once a stable dividend is followed by a It is the capital required for day to day working of
divided into small units. Those units are called Financial leverage Operating company, it is not easy to change it. an enterprise.
share. a) Equity share capital ; Shares which are leverage 2) If the company cannot pay stable dividend in Nature of working capital
not preference shares are called equity shares. It show the It show the one year, investors may lose the confidence. 1. It is used for day to day activities of an
These are ordinary shares. b) Preference share relationship relationship 3) If the company pays stable dividend in spite of enterprise. 2. It is the amount invested in current
capital ; Preference shares are those shares between operating between profit and its incapacity, it will be suicidal in the long term. assets. 3. It involves cash management and
which carries preferential right profit and return on return on equity Optimal Dividend Policy inventory management. 4. Two major concepts
with respect to payment of dividend and equity Optimal dividend policy is one that maximise the of working capital are gross concept and net
repayment of capital. It influences EAT It influences EBIT firms value or its share price. concept. 5. These are financed through short
2) Debenture capital : Debenture simply refers to It is the second It is the first stage Dividend pay out ratio term sources.
acknowledgment of debt. stage leverage leverage It is a type of ratio which establishes the Components of working capital
3) Term Loan : A term loan is granted on the relationship between dividend per share and 1. Current assets : Current assets are those
It deals with It deals with
basis of agreement between borrower and the earnings per share. assets which can be easily converted into cash.
financial risk business risk
lending institution. 4) Venture capital : It refers to Dividend Theories (Dividend Models) Eg: Cash, Bank, Debtors, Bills receivables
It deals with It deals with
giving capital to enterprise that has risk and The important dividend theories are: 2. Current liabilities : Current liabilities are those
investment decision financing decision
adventure. 5) Lease finance : A lease is 1) Modigliani and Miller Theory 2) Walter’s liabilities which are repayable during a short
It related to liability It related to asset
contractual arrangement calling for lessee to pay Dividend Model 3) Myron Gordon’s Model period of time. Eg: Sundry creditors, Bills payable,
side of the balance side of the
the lessor for the use of an asset. 6) Retained Modigliani and Miller Irrelevancy Theory Outstanding expenses.
sheet balance sheet
earnings : A part of profit earned every year shall This theory states that a firms dividend policy Concepts of working capital
be retained in the business. The amount retained has no effect on value of the firm or 1. Gross concept : According to gross concept,
in the business is known as retained earnings. MODULE IV shareholders wealth. MM theory states that the working capital refers to the amount of fund
Capital Structure Dividend value of firm is unaffected by dividend policy i.e. invested in the current assets. The working
According to CW Gerstenberg, “ Capital structure It is a part of profit of which is distributed to dividend are irrelevant to shareholders wealth. capital as per gross concept is called gross
refers to the kind of securities that make up shareholders of the company. Assumptions of MM Theory working capital.
capitalisation.” Types/Forms of dividend 1- There are perfect capital market. 2- Investors 2. Net concept : According to net concept,
Capitalisation 1. Cash dividend : Dividend paid in the form of behave rationally. 3- There is no floatation and working capital refers to excess of current
It is a total amount of capital raised through cash is called cash dividend. It maybe of two transaction cost. 4- There are no taxes. 5- The assets over current liabilities. The working
shares, debentures, bonds and retained earnings. types firm has a fixed investment policy. 6- No investor capital as per net concept is called net W.C
Difference between capitalisation and capital a) Regular dividend: It is the dividend declared is large enough to affect the market price of Types of working capital
structure and paid at the end of the accounting period. It is shares. 1. Permanent working capital : It is the minimum
Capitalisation Capital also called final dividend. Criticisms of MM Theory capital required for normal business operations.
Structure b)Interim dividend: It is the dividend declared 1. Perfect capital market does not exist in reality. It is also called fixed working capital.
before declaration of final dividend. 2. Existence of floatation cost. 3. Differential rate a) Initial working capital : Working capital needed
Its a quantitative It is a qualitative
2. Stock dividend : If company do not have of tax. 4. Existence of transaction cost. 5. Firms at the initial stage is called initial working capital.
concept concept
sufficient fund to pay dividend in the form of need not follow a fixed investment policy. b) Regular working capital ; It the amount needed
It is classified as over It is high or low
cash, company may pay dividend in the form of Walter’s Dividend Model (Walter’s Dividend for continuous operation of the business.
& under capitalisation geared
stock. This is known as stock dividend. Theory) c) Cushion working capital : It is the excess of
It is influenced by It is influenced
3. Scrip dividend : It is a type of dividend which is Prof. James E Walter has developed a dividend working capital over the regular working capital.
internal needs of the by external force
issued by the company to its shareholders in the model. In this theory, Walter argues that dividend It is also called reserve margin.
company
form of promissory notes. decision of a firm is relevant. Hence this is a 2. Variable working capital : It is the working
Its the total amount of It is the make up
4. Bond dividend : It is a type of dividend which is theory of relevance. This means dividend policy capital which varies with volume of business.
capital raised through of capitalisation
issued by the company to its shareholders in the has an impact on market price of the share. Thus a) Seasonal working capital : It is the additional
shares,debentures etc
form of debentures or bond. dividend policy affects the value of the firm. working capital needed at the busy season.
Difference between capital structure and 5. Property dividend : Dividend paid in the form of Assumptions of Walter’s Model b) Special working capital : It is the extra working
finance structure assets is called property dividend. 1- The firm does not use external sources of capital to be maintained for special operations.
Capital structure Finance structure Dividend policy fund. 2- The IRR and cost of capital are constant. Importance/Need/Role of working capital
It includes long term It includes only It refers to policy relating to the distribution of 3- Earnings and dividend remains constant. 1. Continuity in business operation.
& short term source long term source profits as dividend. 4- The firm has very long life. 5- All earnings are 2. Repayment of long term loans. 3. Helps to
of fund of the fund Factors/Determinants of dividend policy either distributed as dividend. fight competition. 4. Increase creditworthiness.
It means the entire It means long Internal factors External factors Criticism of Walter’s model 5. Boost efficiency and productivity.
liability side of the term liabilities of Stability and size of Conditions in the 1. IRR does not remain constant. 2. Cost of Dangers of deficiency of working capital
balance sheet the company earnings capital market capital do not remain constant. 3. We cannot 1. It may lead to business failure. 2. Trade
It consists of all It consists equity, Liquidity of funds Trade cycle predict firm has a very long life. 4. Risk factor is discount will be lost. 3. Cash discount will be
source of capital preference&retain Investment Legal not considered. lost. 4. It affects dividend policy negatively. 5.
ed earning capital opportunities requirements GORDON’S MODEL Rate of return falls.
It is not important It is important Past dividend rates Corporate tax Gordon suggested dividends are relevant and it Danger for excessive working capital
while determining while determining will affect the value of the firm. According to 1. Rate of return falls. 2. Encourage speculation.
Attitude of mgmnt General state of
value of firm. value of firm Gordon, the market value of a share is equal to 3. Inefficiency may be encouraged. 4. Efficiency
towards economy
Factors determining capital structure the present value of future infinite stream of of management may deteriorate. 5. Liberal
Ability to borrow Government policy
Internal Factors External Factors dividends. dividend policy encouraged.
Need to repay debt
Asset structure Conditions in the Assumptions: Operating cycle
Types of Dividend Policy
capital market 1. The firm is an all-equity firm. 2. Retained It refers to average time elapses between
1. Stable Dividend Policy : Stable dividend means
Desire to retain Attitudes of earnings are the only source of financing the purchase of raw material & final cash realization
payment of certain minimum amount of dividend
control investors investment 3. The rate of return on the firm’s Factors determining working capital
regularly.
Nature of business Cost of financing investment (r) is constant.4. Cost of capital is requirements
2) Regular and Extra Dividend Policy : Under this
Trading on equity Legal requirements constant. 5. The firm has long term life. 1. Nature of business 2. Size of business
policy shareholders are paid a fixed percentage
Size of business Attitude of mgmnt 6. Corporate taxes do not exist. 3. Production cycle 4. Turnover 5. Terms of trade
regular dividend along with extra dividend.
Flexibility Taxation policy Residual Theory of Dividend 6. Business cycle fluctuations 7. Seasonal
3) Regular Stock Dividend Policy : Under this
According to this theory, dividends are paid out fluctuations 8. Company policies
Profitability policy shareholders are paid bonus shares in
of the residual profits after meeting the Hard-core working capital
Liquidity addition to cash dividend.
requirement of the investment opportunities. It refers to minimum amount of working capital
Leverage 4) Regular dividends plus stock dividend policy:
required to invest in raw materials, stores and
Leverage may be defined as relative change in Under this policy, regular dividend is paid in cash
MODULE V working progress.
profits due to a change in sales. and extra dividend in stock.
Cash Working capital management
Types of leverage 5) Irregular dividend Policy : Under this policy
Cash means currency and equivalence of cash It simply refers to management of current assets
1. Financial leverage :The using of fixed cost higher rates of dividend shall be paid in the years
such as cheque, draft, money orders etc. and current liabilities.
capital with the equity share capital is known as of higher profits and lower rates of dividends in
Motives for holding cash Sources of working Capital
financial leverage. It is also known as capital the year of lesser profits.
1. Transaction motive. : Cash is necessary for Long term sources
leverage. Advantages of stable dividend policy
business operation. It is required for financing • Shares • Debentures • Loan • Retained earnings
2. Operating leverage :The presence of fixed cost A) Advantages to Shareholders
transactions. Short term sources
is known as operating leverage. It measures the 1) It increases the confidence of the
2. Precautionary motive : The firm need to hold • Commercial bank • Public deposit • Indigenous
changes in operating profit to changes in sales. shareholders. 2) It meets expectation of
some cash to meet unpredictable needs. bankers • Factoring
Combined leverage investors by providing regular income. 3) It
3. Speculative motive :A firm sometime holds Transactionary sources
It refers to combination of operating leverage stabilises the market value of shares. 4) It
cash to take advantage of unexpected • Trade creditors • Depreciation • Tax liability
and financial leverage. It is the relationship attracts investments from institutional investors.
opportunities Ploughing back of profit
between contribution and taxable income. It is B) Advantages to Company
4. Compensating motive : Its a motive for holding It is the undistributed profit accumulated every
also known as overall leverage 1) It increases the goodwill of the company 2) It
cash to compensate bank for providing services year and retained for meeting financial needs.
helps in preparing financial planning. 3) It is a
or loans. Factoring
sign of continued normal operation of the
It is a financial service in which business entity
company.
sell its bills receivables to third party at a
discount in order to raise fund.

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Factors determining the cash level or cash

needs
1. Credit policy 2. Distribution channel 3. Nature
of the product 4. Size and area of the operation.
5. Cash cycle.
Cash Management
It is a process of managing cash inflows and
cash outflows.
Scope / Functions of cash management
1. Cash planning. 2. Managing cash flows.
3. Managing optimum cash balance. 4. Investing
cash. 5. Maintaining relations with bank.
Lock box system
It is a system of speedy collection of cash from
debtors. It reduces mail time delay.
Inventory
It is the raw material used to produce goods as
well as the goods that are available for sale.
Inventory management
It simply refers to management of inventory. It
includes acquisition, storage & uses of materials
Objectives of inventory management
1. To ensure availability of inventories. 2. To
minimise investment fund in the inventories.
3. To minimise cost of ordering and carrying.
4. To maximise profitability. 5. To avoid over
stocking of inventories. 6. To avoid under
stocking of inventories. 7. To minimise loss on
account of obsolescence, wastage etc.
Techniques of inventory management
1. EOQ : The quantity of material to be ordered at
one time is known as economic order quantity.
2. ABC analysis : It is an inventory management
technique that determine value of inventory
items based on their importance to business.
3. VED analysis : It is an inventory management
technique that classifies inventory based on its
functional importance.
4. JIT (Just In Time) : It is an inventory
management method whereby labour, material
and goods are scheduled to arrive exactly when
needed in the manufacturing process.
5. Reordering level : It is that point of level of
stock of a material where the storekeeper starts
the process of initiating purchase requisition for
fresh supplies of that materials.
6. Safety lock level : It is also known as minimum
level. It is the minimum quantity of material
which must be maintained in hand at all times.
7. Perpetual Inventory system : A system of
records maintainedby the controlling
departments which reflects the physical
movements of stock and their current balance.
Maximum level
It is the maximum of stock which should be held
in stock at any period of year
Danger level
It is a level of stock at which normal issue of
materials are stopped and issues are made only
under specific instructions.
Receivables
Receivables are the debts owed to the company.
It is also known as accounts receivables or trade
receivables.
Receivables Management
It refers to planning and control of receivables of
a firm.
Objectives of receivables management
1. To increase sales. 2. To increase profitability.
3. To increase market share. 4. To increase
customer base 5.To evaluate& control receivable
Factors affecting size of receivables
1. Credit policy. 2. Credit terms. 3. Nature of
business. 4. Stability of sales. 5. Cost of
receivables. 6. Collection policy. 7. Quality of
customers.

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