Corporate Finance

Another objective of Financial Managers is Profit Maximization which entreats Financial Managers to put in place measures and policies that will increase the financial position of the firm. Shareholders need to receive periodic amounts to solidify their interest in the organization. A firm that does not make and declare profits continuously will not attract investors to put their money in it.

Balance Sheet is a position statement as it refers to a particular date. It is also referred to as Statement of Sources and Application of Funds. It informs about the various sources used by the organization which are technically known as liabilities to raise the funds which are referred as assets.

★ How much money should the firm invest, and what specific assets should the firm invest in? This is the firm's investment, or capital budgeting decision.

★ How should the cash required for an investment be raised? This is the financing decision.

Businesses and individuals who have Current accounts with banks, subject to the bank's regulations, may be allowed to from time to time withdraw amounts in excess of the balance standing in such accounts. The believe that the account may be credited with some funds later after which the bank would recover the overdraft and some service charges. Overdrafts are more likely to be made available to businesses that need short-term funds for a seasonal trade or for a specific contract.

★ Money and capital markets, which deals with securities markets and financial institutions

★ Investments, which focuses on the decisions made by both individual and institutional investors as they choose securities for their investment portfolios

★ Financial management, or "business finance," which involves decisions within firms.

financial manager is responsible for financing the firm and acts as an intermediary between the financial system's institutions and markets, on the one hand, and the enterprise, on the other.

Financial Management is the acquisition, management and financing of resources for firms by means of money, with due regard for process in the external economic markets.

Finance is a term used to describe both the money resources available to governments, firms, or individuals, and the management of these funds.

Corporate finance describes the financial decisions of corporations. Its main objective is to maximize corporate value while reducing financial risk. The financial manager has responsibility for corporate finance decisions.

An individual has limited knowledge, set of skills due to which his capacity to undertake responsibilities, his capacity to take quick decisions and bear risks are also limited.

This system records only cash receipts and payments. This system assumes that there are no credit transactions. In this system of accounting, expenses are considered only when they are paid and incomes are considered when they are actually received. This system is used by the organizations which are established for non profit purpose. But this system is considered to be defective in nature as it does not show the actual profits earned and the current state of affairs of the organization.

Financial statements are prepared in two forms:

★ Balance Sheet is a position statement as it refers to a particular date. It is also referred to as Statement of Sources and Application of Funds. It informs about the various sources used by the organization which are technically known as liabilities to raise the funds which are referred as assets.

★ Profitability Statement also known as Profit and Loss Account. It is a period statement as it refers to a particular period.

Share Capital is that portion of a company's equity that has been obtained by issuing share to a shareholder. The amount of share capital increases as new shares are sold to public in exchange for cash.

Reserves and Surpluses indicate that portion of the earnings, receipt or other surplus of the company appropriated by the management for a general or specific purpose other than provisions for depreciation or for a known liability. Reserves are classified as: Capital Reserve and Capital Redemption Reserve.

Advantages of proprietary firms:

★ Easy Formation

★ Better Control

★ Quick Decision Making

★ Flexibility in Operations

★ Personal attention to customer needs

★ Creation of Employment

★ Equal Distribution of Wealth

★ No Legal Formalities required

The existence of business is due to the existence of sole proprietor. Death or insolvency of the sole proprietor brings an end to the business.

Being the single owner of the business, the availability of funds from various sources is limited.

Disadvantages of Proprietary Firms:

★ Unlimited Liability

★ Limited Financial Resources

★ No Legal Status

★ Limited Capacity of Individual

★ Higher Taxes

In such firms the liability of the owner is unlimited as the owner takes more risk to earn more profits and increase the volume of his business by supplying his personal assets to the business.

Proprietary firm is not required to comply with all the legal and procedural formality.

As the sole proprietor is the direct person enjoying the profits thus he needs to pay higher taxes.