Time value of money

The conception of your time worth of cash suggests that the money received at completely different completely different purpose of your time has different worth. people and corporations invest cash currently within the hope of receiving even extra money within the future. However, the time period of receiving the money plays important role in determining whether future sum is valuable to the present sum. Therefore, the main focus of this chapter is to enable the students to calculate present and future value of cash flows and apply this concepts in addressing real life problem as well.

CONCEPT OF TIME VALUE OF MONEY

Time value of cash may be a thought to know the worth of money flows occurred at totally different purpose in time. If  we are given the alternative whether to accept Rs  or one year from now, then we certainly accept Rs today. It is because there is a time value to money. Every sum money received earlier has reinvestment opportunity. For example, if we deposit Rs one hundred today in saving account at 5% annual rate of interest, it will increase to Rs one hundred five at the end of the year one. Money received at the moment is most popularly liked although we don't have reinvestment chance. Money received at the moment is the reason is that the cash that we have a tendency to receive at future has less buying power than the cash that the cash that we've got at the moment attributable to the inflation preferred most popular most we have a tendency toll liked. Although we do not have reinvestment probability. What happens if there's no inflation? Still, cash received at the present is most popular. It's as a result of most people have a elementary behavior to like current consumption to more consumption; cash at hand permits current consumption. Thus, (i) the reinvestment chance or earning power of the cash, (ii) the chance of inflation and (iii) somebody's preference for current consumption to future consumption are the explanations for the note value of cash.

The thought of your time price of cash is additionally helpful in addressing our reality issues regarding coming up with for future family expenditure. as an example, if we'd like Rs five hundred thousand once the retirement from job in fifteen years, the quantity we'd like to handily determined by mistreatment the continuance of cash thought.

Beside, several monetary choices of a firm need a thought of your time price of cash. monetary manager should always focus on maximising shareholders wealth. maximising shareowner wealth, prime an outsized extent, depends on the temporal arrangement of money flows from investment alternatives. during this regard, duration of cash construct deserves serious thought on all monetary choices. within the following sections, we tend to gift some ideas and techniques to know duration and apply them in monetary call.

Working capital management

Working capital is the money tied up in a firm's current assets. Management of working capital has become an important and challenging job of the financial manager these days because the level of working capital affects risk-return trade-off. Therefore, the financial manager should spend a significant time in day to day operation of the firm that relates to the management of working capital.

Concept of Working Capital

There are 2 ideas of working capital: gross working capital and net working capital. Gross working capital simply refers to the total amount invested into current assets. It is represented by the firm's total investment into current assets.

The gross and net concepts of working capital are supplementary to each other. the gross concept emphasizes on the level of investment associated to total current assets. It focuses on maintaining an optimal level of current assets. A firm should hold neither excessive nor inadequate investment in current assets. on the other hand, the net concept of working capital indicates the firm's liquidity position as well as the financing pattern of current assets. It indicates whether the current assets have been solely financed by current liabilities or long-term sources are also used

The components of working capital

Current Assets  Read more

Current Liabilities Read more

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Earnings and cash flow analysis

Financial statement present financial state of affairs of a firm on numerical terms. They are analyzed and used for appraisal of financial performance of a firm. Earnings and cash flow analysis deals with two basic financial statements, namely, balance sheet, and income statement, along with the use of balance sheet and income statement data for managerial decisions. Besides, the Earnings and cash flow analysis also discuss the significance of free cash flow for a firm Earnings and cash flow analysis discusses in depth various types of financial ratios that are used for analyzing financial strengths and weaknesses of a firm.

Introduction to financial statements
The shareholder wealth maximization is the basic goal of a corporate firm. Therefore, it is the duty of corporate managers to report shareholder about financial affairs their wealth. A corporation prepares various types of reports for the purpose of reporting to shareholder. The 'annual report' is the basic annual document issued publicly by corporation. The chairman of the board of directors issues annual report in annual general assembly addressing the shareholder on behalf of the corporation.
The annual report of a corporation basically includes two types of information.

• First section presents the report of firm's operation during past year in verbal language. it also presents new developments, if any, the corporation is going to pursue.
• Second section of annual report represents four financial statements the balance sheet, the income statement, the statement of retained earnings, and the statement of cash flows cash flows.

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The financial Statements contain the basic information expenses assets, liabilities, about revenues and cash flows during a specified period. the basic financial statements of a firm are the income statement of the balance sheet, which are prepared in accordance with generally accepted accounting principles (GAAP). The income statement keeps the record of revenues and expenses of a firm during an accounting year. The balance sheet shows a picture of a firm's assets, liabilities, and owners claim at a specific in time. Read more

Financial Management

MEANING OF FINANCIAL MANAGEMENT

Financial management deals with how business organizations collect and funds to achieve their objectives. The Knowledge of financial management is important because it helps to make decisions that maximize value of the firm to its owners.
The term finance should be understood in 2 views - finance as a resource and finance as a discipline. Finance, as a resource, refers to financial means that of finance assets of AN entity. Finance as a discipline or subject of study, describes however people , governments and company organizations manage the flows of cash through a corporation. In alternative words, finance tells however folks build selections concerning the gathering and allocation of resources in organizations like corporation, school, bank or authority. Therefore, it's vital for all people, businesses, governments and non-government organizations to understand the importance of finance in their every day businesses. Finance was a branch of economic science until the closure of nineteenth century. Finance as a separate tutorial discipline remains evolving. active managers and academicians are tributary in its enlargement and enrichment.
In a broader term, it describes how money is managed and the actual process of acquiring needed funds. Read more