BEAT THE FEAR OF YOUR FINANCE – BY AKASH SAVITA

In the last decade , finance have invaded every aspect of businesses from knowledge through college. The figure shows that colleges have spent more than two billions on setting up colleges for educating scholars in finance field.

In today world being a businessmen , everyone should have in depth knowledge about finance, whether you are running a partnership firm, a company , or a society. Everyone should have a sound financial plan to ensure that availability of funds whenever required and to ensure that there are no ideal funds by putting surplus funds to best possible use.

Financial planning plays a significant role in the smooth and effective functioning of an enterprise . we need to consider some aspects while preparing our financial structure.

 

1. FINANCIAL LEVEARGE

Financial leverage is also known as trading on equity, where equity means ownership fund of company, Therefore financial leverage implies borrowing funds at reasonable cost with the help of share capital. When the rate of earning is higher than rate of interest on borrowed funds, equity  trading on equity can be done easily.

 

1. b) EXCERCISE OF CONTROL

Equity shareholders have voting rights and control of the company lies on their hands. If promoters of the company wants to retain their control they may not issue additional equity shares and in such case funds can be raised by issuing debentures.

 

1. COST OF FINANCING

In a good capital structure , the cost of capital can be reasonably be low. Cost of capital depends upon prevailing rate of interest , returns expected and administration cost. Normally cost of debt is lower than the cost of equity. A company should estimate and compare alternative source of finance.

 

 

SOURCES OF FINANCE

 

BONUS ISSUE

Sometime a company may have large undistributed profits which it wants to distribute among its shareholder. Instead of distributing these profits, the company issues fully paid shares to them free of charge in proportion to the their existing shareholdings.

RIGHT SHARES

The companies act provides that where the company wants to increase its subscribed capital through further issue of shares, it should offer such shares to the existing members of the company. It is known as right issue or pre-emption right.

 

ESOP

ESOP stands for employee stock option plan is a scheme under which  an employee of the company is given a right to purchase a specified number of shares , at a price which is usually below the market price only those employees are given this right who fulfil specified eligibility conditions.

 SWEAT EQUITY SHARES

sweat equity shares are the shares issued by a company to its employees or directors at a discount or for consideration other than cash or for providing know how or making available property rights.

 

RETAINED EARNINGS

Retained earning are also known as ploughing back of profits  refers to a process of retaining a part of profit year after year and reinvesting the same in business. Well estabilished companies often use requirement. This source is also called self financing as it is an internal method of financing.

 

DEBENTURES

Debenture denote borrowing by a company and represent its loan capital. Debentureholder are the creditors of the company. A debenture is a document or certificate issued by a company as a proof of money lend to it by the holder. It is an acknowledgement of debt as well as undertaking to repay the specified sum with interest as on or before the due date.

 

LOAN FROM COMMERCIAL BANKS

A bank advances a fixed amount in lump sum to the borrower for a specified period. The interest is charged at a fixed rate on borrowed sum. The principal and the interest charged thereon should be repaid in equal number of installment by the customer within a specified period.

Six o`s of finance

ON EARNINGS :   NEVER DEPEND UPON SINGLE INCOME

MAKE INVESTMENT TO CREATE A SECOND.

ON SPENDINGS :   IF YOU BUY THINGS YOU DO NOT NEED,

SOON YOU WILL HAVE TO SELL WHAT

YOU NEED.

ON SAVING:            DO NOT SAVE WHAT IS LEFT AFTER

SPENDING, BUT SPEND WHAT  IS LEFT

AFTER SAVINGS.

ON TAKING RISK:  NEVER TEST THE DEPTH OF RIVER WITH

BOTH FEET.

ON INVESTMENTS:  DO NOT PUT ALL YOUR EGGS IN ONE

BASKET,

ON EXPECTATIONS:   HONESTY IS VERY EXPENSIVE GIFT,

DO NOT EXPECT IT FROM A CHEAP

PEOPLE.

 

“ HAVING A DEAR IDEA OF WHERE YOU ARE AND WHERE YOU WANT TO GO FINANCIALLY IS AN FIRST IMPORTANT STEP,,

 

“ YOU AND YOU ALONE CAN BE THE SAVIOR OF YOUR FINANCES,,