Capital- Fixed & Working Flashcards
(40 cards)
___________ refers to the money and credit employed in business firms.
Business finance
Give two points to explain the nature of business finance?
- it includes all types of capital or find used in business.
- it is needed in all types of business.
What is business finance?
It is the money or credit employed in business to carry out business operations smoothly.
____________ helps to bridge the gap between production and sales.
Finance
If the business has adequate funds, what will happen to its current liabilities and current assets?
If the current liabilities need to be paid, they can be outside on time and if needed, new current assets can be purchased.
What is financial planning?
Financial planning is the process of estimating the financial requirements of an organisation, choosing the sources of funds and deciding how the funds are to be utilised.
Give any 3 features of financial planning.
- it involves deciding when, how and why of financial activities.
- it is future oriented and involves forecasting.
- it involves deciding objectives, policies, procedures, methods and programs concerning funds.
What is capital gearing?
The ratio between equity (owned funds) and debt (borrowed funds) is called capital gearing.
Another name for capital gearing?
Financial leverage
Mention the terms used for the following equations-:
a) Equity > Debt
b) Equity < Debt
a) Low gearing or Trading on thick equity
b) High gearing or Trading on thin equity
What is trading on equity?
When a company uses borrowed funds in the regular conduct of business along with equity capital, it is said to be trading on equity.
Another name for trading on equity?
Financial leverage
What are the three conditions when trading on equity is desirable?
- rate of earnings is higher than rate of interest and rate of preference dividend.
- the companies earnings are stable and regular.
- there are sufficient fixed assets to offer as security to the lenders.
How does exercise of control affect capital structure?
In a company equity shareholders have voting rights and control of the company lies in their hands. If promoters want to retain control in their hands they may not issue additional equity shares, and more funds can be raised by issuing debentures and preference shares.
Which companies can afford to have:
a) high gearing
b) low gearing
a) - Public Utilities companies & new companies
b) - Manufacturing companies
A good capital structure should be flexible. Throw light on the statement.
A good capital structure should be flexible because whenever the company feels necessary, debenture holders and preference shareholders can be paid off. While raising debt, the company should ensure that there are minimum restrictions in loan agreements.
In a good financial structure, the cost of capital should be reasonably __________.
Low
_________________ are prohibited from issuing any type of security except equity shares.
Banking companies
Which act must be observed while raising funds from the public?
Companies Act, 2013
________________ refers to the funds required for acquisition of fixed assets and are meant for generating income.
Fixed capital
Another name for fixed capital and why is it called such?
Block capital
It is known as block capital because the funds are blocked up in the fixed assets for the lifetime of the enterprise.
Full form of TISCO?
Tata Iron and Steel Company
How does the nature of business affect fixed capital?
Manufacturing enterprises as well as public utility undertakings require heavy investment in fixed assets, therefore they need more fixed capital.
Training concerns, require less investment in fixed capital.
How does method of production affect fixed capital?
Capital-intensive techniques of production such as automatic machinery require higher amount of fixed capital as compared to a company employing labour-intensive techniques such as hand tools.
