Finance Chhatra

Depreciation refers to the decline in the value of fixed assets due to their usage or passage of time. It can be defined as the non-cash expense which is the assumed wear & tear to machinery. Being a non-cash expense it does not involve any cash outflow and is accounted in the debit side of P&L account. There are different methods which are used by the companies to calculate depreciation. Types of Depreciation Methods: Straight Line Depreciation Method Diminishing Balance Method Sum of year method Unit production method Straight Line Depreciation Method: Under this method, the fixed asset is depreciated by the same amount every year. With the straight-line depreciation method, the value of an asset is reduced uniformly over each period until it reaches its  salvage value .  Salvage Value is the residual or scrap value of the asset. It is calculated by simply dividing the cost of an asset, less its salvage value, by the useful life of the a...

What are the Financial Statements? Financial statements are reports prepared by a company’s management to present the financial performance and position at a point in time.  These  are reports prepared and issued by company management to give investors and creditors additional information about a company’s performance and financial standings. Financial statements are the formal records of the financial activities and position of a business, person or other entity. T he relevant information is presented in a structured manner and in a form which is easy to understand and analyse. W hy are financial statements prepared? The main purpose of Financial Reporting is to   P rovide the entity’s financial information   Provides information related to the target companies that investors need to obtain and assess whether they should invest in, increase the existing investment, or withdraw their investment.   Helps in  predicting the entity’...

Investment Decision What is Portfolio Management? When it comes to investing you have many options like investing in bonds, shares, mutual funds, debentures. So, where to invest?? This is what portfolio management does for you.  Portfolio Management can be defined as different investments tools namely stocks, shares, mutual funds, bonds, cash all combined together depending specifically on the investor’s income, budget, risk appetite and the holding period. It is formed in such a way that it stabilizes the risk of nonperformance of different pools of investments. It is the detailed SWOT analysis (strengths, weaknesses, opportunities, and threats) of an investment,  which could be in the form of debt/equity, domestic/international, to maximize the return at a given level for risk. Types Of Portfolio Management Active Portfolio Management: It involves hardcore research before investing. It involves a deep analysis to determine the cost of stock con...

I have explained about the financing strategy for a business plan in my last post. In this post, we'll know how to make financial strategy step by step.  Financing is one of the crucial matter in a business as it's main focus is to maximize the shareholder's fund.  To satisfy this objective a company requires a long term course of action. If we follow the older concept it mainly focuses on profit maximization but after modernization, this concept changed to wealth maximization. Wealth maximization refers to giving higher returns to the shareholders who are one of the major sources of finance for a company.  Coming to the financial strategy it is as follows: Financial Strategy Starting at the tip of the pyramid, the corporate strategy is the first thing that a company must define to implement a successful financial scheme. It must consist of an overall, long term plan of action that comprises a portfolio of functional strategies (finance, marketing etc.) designed ...

A large part of the business plan for any small business is the financial section of the plan. The financial section includes the income statement, cash flow statement and balance sheet. For new businesses, these financial statements will be projections, whereas for an existing the business the section will contain several years of history as well as projections. In addition to statements, the plan should include the financial strategies of the business in how finances will be handled. Financial strategies are a core element for any business and they ultimately form the backbone of the business structure. Managing finances and pursuing and securing revenue is critical to the success of any business. Cash Flow Management The income statement and balance sheet of a business may look great on paper, but if the cash is not properly managed, the small business can quickly go under.  Part of the financial strategy of the business plan will  detail how cash will be used ...

Financial System The financial system of an economy provides a way to collect money from the people who have it and distribute it to those who can use it best. So, the efficient allocation of economic resources is achieved by a financial system that distributes money to those people and for those purposes that will yield the best returns. The financial system is composed of the products and services provided by financial institutions, which includes banks, insurance companies, pension funds, organized exchanges, and the many other companies that serve to facilitate economic transactions. Virtually all economic transactions are effected by one or more of these financial institutions. They create financial instruments, such as stocks and bonds, pay interest on deposits, lend money to creditworthy borrowers, and create and maintain the payment systems of modern economies. These financial products and services are based on the following fundamental objectives of any modern fi...