A Explanation Of Different Financial Terms Finance Essay

A Explanation Of Different m geniustary damage Finance EssayThe main objective of the Finance Manager is to get away fixs in such(prenominal)(prenominal) a way so as to ensure their optimum utilization and their procurement in a manner that the essay, cost and control considerations be properly balanced in a given situation. To achieve the objective the Finance Manager per manakins the following functions in the following atomic number 18as-The need to estimate/forecast the destiny of interchangefor twain(prenominal) the short circumstance ( operative outstanding requirements) and the long status intent ( bang-up ratements). predict the requirements of coin involves the use of computeary control and long-range planningHelps to steady down what fictional character of bang-up buildingthe comp whatsoever call for to ingest concede whether these bullion would be tryd from loans/ acceptances or from internal source (sh be dandy)To raise sufficient long term silver to pay fixed assets and former(a) long term enthronizations and to translate for the needs of working detonator enthronisation decisivenessIn projects using the various neat budgeting tools handle retri neverthe littleion method, delineateing rate of return, internal rate of return, net make up value.Assets precaution policies argon to be laid down regarding the various items of current assets like accounts receiv open by coordinating with the sales personnel, inventory with cropionDividend DecisionTaking into consideration, drawings trend, sh are commercialize price trend, line requirement for future proceeds, exchange in flow situation and advance(prenominal)(a)s.fiscal negotiationPlays a rattling substantial role in carrying out negotiations with the various monetary institutions, banks and public depositors for raising property on favourable terms.Cash counselingThe finance motorbus needs to ensure the supply of adequate, whilely and sleaz y fundto the various parts of the organization.That on that point is no excessive interchange idling around.Evaluating pecuniary majuscule punishmentTo need to constantly review the financial performance of the various units of organization gener hardlyy in terms of ROI (return on investment. Such review assists focal point in seeing all the funds aim been utilized in the various divisions and what preserve be through to improve it.Dealing with relevant parties in the Financial food securities industrysWhere the comp any(prenominal) is a listed entity, the need to interact with the Stock ExchangeTo deal with coin martplaces and dandy markets for finance or investment of idling fundsTo foster relationships with bankers, investors, underwriters of rightfulness and bring together issuances and other government regulatory bodies.For those who are uninformed, they tend to remasking the sole function of this position is that of the head of Accounts Payable and Accounts Receivable, but it goes distant beyond that capacity. In fact, the finance conductor is in charge of any supportand accounting function throughout the company.The role of this position involves that of non only financing functions such as Accounts Payable, Accounts Receivable, and Billing, but it besides involves that of budget projections and working with the headway Financial Officer to make sure that the companys funds are stable and assisting with any budget calamitys that call on needed.The finance manager is the head of both the Accounts Payable and Accounts Receivable areas of the company. As such, he give be the one to set policy and direct procedures for both areas of strain. That includes hiring lag establish upon need, following budget guidelines for expenses including staffing, assuring that procedures are followed by all staff members, setting reasonable quota corpse to assure work is complete in a timely fashion, and interacting with department supervisors on a fixture basis in order to stay abreast of happenings at bottom the department.The finance manager volition in any case compile reports that show all of the conditions inwardly his department including expenditures, open invoices, production standards, quality control standards, and timeliness of both move overment of invoices and processing of payments. The finance manager is also answerable for the kick operation of the Accounts Receivable Department and making sure that guidelines for timely kick are followed as well.The finance manager also is the one who leave alone work with other executives in order to develop the budget for individually class. He go forth work with the Chief Finance Officer and Chief Executive Officer in order to develop an equitable firmness for each years expenditures in both staff, office supplies, and any other needs that the company has including training, product line trips, out of town meetings, and staff entertainment expenses. The f inance manager has a very important position at bottom a company, and his decisions will crack the financial stability of the company, at to the lowest degree within the areas that fall under his control. It is also his job to make true that other departments and areas of the company follow their budgets and make the most use of the companys goldby avoiding frivolous expenses.Nature of Financial ManagementFinancial management is that part of total management which is concerned primarily with the financial personal matters of an organization and the translation of actions, both bypast and proposed, into meaningful and relevant breeding for use in the management process. It includes the functions of budgeting, accounting, reporting, and the analysis and interpretation of the financial meaning of past howeverts and future plans. It abouttimes also includes other cerebrate functions such as internal auditing, management analysis, and others. It is not primarily concerned with the skillful procedures and methodology of those individual functions. Rather, it is characterized by the coordination and correlation of those functions into an effective and broad system of financial control that will assure that they, collectively much than individually, arrive an integral part of the management of the organization.Financial management involves the art of interrelating info to obtain a perspective of the total financial situation that will assist managers in program planning and decision-making. A very childlike operating program whitethorn require only a marginal of financial management, and this, in some lawsuits, sewer be provided by the manager himself.Financial Management is also an important field of Management Sciences. It is a combination of Managerial Finance and Corporate Finance. Managerial Finance concerns with the managerial use of financial techniques, whereas on the other hand, incarnate finance deals with corporate financial decisions.In both the cases, it is extremely important for Managers in an organization. Financial Management is employ to determine the best way to use the gold accessible to an organization in order to improve the future opportunities toearn currency. Thus the financial managers use techniques such as Valuation, Portfolio management, Hedging and bang-up structure etc for better decisions about the future of an organization.On the other hand, it is also used to interpret financial returns in a given year or time period using financial analysis techniques. This helps in judging the actual performance of an organization in that time period. Financial management helps in proper allocation of costs, anticipate future expense, and budgeting for the future.well-kept EarningsThe accumulated net income that has been retained for reinvestment in the origin quite a than being compensable out in dividends to stockholders. Net income that is retained in the business organization cornerstone be used to acquire additional income-earning assets that result in increased income in future years. retain wage are a part of the owners faithfulness section of a firms balance sheet.Retained earnings also called retention ratio or retained sur prescribed, it is the parcel of net earnings not paid out as dividends but retained by the company to be reinvested in its core business or to pay debt.Retained earnings are one component of the corporations net worth and increase the supply of cash thats available for acquisitions, salvation of outstanding shares, or other expenditures the board of directors authorizes. It is recorded under shareholders equity on the balance sheet. It is calculated by adding net income to or subtracting any net overtakinges from beginning retained earnings and subtracting any dividends paid to shareholders, as shown hereSmaller and faster-growing companies tend to have a fourth-year gritty ratio of retained earnings to fuel research and development plus in the altogether product expansion. Mature firms, on the other hand, tend to pay out a taller percentage of their profits as dividends. In most cases, companies retain their earnings to invest them in areas where the company sack create growth opportunities, such as buying new machinery or spending the bullion on research and development. If a net loss is greater than beginning retained earnings, retained earnings sess become negative, creating a deficit.debenture puzzleA debenture is a debt instrument, which is not back by collaterals. debentures are backed by the commendationworthiness and reputation of the debenture issuer. Besides, a debenture is a long-term debt instrument issued by governments and big institutions for the purpose of raising funds. The debenture has some similarities with bonds but the terms and conditions of securitization of debentures are unalike from that of a bond. A debenture is regarded as an un plugd investment because thither are no pledges ( guarantee) or liens available on particular assets. Nonethe slight, a debenture is backed by all the assets which have not been plight otherwise.Normally, debentures are referred to as remedyly negotiable debt instruments. The debenture holder functions as a lender to the issuer of the debenture. In return, a specific rate of worry is paid to the debenture holder by the debenture issuer similar to the case of a loan. In practice, the differentiation between a debenture and a bond is not observed everytime. In some cases, bonds are also termed as debentures and vice-versa.If a bankruptcy occurs, debenture holders are treated as general identificationors. The debenture issuer has a material advantage from publicise a debenture because the particular assets are kept without any encumbrances so that the pickaxe is open for government issue them in future for financing purposes. Usually, debentures are categorized into the following graphemes and their definitions are also given belowConvertible DebentureConvertible bondsor bonds that can be converted into equity shares of the takings company later a predetermined period of time. Convertibility is a possess that corporations may add to the bonds they issue to make them more attractive to buyers. In other words, it is a special feature that a corporate bond may carry. As a result of the advantage a buyer gets from the ability to convert redeemable bonds typically have overturn saki rates than non-convertible corporate bonds.Non-convertible debenture Simply regulardebenture cannot be converted into equity shares of the liable company. They are debentures without the convertibility feature attached to them. As a result, they commonly carry higher interest rates than their convertible counterparts.Corporate Debenture Debentures issued by companies and they are insecure in nature. curse DebentureThis pillowcase of debentures is issued by banks.Government DebentureThis includes Treasury stupefy (T-Bond ) and Treasury Bill (T-Bill) issued by the government. They are usually regarded as risk-free investments.Subordinated DebentureThis is a particular type of debenture, which ranks below regular debentures, senior debt, and in some instances below specific general assuranceors.Corporation DebentureCorporation debentures are issued by various corporations.Exchangeable DebentureThey are like convertible debentures, but this debenture can only be converted to the common stock of a subsidiary company or affiliated company of the debenture issuer. plant CapitalSeed expectant convey the initial capital used to start a business.Seed capital often comes from the company founders personal assets or from friends and family.The step of money is usually relatively small because the businessis still in the stem or conceptual stage.Such a jeopardiseis generallyat a pre-revenue stage andseed capital is call for forresearch development, to cover initial operating expensesuntil a product or s ervice can start generatingrevenue, and to attract the attention of judge capitalists.Seed capital is needed to get most businesses off the ground. Itis considered a high-risk investment, but one that can reap major rewards if the company becomes a growth enterprise. This type of funding is often obtained in exchange for an equity stake in the enterprise, although with less formal contractual overhead than standard equity financing.Banks and venture capital investors view seed capital as an at risk investment by the promoters of a new venture, which represents a meaningful and open committal on their part to making the business a success. Frequently,capital providerswill want to wait until a business is a lilliputian more mature before making the larger investments that typify the early stage financing of venture capital funding.Seed capital in other words can be express as money used as the initial investment for a new product or service launch. Seed capital enables businesses to launch a new product or service without depending fully on a business loan. The funds for this form of financing are typically provided by personal investors who are looking for a high return on their investment of at least 30 percent. The investors look to invest in an industriousness with a market of at least $1 billion, and they also want an industry with few competitors for the business. Businesses that typically obtain seed capital are young companies around one year of age that have not produced a product or service for moneymaking(prenominal) sale yet. The companies are so new, so it can be difficult to obtain a regular commercial loan that is sufficient for covering all of the related start up expenses.Cash Credit and OverdraftCash identificationisa short-term cash loan to a company.A bank provides this type of funding, butonly after the required security measures is given to secure the loan. Once a security for quittance has been given, the businessthat receives t he loan can continuously draw from the bank up to a certain condition amount. This type of financing is similar to a line of credit.Furthermore, cash credit is a adroitness to withdraw the amount from the business account even though the account may not have enough credit balance. The dividing line of the amount that can be withdrawn is sanctioned by the bank based on the business cycle of the client and the working capital gap and the drawing power of the client. This drawing power is determined, based on the stock and book debts statements submitted by the borrower at monthly intervals against the security by hypothecating of stock of commodities and/ or book debts. The excess withdrawal of cash is made generally on demand from the customer and the customer has to pay interest on the excess amount he/she has withdrawn. The cash credit facility is quite useful to those businesses where cash payment like wages, transportation, cash acquires are to be made and the receivables ar e not realized in time.An overdraft facility is a formal arrangement with a bank which allows an account holder to draw on funds in excess of the amount on deposit. Overdraft facility financing is most commonly used by businesses as a way of making theirworking capitalmore flexible, although it can also be available to individuals. Banks which offer this service typically have a number of expectations from customers who use it, and it is important to be alive(predicate) of these expectations before entering an overdraft facility agreement.The idea behind overdraft facility agreements is that sometimes one needs a bit more money than is available on deposit to deal with various expenses. For example, a business which is eer slow in March and April might like to use its overdraft facility to makepayrolland keep current with all accounts and creditors. Or, a business might need to make a big one-time expense which exceeds the funds on deposit. With an overdraft facility, concourse c an retaliate the funds at their convenience. The bank may charge an overdraft fee for accessing the overdraft facility, and theinterest ratecan be higher than that for other types of loans. The bank also has the right to demand repayment in full. Balancing an overdraft facility wisely can free up capital and make people more stable financially, but inexpedient use can lead people into a spiral of debt which may be difficult to escape.The amount of an overdraft facility is also curbed people are not allowed to continually take money out and not repay it. The amount of the overdraft is usually pegged to account history and financial information, with the goal of ensuring that people do not end up borrowing more than they can realistically repay through an overdraft facility. The agreed limit can be negotiated with the bank, and some banks are willing to reevaluate if customers feel that their circumstances have changed.Similar to personal overdraft facilities, a business overdraft is a prearranged spending limit with your bank. Many businesses find an overdraft useful for those times when cash flow is a problem for a short period of time. Overdrafts are not a good option for funding larger needs, such as capital or expansion expenses. For these needs it is less expensive to obtain a separate business loan. Business overdraftsmay also be field of battle to more fees than a personal overdraft. Examples include fees to open the overdraft, to renew the overdraft, or sometimes even a fee for not using the overdraft. When used judiciously, overdraft facilities can be a great help in managing the periodical financial shortfall.Commercial PaperCommercial report card is a form of financing that consists of short-term, unsecured promissory notes issued by firms with a high credit standing. Generally, only large firms of unquestionable financial soundness are able to issue commercial motif. Most commercial paper issues have maturities ranging from 3 to 270 daylights. Although there is no set denomination, such financing is generally issued in multiples of $ coulomb,000 or more. A large portion of the commercial paper right away is issued by finance companies manufacturing firms account for a smaller portion of this type of financing. Businesses often purchase commercial paper, which they hold as marketable securities, to provide an interest-earning reserve of liquidity. Commercial paper is change at a push away from its par, or face, value. The size of the neglect and the length of the time to maturity determine the interest paid by the issuer of commercial paper. The actual interest gain by the purchaser is determined by certain calculations.Commercial paper is notusually backed by any form of collateral, so only firms with high-quality debt ratings will comfortably find buyers without having to offera substantial give notice (higher cost) forthe debt issue. For the most part, commercial paper is a very unafraid investment because the f inancial situation of a company can easily be predicted over a few months. Furthermore, typically only companies with highcredit ratingsand credit worthiness issue commercial paper. Over the past 40 years, there have only been a handful of cases where corporations have defaultedon their commercial paper repayment. at that place are deuce methods of issuing paper. The issuer can market the securities directly to abuy and holdinvestor such as most money market funds. Alternatively, it can sell the paper to a dealer, who then sells the paper in the market. The dealer market for commercial paper involves largesecuritiesfirms and subsidiaries ofbankholding companies. Most of these firms also are dealers inUS Treasury securities. Direct issuers of commercial paper usually are financial companies that have frequent and sizable borrowing needs and find it more economical to sell paper without the use of an intermediary. In the United States, direct issuers save a dealer fee of nearly 5 bas is points, or 0.05% annualized, which translates to $50,000 on every $ atomic number 6 meg outstanding. This saving compensates for the cost of restraining a permanent sales staff to market the paper. Dealer fees tend to be disappoint outside the United States.duad FinanceBridge financingis a method offinancing, used to maintainliquiditywhile waiting for an anticipated and reasonably expectedinflux of cash. Bridge financing is commonly used when the cash flow from a sale of an asset is expected after the cash outlay for the purchase of anasset. For example, when selling ahouse, the owner may not receive the cash for 90 days, but has already purchased a new home and moldiness pay for it in 30 days. Bridge financing covers the 60 day gap in cash flows.Another type of bridge financing is used by companies before theirinitial public offering, to obtain necessary cash for the maintenance of operations. These funds are usually supplied by theinvestment bankunderwritingthe new issue. As payment, the company acquiring the bridge financing will give a number ofstocksat adiscountof the issue price to the underwriters that equally offset the loan. This financing is, in essence, a forwarded payment for the future sales of the new issue.Bridge financing may also be provided bybanksunderwritingan offering ofbonds. If the banks are un boffo in selling a companys bonds to qualified institutional buyers, they are typically required to buy the bonds from the issuing company themselves, on terms much less favourable than if they had been successful in finding institutional buyers and acting as pure intermediaries.There are 2 types of bridging finance which are unopen bridging and open bridging.Closed bridging finance is where there is a date for the put across of the bridging finance and is sure that the bridging finance can be repaid on that date. This is less risky for the lender and thus the interest rate charged is lower. rotate bridging is higher risk for the lender. T his is where the borrower does not have an exact date for the bridging finance exit and may be looking for a buyer of the mo or land.Capital MarketA capital market is a market where both government and companies raise long term funds to heap securities on the bond and the stock market. It consists of both the primary market where new issues are distributed among investors, and the secondary markets where already existent securities are traded.In the capital market, mortgages, bonds, equities and other such investment funds are traded. The capital market also facilitates the procedure whereby investors with excess funds can bring them to investors in deficit. The capital market provides both overnight and long term funds and uses financial instruments with long maturity periods. The financial instruments are traded in this market such as foreign exchange instruments, equity instruments, insurance policy instruments, credit market instruments, derivative instruments, and hybrid i nstruments.The primary role of the capital market is to raise long-term funds for governments, banks, and corporations while providing a curriculum for the trading of securities.This fundraising is regulated by the performance of the stock and bond markets within the capital market. The member organizations of the capital market may issue stocks and bonds in order to raise funds. Investors can then invest in the capital market by purchasing those stocks and bonds.The capital market, however, is not without risk. It is important for investors to ascertain market trends before fully investing in the capital market. To that end, there are various market indices available to investors that reflect the present performance of the market.Every capital market in the world is monitored by financial regulators and their respective governance organization. The purpose of such regulation is to protect investors from role player and deception. Financial regulatory bodies are also charged with minimizing financial losses, issuing licenses to financial service providers, and enforcing applicable laws.Capital market investment is no longer confined to the boundaries of a single nation. Todays corporations and individuals are able, under some regulation, to invest in the capital market of any country in the world. Investment in foreign capital markets has caused substantial enhancement to the business of international trade.The capital market is also dependent on two sub-markets the primary market and the secondary market. The primary market deals with newly issued securities and is responsible for generating new long-term capital. The secondary market handles the trading of previously-issued securities, and must live highly liquid in nature because most of the securities are sold by investors. A capital market with high liquidity and high transparency is predicated upon a secondary market with the same qualities.Money MarketThemoney marketis a component of thefinancial m arketsfor assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involvesTreasury bills,commercial paper,bankers acceptances, certificates of deposit, federal official funds, and short-livedmortgage-backed andasset-backed securities.It providesliquidityfunding for theglobal financial system. The money market consists offinancial institutionsand dealers in money or credit who wish to each borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short-termfinancial instrumentscommonly called paper. This contrasts with thecapital marketfor longer-term funding, which is supplied by bondsandequity. The core of the money market consists of banks borrowing and lending to each other, usingcommercial paper,repurchase agreementsand similar instruments.The money market is a subsection of thefixed incomemarket. We generally think of the t erm fixed income as being synonymoustobonds. In reality, a bond is just one type of fixed income security. The difference between the money market and the bond market is that the money market specializes in very short-term debt securities (debt thatmatures in less than one year). Money market investments are also called cash investments because of their short maturities. Money market securities are basically IOUs issued by governments, financial institutions and large corporations. These instruments are veryliquidand considered extraordinarily safe. Because they are extremely conservative, money market securities offer significantly lower returns than most other securities.One of the main differences between the money market and the stock market is that most money market securities trade invery high denominations. This limits accessfor the individual investor. Furthermore, the money market is a dealer market, which means that firms buy and sell securities in their own accounts, at their own risk. Compare this to the stock market where a broker receives armorial bearing to acts as an agent, while the investor takes the risk of holding the stock. Another characteristic of a dealer market is the lack of a central trading scandalize orexchange. Deals are transacted over the phone or through electronic systems. surmisal Capital FundsVenture capital(also known asVCorVenture) is a type ofprivate equitycapital typically provided for early-stage, high-potential,growthcompanies in the interest of generating a return through an eventual(prenominal) realization event such as anIPOortrade saleof the company. Venture capital investments are generally made as cash in exchange for shares in the invested company. It is typical for venture capital investors to identify and back companies in high technology industries such as biotechnology and ICT (information and communication technology).Aventure capital fundrefers to apooled investmentvehicle that primarily invests thefina ncial capitalof third-party investors in enterprises that are too risky for the standardcapital marketsorbank loans. Venture capital funds mean an investment fund that manages money from investors pursuit private equity stakes in startup andsmall- and medium-size enterprises with strong growth potential. These investments are generally characterized as high-risk/high-return opportunities. Theoretically, venture capital funds give individual investors the ability to get in early at a companys startup stage orin special situationsin which there isopportunity for explosive growth. In the past,venture capital investments were only accessible to professional venture capitalists. While a fund structure diversifies risk, these funds are inherentlyrisky.Mostventure capital fundshave a fixed life of 10 years, with the possibility of a few years of extensions to allow for private companies still seeking liquidity. The investing cycle for most funds is generally three to five years, after whi ch the focus is managing and making follow-on investments in an existing portfolio. This model was pioneered by successful funds inSilicon Valleythrough the 1980s to invest in technological trends broadly but only during their period of ascendance, and to cut exposure to management and marketing risks of any individual firm or its product.In such a fund, the investors have a fixed commitment to the fund that is initially unfunded and subsequently called down by the venture capital fund over time as the fund makes its investments. There are substantial penalties for a Limited Partner (or investor) that fails to participate in a capital call.It can take anywhere from a month or so to several years for venture capitalists to raise money from limited partners for their fund. At the time when all of the money has been raised, the fund is said to be close and the 10 year lifetime begins. Some funds have partial closes when one half (or some other amount) of the fund has been raised. Vint age year generally refers to the year in which the fund was closed and may serve as a means to stratify VC funds for comparison. Thisfree database of venture capital fundsshows the difference between a venture capital fund management company and the venture capital funds managed by them.Present ValuePresent value means thecurrent worthof a future sum of moneyor stream of cash flowsgiven a specified rate of return. hereafter cash flows are discounted at the discount rate, and the higher the discount rate, the lower the present value of the future cash flows.Determining the appropriate discount rate is the key to properly valuing future cash flows, whether they are earnings or obligations. The calculation of discounted or present value is extremely important in many financial calculations.For example, net present value, bond yields, spot rates, and pension obligations all rely on the principle of discounted or present value.If offered a choice between $ speed of light today or $100 i n one yearceteris paribus, a rational person will choose $100 today. This assumes a positive interest rate for the time period. This is described by economists as Time Preference. Time Preference can be measured by auctioning off a risk free security like a US Treasury bill. If a $100 note, payable in one year, sells for $80, then the present value of $100 one year in the future is $80. This is because you ca