CAPITAL Investment made by proprietor in his business

CAPITAL Ø Investment made by proprietor in his business Ø Money for carrying on any business Ø Cover all elements like money, land, machinery, material etc. Ø Helps in buying factors of production, machinery, tools, implements, buildings for factories, raw material etc Ø Helps to pay wages to the labour force employed

Types of Capital Fixed capital 2. Working capital 1.

1. Fixed Capital Required for acquisition of fixed assets • Tools • Vehicles • Land • Building • Equipments, • furniture

Need of fixed capital �To finance the expenses for creation of organization ◦ E. g. Lawyer's fees, filing fees, compansession paid to promotes for personal services

Sources of fixed capital 1. 2. 3. 4. 5. 6. Shares Debentures Public Deposit Term loan Inter-company loan and investment Foreign capital

1. Shares �One of the method through which capital needed for company is collected �Generally issued while starting the company or organization or expanding business �Features – ◦ Represents the ownership of the assets of the company ◦ Shares are movable property & are transferable

Types of Shares 1) ◦ ◦ Preference share Cumulative type Non Cumulative type Ordinary shares 3) Deferred shares 2)

2. Debentures �Carry a fixed rate of interest, payable after a fixed period �Debenture holders are only creditors, they don’t have control over the management of company.

Sr. no Shares / shareholders Debentures 1 Form the capital of company 2 Shareholders share Debenture holders get fixed profit and have no bear interest on their money, the losses irrespective of loss /profit to the company 3 Share holders enjoy voting rights Share holder can exercise control over the management Debentures holder do not enjoy voting rights Can not exercise control over the management They are subjected to risk investment Do not have any risk in investment, Repayment is guaranteed 4 5 Do not form the capital of company, they form only credit money

Sr. no Shares / shareholders Debentures 6 Value of shares is Value of debenture is generally small high 7 Share holders get Do not get share from share in profit 8 Shareholders do Get back their money not get back their after the specific money period

3. Public Deposit �Company invites the general public to deposit their saving for some period at the specified rate of interest �Deposits are allowed to be withdrawn at the option of depositor on expiry of specific period

4. Term loan �The money advances granted either by banks or by the financial institution like ICICI or financial investment companies like LIC • Generally to be repaid within 3 to 10 years • Secured to acquire the fixed assets, either to start the company or to modernize existing plants

5. Intercompany loans & investment �Transfer of funds from one company to another or from one group of companies to another group of companies 6. Foreign capital �Funds from the joint venture partner �Capital may be received either in the form of patents or machines or funds against shares , debentures etc. from foreign partner

2. Working Capital �Required for day–to–day running of the organization �Funds are required to◦ Purchasing raw materials, components, supplies, tools & spares ◦ Incurring expenses for maintenance & service activities taxes & insurance ◦ Meeting advertising, promotion, dispatching �Working assets vary from time to time & get converted into cash during operating cycle of business

Working capital cycle Cash Bills receivable Finished goods Raw material Stock in process

Sources of Working Capital �Source of generation of ◦ long term capital ◦ medium term capital ◦ short term capital

Long term capital 1. ◦ ◦ ◦ 2. ◦ ◦ Internal source Own funds(from saving, close friends) Funds from earning, by taking share holders into confidence Deferred taxation External source Share Capital � Ordinary shares � Preference share Non share capital

Medium term capital 1. Internal source ◦ Retained profit 2. ◦ ◦ External source Equipment leasing Hire purchase Straight term loan Other term loan

Short term capital 1. ◦ 2. ◦ ◦ ◦ Internal source Cash management External source Trade credit Credit sales Bill finance � Trade bill � Bank bill ◦ ◦ ◦ Bill credit Factory Invoice discounting

Budgets �Formal expression of the expected operation & results of a firm for defined future period �Financial statement showing in advance – how company or person or even country will spend money in next year �Without budget a business may aimless

Characteristics of Budget �It is written plan of action �Depicts the financial requirement of each dept. �Used for cost control purpose �May be treated as overall plan for business operations �Based on past experience or statistical data

Objectives of budgets �Must ensuring planning of targeted production or sales within the company �Ensure redundant expenditure �Most also recall policies of company �Provides basis for budgetary control �Budget must be flexible �Must focus specific areas, which need more efforts to work efficiently

Budgetary Control � Control used for the execution of budget is called budgetary control �Process of using the budget for controlling the finance, production, selling product activity � it is comparing of actual operations with the budget to determine if the plans are being carried out � Includes forecast of income & expenditures on equipment, machinery, manpower & material

Features of budgetary control �Well defined authority and responsibility for admin �Budget must involve around the key factor in business �Sound organization of the firm

Why budgetary control is important �Indicates plan in capital terms �Indicates planning in advance for different functions of business �Shows budgeted expenditure, which then compared with actual expenditure of respective department �Shows forecast of income & expenditure for budgeted period, for all resources.

Benefits of budgetary control �Help in deciding goals of the business & preparing plans to achieve these goal �Provides efficiency & eliminates waste �Ensure more economical use of firm’s resources �Aids in measurement of performance of each department �Acts a tool for management control