Various aspects and role of financial planning in financial management

Aspects of Financial Planning 1. Amount of Capital to be raised. Financial planning anticipates the amount of capital required for the establishment of the enterprise and also for carrying out business operations. 2. Determining the form and proportionate amount of securities to be raised. The financial manager has to take decisions about the capital structure …

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Capitalization in business finance

Capitalization meanings: Capitalization refers to the amount of capital required by the business enterprise. The capital may be obtained: (a) by issue of equity and preference shares, (b) by issue of debentures, (c) by obtaining loans, and (d) by retained earning. Thus capitalization is the sum total of funds received through shares, bonds, loans and …

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Over-Capitalization

Definition and Explanation Over-capitalization is that aspect of a business enterprise, wherein long term funds (share capital, debentures and loans) exceed the amount of optimum capitalization. The company earns reasonably fair return on its investment in case of proper capitalization. In case of over-capitalization, the rate of return in lesser than the rate of return …

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Undercapitalization

What is undercapitalization? Under-capitalization is a situation, wherein the company has insufficient capital but large amount of secret reserve. There is generally appreciation in the value of land and building, plant, machinery, and goodwill etc. but the company does not show the appreciation in its books of accounts. These assets earn handsome earning and the …

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What is Capital Structure? How to determine the capital structure?

Capital Structure While deciding the capital structure of the company the promoters will have to decide the proportion of capital to be raised by issue of shares and debentures. It should be noted that shareholders are paid dividend out of profit so they bear the risk involved in carrying out the business activities. According to …

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Various sources of raising funds for a business

Sources of Business Finance To meet long term, medium term and short term financial requirements, the company may adopt the following sources of fund raising derives. Methods for Raising Long Term Funds 1. Issue of shares. 2. Issue of Debentures. 3. Loan from specialized financial institutions. 4. Ploughing back of earnings (for existing companies) Methods …

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What is a debenture? How to raise fund by issuing debentures?

Definition and Explanation Debenture is an instrument issued by the company acknowledging its debts to the holder under its seal. Debentures carry interest at certain percent. As it is loan taken by the company, it is repaid after a certain specified period or at the option of the company as per the terms of their …

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