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Cash Flow Statement What is Cash flow statement? The cash flow statement is an important planning tool in the hands of management. A cash flow statement is useful for short-term planning. A simple definition of a cash flow statement is a statement which discloses the changes in cash position between the two periods. For example, a balance sheet shows the balance of cash as on 31.12.2015 at $20,000, while the cash balance as per its latest balance sheet as on 31.12.2016 was $30,000. Thus, there has been an inflow of $10,000 during a year’s period. Along with changes in the cash position, the cash flow statement also outlines the reasons for such inflows or outflows of cash which in turn helps to analyze the functioning of a business. In order to meet its various obligations in the near future, a business venture needs adequate cash. The past analysis of the diverse sources and applications of cash will enable the management to make reliable cash flow project...

The venture capital financing means financing of new venture promoted by qualified entrepreneurs who lack experience and funds to materialize to their ideas. Under venture capital financing venture capitalist make the investment through purchase of the equity or debt securities from inexperienced entrepreneurs who undertake highly risky ventures with high potential for success. Some of the features of Venture Capital Financing are:- It is basically an equity finance in new companies. It can be viewed as a long-term investment in growth-oriented small/medium firms. Apart from providing funds, the investor also provides support in form of sales strategy, business networking, and management expertise, enabling the growth of the entrepreneur. venture capital financing Some common methods of venture capital financing are as follows: Equity financing The venture capital undertakings normally require funds for a long term. However, they may not be able to pr...

The terms ‘liquidity’ and ‘short-term solvency’ are interlinked. It means the ability of the business to pay its short-term Obligations. Failure to pay-off short-term obligation affects its credibility as well as its credit rating. Continuous default on the part of the business leads to business bankruptcy. Ultimately such business bankruptcy may lead to its sickness and dissolution. Short-term lenders and creditors of a business are very much concerned to know its state of liquidity because of their financial stake. Usually, two ratios are used to put emphasis on the business ‘liquidity’. These are current ratio and quick ratio. Other ratios include cash ratio, interval measure ratio, and net-working capital ratio. Firm's Liquidity Current Ratio The Current Ratio reflects the financial strength. A simple measure that estimates whether the business can pay debts due within one year from assets that it expects to turn into cash within that year. A ratio ...

What is Ratio Analysis? An analysis of the mathematical relationship between two individual figures or group of figures logically linked with each other and picked from financial statements of the concern is known as ratio analysis. The objective for financial ratios is that all stakeholders (owners, investors, lenders, employees etc.) can draw conclusions about the Performance (past, present, and future) Strengths & weaknesses of a firm And can take decisions in relation to the firm.  Ratio Analysis The ratio analysis basically puts light on the fact that a single figure data by itself may not reflect any meaningful information but when expressed as a comparative to some other figure, it may definitely provide some significant information. Ratio analysis is not just comparing different numbers from the balance sheet, income statement, and cash flow statement. It is comparing the number of previous years, other companies, the industry, or even the e...

What is Business Valuation? Business valuation is the series of various methods and techniques of calculating the worth of a business run by a firm or entity. Valuation is needed for many reasons such as capital budgeting, investment analysis, financial reporting, merger, and acquisition, determining statutory liability and during the litigation process.  Wealth comprises of assets and liabilities. Valuation of assets and liabilities are made to reflect the wealth position of a firm or entity through the balance sheet and to supply the logistic to the measure of periodical income of the firm through profit and loss account. Business Valuation Types of a Value Book Value: It is the value of assets as carried on the balance sheets. Liquidation Value: It is the estimated price that the firm would receive by selling its assets if it were going out of the business. Going Concern Value: It is the value of the firm or an entity as an operating busines...

What is company analysis? Company analysis is a part of the fundamental analysis of the stocks. Under company analysis, an investor collects and evaluates the company’s financials, its track record, products, goals, missions, profitability, growth, etc. It helps investors while making the decisions for stock investment. Company analysis requires the careful examination of the company’s quantitative and qualitative fundamentals. Company analysis Qualitative and quantitative fundamentals Sources and uses of funds : Sources and uses of funds in an organization can be traced with the help of fund flow analysis. One of the major uses of the fund flow analysis is to find out whether the entity has used a short-term source of funds to finance long-term investments. Such methods of financing increasing the risk of a liquidity crunch as the long-term investment may not generate enough surplus in time to meet the short-term liabilities. Growth record : The growth in...

What is Mutual Fund? A MUTUAL fund is an organization that pools the savings of a number of investors called as unitholders who share a common goal.  The capital market is information sensitive market. A small piece of information could lead to market fluctuations. A small investor may not be aware of such movement and fluctuation and as a result, he/she normally make a loss in the capital market. A retail investor can directly invest in the capital market or invest through a mutual fund. Mutual Fund A mutual fund is a perfect investment vehicle in today's complex financial scenario. Price changes in the financial assets are driven by so many events (i.e both national and international events). An ordinary investor is unlikely to have the knowledge, skills and time to understand the impact of these events and to act accordingly. It is also difficult for him to keep track of various investments. Investment in mutual funds takes care of all these problems. The mo...

What is Time Value of Money (TVM)? The concept of Time value of money is the baseline of major finance decisions. The  value of money is different at different points of time as the money can be put to productive use. The time value of money often signifies that money available at the present time is worth more than the same amount to be received in the future due to its potential earning capacity.  This concept of TVM is important from decision point of view for different investors. For example: $500 today is more valuable than $500 for tomorrow. Therefore, concept TVM always influences our decision about what we intend to do with our money. Time Value of Money (TVM) Significance of Time Value of Money (TVM) in financial decision making A rupee today is more valuable than rupee after a year due to several reasons: Risk:  there is uncertainty about the receipt of money in future. Investment opportunities:  People often have a prefe...

Q1. What is Dividend PayOut Ratio? Answer: A company generally distributes a certain portion of its net income to its shareholders as a dividend. Such percentage of the dividend distribution out of the current earning is known as Dividend Payout Ratio. The remaining percentage of the earning is retained by the company as reserves and surplus. It is called retention ratio. Dividend payout ratio and retention ratio are like the two-wheel of a chariot. Both of them are part of the earning of the company. Their relationships can be better expressed by the following equation: Dividend Payout Ratio + Retention Ratio = 1 or 100% (i.e. Total earning) For Example, A company named XYZ Ltd has current year earning ( i.e. Net income) of $ 250,000. It distributes $50,000 in the form of dividends. The remaining $200,000 is retained as a reserve and surplus. Now the Dividend Payout Ratio is 0.2 and Retention ratio is 0.8. The sum of them both is equal to 1 (i.e total earning)...

Q1. What is fundamental analysis? Answer: Fundamental analysis is the detail evaluation and analysis of the entity’s financial statement. It provides the information regarding the entity’s operation. With the help of financial analysis tools, one can easily forecast the company’s future. It gives the bird’s eye view of the performance and growth of an organization. Q2. What is a fundamental analysis of the stock? Answer: Apart from the technical analysis as we have discussed earlier, fundamental analysis is the detailed study of both macroeconomic and microeconomic factors that affect the company’s share price in the secondary market (i.e. stock exchanges).  In order to determine the fair value of the shares, we have to calculate the intrinsic value of the shares. Various fundamental analytical tools help an investor to determine the intrinsic value of the stocks. Q3. What are the major components of the fundamental analysis? Answer: Fundam...