If we study and research the recent development in the financial management, we have to study and research in its all parts. Only after this, we can know whether the recent developments in financial management is progressive or not.
We know that financial management is to receive the cheap resources of fund and then effective use of this fund for increasing the return and wealth of organisation. For doing this, work, finance manager has to manage working capital. He also use the tools of financial analysis and capital budgeting. He has to search new sources of finance for reducing the cost of capital. So, we have to research the recent development in all these areas.
1. Recent Development in Working Capital Management
Working capital management is the management of current assets and current liabilities. We know that there is deep relationship between proper use of working capital and our profitability. Today, company wants excess of return on working capital over cost of working capital. Working capital management is playing a good role in this. Recently, Financial experts are developing best EVA. EVA means economic value added. It is the estimated profit which will be excess from required profit for shareholders and creditors. EVA on the working capital based means net operating profit after tax minus working capital charges.
There is also recent development for providing solution of Economic lot scheduling problem. If we find the best solution of ELSP, we can manage our inventory which will be helpful for proper management of our working capital.
2. Recent Development in the Tools of Financial Analysis
Ratio analysis is the important part of tool of financial analysis. Recently many new ratios have been developed by experts. Some of them, we are discussing here. Link
a) Uncovered Capital Ratio (UCR) :
Uncovered Capital Ratio is calculated by obtaining the Portfolio at Risk (PAR) greater than thirty days minus impairment loss allowance divided by total capital.
b) Foreign Currency Risk Ratio :
The Foreign Currency Risk Ratio measures the relationship between net foreign currency assets and equity for each foreign currency on the balance sheet.
Net Foreign Currency Assets / Equity for Each foreign Currency
c) Yield on Liquidity and Investment Ratio :
Yield on Liquidity and Investment Ratio indicates the level of returns an institution is generating from its
cash holdings and investments averaged over a given period.
3. Recent Development in Capital Budgeting and Project Planning
There is not any area in which development is zero. Sometime developments are hidden. We have to find it. In capital budgeting, there are lots of new techniques have been developed for evaluation of any project before buying. We are only including which we still did not included in our capital budgeting list.
Real Option Valuation and Analysis
It means to choose best option regarding any asset. Suppose, sometime to sell the asset is best option than to expand it. So, we find the ROV through capital budgeting and other methods.
4. Recent Development in Capital Structure
Now, arbitrage is possible in any capital structure. Capital structure is the combination of equity and debt. For example, in any capital structure, equity capital may be 30% and debt may be 70%. Arbitrageur can take the price advantages if there is different prices of company's equity or debt. For example two companies has different shares of ABC company. If two company merge for getting the benefit of high boom after this, this will be merger arbitrage.
5. New Sources of Finance
Today, where is to take loan is becoming more costly, company and big corporates are thinking to get finance from new sources. In new sources of finance, buying of new business has developed. Buying of new business means new sources of earning. Same earning can be used as the source of fund. One more benefit of merge is that it give more power due to increasing the expert team. Open this news, you find every day companies are finding new sources through merge.
Important : {This written lecture is the part of CS Accounting Notes}
We know that financial management is to receive the cheap resources of fund and then effective use of this fund for increasing the return and wealth of organisation. For doing this, work, finance manager has to manage working capital. He also use the tools of financial analysis and capital budgeting. He has to search new sources of finance for reducing the cost of capital. So, we have to research the recent development in all these areas.
1. Recent Development in Working Capital Management
Working capital management is the management of current assets and current liabilities. We know that there is deep relationship between proper use of working capital and our profitability. Today, company wants excess of return on working capital over cost of working capital. Working capital management is playing a good role in this. Recently, Financial experts are developing best EVA. EVA means economic value added. It is the estimated profit which will be excess from required profit for shareholders and creditors. EVA on the working capital based means net operating profit after tax minus working capital charges.
There is also recent development for providing solution of Economic lot scheduling problem. If we find the best solution of ELSP, we can manage our inventory which will be helpful for proper management of our working capital.
Each approach imposes one or both of these simplifying constraints: the zero-switch constraint (production of a part is started only when its inventory is depleted) and the equal-lot constraint (the lot size of a given part is constant through time). We provide a formulation that clarifies the relationships between the general problem and the three constrained versions, and compare their performances in a computational study.linkIn India, for better debtor management, RBI has licensed to 4 credit Score institutes. All these institute records the credit history of each company. Name of these institutions are he Credit Information Bureau (India) Limited , Experian , Equifax and Highmark. Getting information will be helpful for reducing the risk due to providing debt.
2. Recent Development in the Tools of Financial Analysis
Ratio analysis is the important part of tool of financial analysis. Recently many new ratios have been developed by experts. Some of them, we are discussing here. Link
a) Uncovered Capital Ratio (UCR) :
Uncovered Capital Ratio is calculated by obtaining the Portfolio at Risk (PAR) greater than thirty days minus impairment loss allowance divided by total capital.
b) Foreign Currency Risk Ratio :
The Foreign Currency Risk Ratio measures the relationship between net foreign currency assets and equity for each foreign currency on the balance sheet.
Net Foreign Currency Assets / Equity for Each foreign Currency
c) Yield on Liquidity and Investment Ratio :
Yield on Liquidity and Investment Ratio indicates the level of returns an institution is generating from its
cash holdings and investments averaged over a given period.
3. Recent Development in Capital Budgeting and Project Planning
There is not any area in which development is zero. Sometime developments are hidden. We have to find it. In capital budgeting, there are lots of new techniques have been developed for evaluation of any project before buying. We are only including which we still did not included in our capital budgeting list.
Real Option Valuation and Analysis
It means to choose best option regarding any asset. Suppose, sometime to sell the asset is best option than to expand it. So, we find the ROV through capital budgeting and other methods.
4. Recent Development in Capital Structure
Now, arbitrage is possible in any capital structure. Capital structure is the combination of equity and debt. For example, in any capital structure, equity capital may be 30% and debt may be 70%. Arbitrageur can take the price advantages if there is different prices of company's equity or debt. For example two companies has different shares of ABC company. If two company merge for getting the benefit of high boom after this, this will be merger arbitrage.
5. New Sources of Finance
Today, where is to take loan is becoming more costly, company and big corporates are thinking to get finance from new sources. In new sources of finance, buying of new business has developed. Buying of new business means new sources of earning. Same earning can be used as the source of fund. One more benefit of merge is that it give more power due to increasing the expert team. Open this news, you find every day companies are finding new sources through merge.
Important : {This written lecture is the part of CS Accounting Notes}
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