Creating a business or even holding a business is very difficult in today’s competetive market where all other competitors are ready to pull you down. One can’t handle a business on his/her alone, he/she must have someone who can help in running business properly in various ways. These who are PARTNERS.

A partner in a business can be proved to be very helpful in respect to providing capital, sharing losses, expand business etc. Therefore, we will discuss about some types of partners in a business playing their role.

1) ACTIVE PARTNER:- An active partner is a partner who actively takes part in all managing decisions and always have the equal liability as other partners. He/she will always take part in important decisions and take care that firm runs smoothly by serving the co. actively. He equally shares profit and losses as well as contribute to capital. He can only retire by giving a public notice.

2) SLEEPING PARTNER:-  As name tells a sleeping partner is the one who does’t participate in any of the business meetings or decisions, he can be absent during important discussions unlike active partner, but like active partner he will equally share profits and losses and also contibute to capital. He can retire without a prior notice.

3) OSTENSIBLE PARTNER:- An ostensible partner is the one who hasn’t have any interest in the business but lends his name to firm, He doesn’t contributes capital and even takes no profit share. but he is liable to pay and act as an actual partner to third party.

4) PARTNER IN PROFITS ONLY:- A partner who only withdraws profit not share losses in business is a partner in profits only.

5) MINOR PARTNER:- We all know that partnership exist due to contract between partner and if the person is not capable of entering into contract then he can’t be a partner, thus a person with age < 18 cannot become a partner, but under the indian partnership act 1932 a minor can be admitted by consent of all existing partners. He share profits according to his share in the firm and have access to all accounts of the firm. He can’t sue the other partners related to official matter. His liability also depends on his share in firm and his assets are not liable to creditors.

6) OTHER PARTNERS:- One is a secret partner who doesn’t want to disclose his relation with firm in general public.

Outgoing partner, who retires voluntarily without causing dissolution of the firm.

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The word “AUDIT” is derived from a latin word “AUDIRE” which means ‘to hear‘, because in earlier times the auditors were used to hear the reports and checked the organistions personnel.

Now, The word AUDITING means a systematic and fair examining of the documents, papers or in financial term we say books of a firm so that a proper idea can be taken out about how far the financial statements present are good and depict a clear picture of the organisation in front of the world.

It also make sure that the financial statements are well maintained by the concern as required by the law. Today, Auditing has become a very widespread process in corporate and public sector. The auditor perceives and recognizes the propositions before him/her for examination, obtains evidence, evaluates the same and formulates an opinion on the basis of his judgement which is communicated through his audit report.

In today’s world financial frauds have increased many folds and many entities had tried to cheat people and others to have financial and personal gains. Therefore auditing has become a legal requirement for all the firms who has the power to ruin financial data for excess gains.

A financial audit helps to gain information about the internal control of a firm and it also ensures reliability of the existing system. Here, a third party named as auditor is appointed to have a look to the books of accounts and give opinion accordingly.

External Auditor– An independent firm/individual that takes a look at the financial statements and provide an opinion on whether the books are fine and free from any fraud or error or not.

Cost Auditor– An n independent firm/individual appointed subject to cost audit to express an opinion on whether the cost sheets of the firm are free from any misstatements or not.

We have certain types of  special audits-

1) Forensic audit- It is also known as forensic accounting, here an accountant who is specialised in this field is used to uncover frauds related to missing money, Misguiding statements etc.

2) Energy audits- As name sugget it is the analysis related to the energy flow in a building, try to reduce energy input by not affecting the output.

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One of the most important concern of a firm is to raise funds but there are some decisions need to be taken like thinking about the sources from where the funds need to be raised.

Sometimes, a firm prefer to raise funds from different sources in calculated proportions so that maximum fund can be raised and total cost of raising can be minimized. for eg- a firm needs 100000 bucks and after proper calculations it is suggested that firm should raise 30000 from one source and remaining from other.

If we categorise on the basis of ownership, the main sources are owner’s funds and borrowed funds.

Owner’s funds consists of equity share capital, preference share capital, retained earnings, surpluses etc.

Borrowed funds comprises of  bank loans, debentures, public deposit etc. The providers are banks, debentures holders.

So, on this part we can define CAPITAL STRUCTURE as a mix between owners and borrowed funds. It can be obtained as ratio of debt and equity.

Both Debt and Equity differ significantly with respect to cost and risk.

Cost of debt is lower than cost of equity, because it is observed that lender’s risk is less than equity shareholders risk. This is because the provider will get an assured return for funds lended along with proper  interest, also it gonna benefit firm as intrerest paid is a deductible expense while computing tax liability and dividends are paid after tax profit.

Now, if we look from the risk angle we can say that debt is more risky than equity because debt is an outsider or a third party money which needs to be repayed with proper interest and ultimately it becomes a liability for the firm, whereas the equity repayment is not a cumplusion.

Thus, a lot use of debt can increase financial risk (that firm will not be able to repay its obligations) and hence there required a proper balance between debt and equity.

Therefore, capital structure of a firm affects its profitability and financial risk. An optimal Capital Structure is when there is accurate balance between debt and equity so that it will add to the value of equity share of the firm.

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Guys, this article is about money market and capital market, these markets are an extension to financial market or parts of financial market.

MONEY MARKET V/S CAPITAL MARKET

> Money market, as the name tells it is a market that is highly associated with money. It is a place where assets having maturity period upto one year are dealt. Maturity period means the time uptil which assets can be converted into cash. The market deals in highly liquid assets and all the transactions can be done on telephone or internet as the market has no physical existence.

Short term funds can easily be raised because all the assets sold and bought have a liquid nature. The market is featured by its participants like reserve bank of india, commercial banks, mutual funds etc.

> Capital market, unlike money market capital market is associated with those facilities and such arrangements that helps to raise and invest long term funds.

It is a place where all the savings of the community is made available to the enterprises for various purposes, like long term debt, etc. The market consists of stock exchanges, commercial banks, development banks etc.

The situation of the economy can be understood by studying the movement in stock exchanges of the country, therefore a good capital market ensure good economic stability and it provides a chance at a reasonable cost.

SOME MAJOR MONEY MARKET INSTRUMENTS:

1) Call Money, it is a short term finance method largely used by the banks to maintain their minimum cash balance also known as cash reserve ratio. All the banks have to maintain a minimum cash balance to be given as loans and in order to maintain thta balance banks use the technique of call money ie they borrow from another bank to maintain the balance. 

Also, RBI keeps on changing the CRR(cash reserve ratio) from time to time thta is why this method is highly practiced. This short term finance is repayble on demand and has a period from 1 day to 15 days.

2) Commercial Paper, it is a short term, unsecured promissory note issued by the large and credit wothy companies to raise short term finance to meet some urgent requirements. It is basically a note that firm will pay raised amount in the given period of time(ranges from 15 days to 1 year).

3) Commercial Bill, it is a bill of exchange thta is used to finance the working capital requirements.It is a short term negotiable instrument to finance the credit sales.

When the goods are sold on credit, the seller can either wait for payment or can make use of a bill of exchange. In this case the seller draws a bill and buyer accepts it, on being accepted it becomes a marketable intrument thta can be easily tradedor dicounted with bank in case funds are needed.

PRIMARY AND SECONDARY MARKET:

These market are an extension to capital market,

1) Primary market, it is a market for the new securities being issued also known as new issue market. It facilitates the transfer of funds to enterprises who seeks to expand their business.

2) Secondary Market, It can be described in one word ie stock exchanges. focus on purchase and sale of existing securities.

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Financial market is refered to a geographical place where savers and investors meet.

Savers counts all those individuals, households etc, that save their money. Whereas, investors counts all those firms that invest that money for other economic purposes.

So, basically a financial market is place where these savers and investors meet. A financial market is directly able to provide funds to the investors for various purposes. This leads to-

1) A higher rate of return to savers,

2) The funds generated are allocated to the firms so that they can have a higher productivity.

Now, the firms has two ways to get funds or rather we say there are two alternatives to allocate funds-

a) via banks- individuals save their excess money in bank which inturn lend these funds to firms in form of loan,

b) via financial market- individuals can buy shares or debentures of a business of their choice which will give the respective co. their funds.

Thus, a financial market mobilizes funds to both firms and individuals and help in growing their money.

There are many functions performed by a financial market:-

1) It’s major function is to allocate saved funds to a proper place so that both parties will able to get benefits.

2) We know that the price of a good is set by the interaction of demand and supply of that good, similarly the price of an financial asset is set by the demand generated by the firms and supply of funds by households.

3) Market also provide liquidity to assets ie it makes an easy task for an assets holder to sell his assets into cash whenever needed.

4) It reduces the cost of transaction by a intermediary because it provides all info about traded securities that easily help seller or buyer to perform.

DIVISION OF FINANCIAL MARKET——–

A) MONEY MARKET:-                              

1) It is a market where all those assets are sold whose approx. period of maturity is upto or generally less than one year.

2) In this market unsecured, low risk and highly liquid assets are  traded every day.

3) Major participants are RBI, banks mutual funds etc.

B) CAPITAL MARKET:-

1) It is a market from where long term funds can be raised and invested.

2) Here, public funds are provided directly to the firms for various industrial and commercial purposes.

3) It can be further studied as primary and secondary markets.

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Financial management focuses on solving three major issues that are directly related to financial operations of a firm corresponding to three questions of investment, financing and dividend decision.

If we see from a financial context then it means best investment alternative. The finance function is concerned with three broad decisions.

We will discuss those decisions in a very summaried form:

1) INVESTMENT DECISION: Investment decision is related to employment of a firm’s resources to an efficient place so that the investment earns maximum returns. A firm has limited resources and all of those need to be put in such a way that all must have a good return as well as their value increases.

Now, investment decision can be of two types-

a) A long term decision, it involves investing money on a long term basis like purchasing new machinery or assets so that they can be utilised for a long time and give benefit to firm.

Although these investments are very risky and irreversible, suppose a $10000 machine broke down and is not repairable then the whole investment goes in dump. These decisions need to be taken very carefully as they can affect the financial position of an organisation.

b) A short term decision, short term generally means time period less than one year, all those decisions that affect day to day working of a business are short term decisions like cash flow management, debtors, liquid assets( that can be converted into cash in less than one year).

2) FINANCING DECISION: Financing means to raise funds from various sources, so financing decision means the decision related to the amount to be raised(finance) from different and reliable sources. It involves looking for various available sources from which funds can be raised.

The main sources of finance for a company are shareholder’s funds and borrowed funds.

Shareholder’s funds refers to the equity capital or retained earnings.

Borrowed funds are other kind of debt taken from outside the firm. 

There is a risk involved in case if we raise funds by borrowing because in this case we have to repay the amount plus interest on time otherwise interest will go on increasing and that will affect our profit. Whereas, shareholder’s funds have no commitments regarding repayment.

3) DIVIDEND DECISION: The another important decision needed to be taken is dividend decision.

Dividend is that part of profit that is needed to be distributed among shareholders.

The decision is concerned about how much money is to be distributed among shareholders and how much should be retained in business. Since if we retain more funds then it will affect financing decision, thus dividend decision primarily aims at maximising shareholders wealth.

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Today, I will try to explain the difference between FIXED AND WORKING CAPITAL.

First, let’s define them and learn their meaning.

Every company requires funds to invest in its assests whether long term assets or short term ones.

A fixed asset is the one which remains in firm for more than one year like plant or machines. In this context FIXED CAPITAL refers to investment in long term assets.

In similar manner, WORKING CAPITAL refers to investment in current assets, which lasts less than one year. example- cash in hand, debtors etc.

MANAGEMENT OF FIXED CAPITAL:-

Management of fixed capital means to safely invest the fixed capital into long term assets or projects so that it will lead to profit. These decisions are very important because fixed capital need to be invested such that profit is maximized and loss minimized.

A good management of fixed capital will lead to various benefits:

1) It will lead to long term growth and will increase the firm’s ability to perform better in long run.

2) All decisions related to investment are taken after a large analysis of returns, therefore it increases the analytical ability of our personnel.

3) Also it tries to improve a firm’s ability to tackle risk as long term investments involve some factor of risks.

MANAGEMENT OF WORKING CAPITAL:-

Similar to fixed capital, management of working capital is also very necessary as it means investing in those assets or projects whose full utilisation can be done in less than one year.

If we manage working capital properly then we will have a large amount in return and it will be a benefit for coming years. It focuses on meeting current liabilities that are to be repaid in current financial year.

Now, after benefits we will see the factors affecting the requirement of fixed and working capital:-

1) The type of business has a lot to do with capital. For say- a trading co. needs lower fixed and working capital than a manufacturing firm.

2) The size of business, a firm operating on large scale needs more space, machinery and cash to operate as compared to a small firm.

3) Choice of techniques, if we consider a capital intensive firm then it needs more cash  to operate as compared to a labour intensive co.

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As the name suggest financial management means managing finance or rather funds, we all know that funds are raised at some cost like loan from bank or other financial institution etc.

It is our responsibility to manage that fund so that it can be used wisely and we shall able to fulfill our aims using the funds. An improper management of funds can highly increase cost or can even land the firm into the situation of bankruptcy.

eg- If a firm raises a loan of $100000 and put it into an inverstment without having proper knowledge about the returns. Then if suppose investment failed to give enough returns to cover loan and interest amount, it will be a huge loss to firm.

Here, financial management comes into scene which aims to reduce the cost of funds procured, keeps the risk minimum and controllable, tries to achieve maximum out of funds raised.

Now, let’s discuss how financial management affect business health.

We are aware about financial statements such as balance sheet, profit and loss account that reflects a firms financial health or position. Financial management somehow affects these statements or the items in these statements.

1) It affects size of fixed assets, a decision to invest in assets.

2) Financial mgt decides about how much to raise in long run from debt or equity.

therefore, financial mgt highly affects business health and also it influences future statements as those are dependent on past info. While a good financial management mobilises resources well and takes care of these problems.

OBJECTIVES:- 

a) The first most aim of financial mgt is to increase the shareholder’s wealth also known as wealth maximisation concept.

b) If we get large benefit from a decision, that will exceed cost involved and increase equity shares price then that decision is good and financial mgt aims to take such decisions. A poor decision will be that one that leads to decrease in market price of company’s share.

c) It always tries to pull out maximum from any investment that will exceed the cost of investment and add some value. If a machine is purchased then it will ensure that max work shall be taken out to cover machine cost.

So, we can say that financial management ultimately aims to maximize market price of a firm’s share and increase its owners wealth.

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I hope all of you are aware about what is FINANCIAL PLANNING ? But let’s take a quick revise.

It is all about the preparation of a financial blueprint of an organisation’s future operations.

The objective of financial planning is to ensure that enough funds are available at right time. If appropriate amount of funds are not available then the firm will not be able to fulfill its commitments and will not be able to carry out its plans.

If excess funds are present, then we all know that it may add to the cost and may increase unnecessary expenditure. It must be kept in mind that financial planning is not similar to, or a substitute for, financial management.

Financial planning aims at smooth operations by focusing on fund requirements and their availability in the light of financial decisions. Financial planning process tries to forecast all the items which are likely to undergo changes. It enables the management to forsee the fund requirement both the quantum and timing.

We can understand the objectives of financial planning is brief,

The two main objectives of financial planning are-

1) It ensures that enough funds are present for the use in firm so that operations and other money oriented activities are not harmed and also keeps a check on the part that the funds are available when needed.

2) As financial planning is mostly considered as a tool to maintain funds, it can be also used to ensure that firm do not raise unnecessary funds that can reverse the profit( increase cost).

As business is about operating in short term or long term we can say that financial planning also depend on time periods.

A long term planning aims to achieve long term goals like increasing monopoly or increasing growth of firm.

Whereas, a short term plan is always characterized by a budget or we can say that a short term plan is called as budget, it includes all expenses and sources available for a year. mostly planning is done for 3 to 5 years in long run.

Therefore, we can ultimately say that financial planning for an organisation is very useful becausew it helps the firm to operate properly as well as reduce costs. It is like a blueprint of firm’s future operations.

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SEBI, securities and exchange board of india. It explains itself as an administrative body to promote orderly and healthy growth of securities market and for investor protection.

It was setup on 12 april 1988 by indian government. It was to function under the control of ministry of finance of indian government.

There was a specific reason for establishing SEBI, in 1980’s our country’s capital market witnessed tremenduos growth which means population of investors was increasing particularly participation of public was increased. This results in a large variety of badpractices on the behalf of firm, brokers, merchants, bankers etc. many unofficial brokers also tried to cheat people. These malpractices decreased the investors confidence. Thus, indian government decided to setup a regulatory body known as SEBI.

PURPOSE AND ROLE:-

The basic purpose of SEBI is to create an enviroment to facilitate efficient mobilisation and allocation of resources through securities market.

The enviroment includes rules and regulations, practices and policy framework. This enviroment try to meet the needs of three groups-

1) To the issuers, it aims to provide a market in which they can confidently raise finance in an fair manner.

2) To the investors, it should provide protection to their rights and interests by accurate info and disclosing info regularly.

3) To the intermediaries, it offers a professional and expanding market with efficient infrastructure so they can give better services to investors and issuers.

OBJECTIVES:-

1) To regulate securities and stock exchange industry to promote orderly functiuoning.

2) To protect the rights of investors, particularly individual investors and to guide and educate them.

3) It prevents malpractices performed in trading and try to achieve a balance between self regulation by the securities industry and its statutory regulatiuon.

FUNCTIONS:- The functions of SEBI are classified as-

A. Regulatory Functions-

1) It registers brokers and sub brokers and other players in market.

2) It registers collective investment schemes and mutual funds.

B. Development Functions-

1) Train the intermediaries of the market to make them aware about their rights.

2) It regularly conducts research and publish info useful to all participants.

3) Undertaking measures to develop capital markets.

C. Protective Functions-

1) Controls insider trading and imposing penalties on those involved.

2) Undertaking steps for investor protection.

3) Promotes fair practices and code of conduct in market to have a disciplined market.

Apart from this SEBI has two advisory committees–

1) Primary market advisory committee,

2) Secondary market advisory committee.

These committeees advise SEBI about matters relating to investors protection and helps to develop market.

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