BASICS

Meaning of Accounting: According to American Accounting Association Accounting is the process of identifying, measuring and communicating information to permit judgment and decisions by the users of accounts. Users of Accounts: Generally 2 types. 1. Internal management. 2. External users or Outsiders- Investors, Employees, Lenders, Customers, Government and other agencies, Public. Sub-fields of Accounting: Book-keeping: It covers procedural aspects of accounting work and embraces record keeping function. Financial accounting: It covers the preparation and interpretation of financial statements. Management accounting: It covers the generation of accounting information for management decisions. Social responsibility accounting: It covers the accounting of social costs incurred by the enterprise. Fundamental Accounting equation: Assets = Capital+ Liabilities. Capital = Assets - Liabilities. Accounting elements: The elements directly related to the measurement of financial position i.e., for the preparation of balance sheet are Assets, Liabilities and Equity. The elements directly related to the measurements of performance in the profit & loss account are income and expenses. Four phases of accounting process: Journalisation of transactions Ledger positioning and balancing Preparation of trail balance Preparation of final accounts. Book keeping: It is an activity, related to the recording of financial data, relating to business operations in an orderly manner. The main purpose of accounting for business is to as certain profit or loss for the accounting period. Accounting: It is an activity of analasis and interpretation of the book-keeping records. Journal: Recording each transaction of the business. Ledger: It is a book where similar transactions relating to a person or thing are recorded. Types: Debtors ledger Creditors ledger General ledger Concepts: Concepts are necessary assumptions and conditions upon which accounting is based. Business entity concept: In accounting, business is treated as separate entity from its owners.While recording the transactions in books, it should be noted that business

and owners are separate entities.In the transactions of business, personal transactions of the owners should not be mixed. For example: - Insurance premium of the owner etc...

Going concern concept: Accounts are recorded and assumed that the business will continue for a long time. It is useful for assessment of goodwill. Consistency concept: It means that same accounting policies are followed from one period to another. Accrual concept: It means that financial statements are prepared on merchantile system only.

Types of Accounts: Basically accounts are three types, Personal account: Accounts which show transactions with persons are called personal account. It includes accounts in the name of persons, firms, companies. In this: Debit the reciver Credit the giver. For example: - Naresh a/c, Naresh&co a/c etc Real account: Accounts relating to assets is known as real accounts. A separate account is maintained for each asset owned by the business. In this: Debit what comes in Credit what goes out For example: - Cash a/c, Machinary a/c etc Nominal account: Accounts relating to expenses, losses, incomes and gains are known as nominal account. In this: Debit expenses and loses Credit incomes and gains For example: - Wages a/c, Salaries a/c, commission recived a/c, etc. Accounting conventions: The term convention denotes customs or traditions which guide the accountant while preparing the accounting statements. Convention of consistency: Accounting rules, practices should not change from one year to another. For example: - If Depreciation on fixed assets is provided on straight line method. It should be done year after year. Convention of Full disclosure: All accounting statements should be honestly prepared and full disclosure of all important information should be made. All information which is important to assets, creditors, investors should be disclosued in account statements. Trail Balance: A trail balance is a list of all the balances standing on the ledger accounts and cash book of a concern at any given date.The purpose of the trail balance is to establish accuracy of the books of accounts. Trading a/c: The first step of the preparation of final account is the preparation of trading account. It is prepared to know the gross margin or trading results of the business. Profit or loss a/c: It is prepared to know the net profit. The expenditure recording in this a/c is indirect nature. Balance sheet: It is a statement prepared with a view to measure the exact financial position of the firm or business on a fixed date.

Outstanding Expenses: These expenses are related to the current year but they are not yet paid before the last date of the financial year. Prepaid Expenses: There are several items of expenses which are paid in advance in the normal course of business operations. Income and expenditure a/c: In this only the current period incomes and expenditures are taken into consideration while preparing this a/c. Royalty: It is a periodical payment based on the output or sales for use of a certain asset. For example: - Mines, Copyrights, Patent. Hirepurchase: It is an agreement between two parties. The buyer acquires possession of the goods immediately and agrees to pay the total hire purchase price in instalments. Hire purchase price = Cash price + Interest. Lease: A contractual arrangement whereby the lessor grants the lessee the right to use an asset in return for periodic lease rental payments. Double entry: Every transaction consists of two aspects The receving aspect The giving aspect The recording of two aspect effort of each transaction is called double entry. The principle of double entry is, for every debit there must be an equal and a corresponding credit and vice versa. BRS: When the cash book and the passbook are compared, some times we found that the balances are not matching. BRS is preparaed to explain these differences. Capital Transactions: The transactions which provide benefits to the business unit for more than one year is known as capital Transactions. Revenue Transactions: The transactions which provide benefits to a business unit for one accounting period only are known as Revenue Transactions. Deffered Revenue Expenditure: The expenditure which is of revenue nature but its benefit will be for a very long period is called deffered revenue expenditure. Ex: Advertisement expences A part of such expenditure is shown in P&L a/c and remaining amount is shown on the assests side of B/S. Capital Receipts: The receipts which rise not from the regular course of business are called Capital receipts. Revenue Receipts: All recurring incomes which a business earns during normal cource of its activities. Ex: Sale of good, Discount Received, Commission Received. Reserve Capital: It refers to that portion of uncalled share capital which shall not be able to call up except for the purpose of company being wound up. Fixed Assets: Fixed assets, also called noncurrent assets, are assets that are expected to produce benefits for more than one year. These assets may be tangible or intangible. Tangible fixed assets include items such as land, buildings, plant, machinery, etc Intangible fixed assets include items such as patents, copyrights, trademarks, and goodwill. Current Assets: Assets which normally get converted into cash during the operating cycle of the firm. Ex: Cash, inventory, receivables. Flictitious assets: They are not represented by anything tangible or concrete. Ex: Goodwill, deffered revenue expenditure, etc Contingent Assets: It is an existence whose value, ownership and existence will depend on occurance or non-occurance of specific act. Fixed Liabilities: These are those liabilities which are payable only on the termination of the business such as capital which is liability to the owner.

Longterm Liabilities: These liabilities which are not payable with in the next accounting period but will be payable with in next 5 to 10 years are called longterm liabilities. Ex: Debentures. Current Liabilities: These liabilities which are payable out of current assets with in the accounting period. Ex: Creditors, bills payable, etc Contingent Liabilities: A contingent liability is one, which is not an actual liability but which will become an actual one on the happening of some event which is uncertain. These are staded on balance sheet by way of a note. Ex: Claims against company, Liability of a case pending in the court. Bad Debts: Some of the debtors do not pay their debts. Such debt if unrecoverable is called bad debt. Bad debt is a business expense and it is debited to P&L account. Capital Gains/losses: Gains/losses arising from the sale of assets. Fixed Cost: These are the costs which remains constant at all levels of production. They do not tend to increase or decrease with the changes in volume of production. Variable Cost: These costs tend to vary with the volume of output. Any increase in the volume of production results in an increase in the variable cost and vice-versa. Semi-Variable Cost: These costs are partly fixed and partly variable in relation to output. Absorption Costing: It is the practice of charging all costs, both variable and fixed to operations, processess or products. This differs from marginal costing where fixed costs are excluded. Operating Costing: It is used in the case of concerns rendering services like transport. Ex: Supply of water, retail trade, etc... Costing: Cost accounting is the recording classifying the expenditure for the determination of the costs of products.For thepurpuses of control of the costs. Rectification of Errors: Errors that occur while preparing accounting statements are rectified by replacing it by the correct one. Errors like: Errors of posting, Errors of accounting etc Absorbtion: When a company purchases the business of another existing company that is called absorbtion. Mergers: A merger refers to a combination of two or more companies into one company. Variance Analasys: The deviations between standard costs, profits or sales and actual costs. Profits or sales are known as variances. Types of variances Material Variances Labour Variances Cost Variances Sales or ProfitVariances General Reserves: These reserves which are not created for any specific purpose and are available for any future contingency or expansion of the business. SpecificReserves: These reserves which are created for a specific purpose and can be utilized only for that purpose. Ex: Dividend Equilisation Reserve Debenture Redemption Reserve Provisions: There are many risks and uncertainities in business. In order to protect from risks and uncertainities, it is necessary to provisions and reserves in every business.

Reserve: Reserves are amounts appropriated out of profits which are not intended to meet any liability, contingency, commitment in the value of assets known to exist at the date of the B/S. Creation of the reserve is to increase the workingcapital in the business and strengthen its financial position. Some times it is invested to purchase out side securities then it is called reserve fund. Types: Capital Reserve: It is created out of capital profits like premium on the issue of shares, profits and sale of assets, etcThis reserve is not available to distribute as dividend among shareholders. Revenue Reserve: Any Reserve which is available for distribution as dividend to the shareholders is called Revenue Reserve. Provisions V/S Reserves: Provisions are created for some specific object and it must be utilised for that object for which it is created. Reserve is created for any future liability or loss. Provision is made because of legal necessity but creating a Reserve is a matter of financial strength. Provision must be charged to profit and loss a/c before calculating the net profit or loss but Reserve can be made only when there is profit. Provisions reduce the net profit and are not invested in outside securities Reserve amount can invested in outside securities. Goodwill: It is the value of repetition of a firm in respect of the profits expected in future over and above the normal profits earned by other similar firms belonging to the same industry. Methods: Average profits method Super profits method Capitalisatioin method Depreciation: It is a perminant continuing and gradual shrinkage in the book value of a fixed asset. Methods: Fixed Instalment method or Stright line method Dep. = Cost price Scrap value/Estimated life of asset. Diminishing Balance method: Under this metod, depreciation is calculated at a certain percentage each year on the balance of the asset, which is bought forward from the previous year. Annuity method: Under this method amount spent on the purchase of an asset is regarded as an investment which is assumed to earn interest at a certain rate. Every year the asset a/c is debited with the amount of interest and credited with the amount of depreciation. EOQ: The quantity of material to be ordered at one time is known EOQ. It is fixed where minimum cost of ordering and carryiny stock. Key Factor: The factor which sets a limit to the activity is known as key factor which influence budgets. Key Factor = Contribution/Profitability Profitability =Contribution/Key Factor Sinking Fund: It is created to have ready money after a particular period either for the replacement of an asset or for the repayment of a liability. Every year some amount is charged from the P&L a/c and is invested in outside securities with the

idea, that at the end of the stipulated period, money will be equal to the amount of an asset. Revaluation Account: It records the effect of revaluation of assets and liabilities. It is prepared to determine the net profit or loss on revaluation. It is prepared at the time of reconsititution of partnership or retirement or death of partner. Realisation Account: It records the realisation of various assets and payments of various liabilities. It is prepared to determine the net P&L on realisation. Leverage: - It arises from the presence of fixed cost in a firm capitalstructure. Generally leverage refers to a relationship between two interrelated variables. These leverages are classified into three types. Operating leverage Financial Leverage. Combined leverage or total leverage. Operating Leverage: It arises from fixed operating costs (fixed costs other than the financing costs) such as depreciation, shares, advertising expenditures and property taxes. When a firm has fixed operatingcosts, a change in 1% in sales results in a change of more than 1% in EBIT %change in EBIT % change in sales The operaying leverage at any level of sales is called degree. Degree of operatingLeverage= Contribution/EBIT Significance: It tells the impact of changes in sales on operating income. If operating leverage is high it automatically means that the break- even point would also be reached at a highlevel of sales. Financial Leverage: It arises from the use of fixed financing costs such as interest. When a firm has fixed cost financing. A change in 1% in E.B.I.T results in a change of more than 1% in earnings per share. F.L =% change in EPS / % change in EBIT Degree of Financial leverage= EBIT/ Profit before Tax (EBT) Significance: It is double edged sword. A high F.L means high fixed financial costs and high financial risks. Combined Leverage: It is useful for to know about the overall risk or total risk of the firm. i.e, operating risk as well as financial risk. C.L= O.L*F.L = %Change in EPS / % Change in Sales Degree of C.L =Contribution / EBT A high O.L and a high F.L combination is very risky. A high O.L and a low F.L indiacate that the management is careful since the higher amount of risk involved in high operating leverage has been sought to be balanced by low F.L A more preferable situation would be to have a low O.L and a F.L. Working Capital: There are two types of working capital: gross working capital and net working capital. Gross working capital is the total of current assets. Net working capital is the difference between the total of current assets and the total of current liabilities.

Working Capital Cycle: It refers to the length of time between the firms paying cash for materials, etc.., entering into the production process/ stock and the inflow of cash from debtors (sales) Cash Raw meterials Labour overhead WIP Debtors Capital Budgeting: Process of analyzing, appraising, deciding investment on long term projects is known as capital budgeting. Methods of Capital Budgeting: 1. Traditional Methods Payback period method Average rate of return (ARR) 2. Discounted Cash Flow Methods or Sophisticated methods Net present value (NPV) Internal rate of return (IRR) Profitability index Pay back period: Required time to reach actual investment is known as payback period. = Investment / Cash flow ARR: It means the average annual yield on the project. = avg. income / avg. investment Or = (Sum of income / no. of years) / (Total investment + Scrap value) / 2) NPV: The best method for the evaluation of an investment proposal is the NPV or discounted cash flow technique. This metod takes into account the time value of money. The sum of the present values of all the cash inflows less the sum of the present value of all the cash outflows associated with the proposal. NPV = Sum of present value of future cash flows Investment IRR: It is that rate at which the sum total of cash inflows aftrer discounting equals to the discounted cash outflows. The internal rate of return of a project is the discount rate which makes net present value of the project equal to zero. Profitability Index: One of the methods comparing such proposals is to workout what is known as the Desirability Factor or Profitability Index. In general terms a project is acceptable if its profitability index value is greater than 1. Derivatives: A derivative is a security whose price ultimately depends on that of another asset. Derivative means a contact of an agreement. Types of Derivatives: Forward Contracts Futures Options Swaps. Stock

Forward Contracts: - It is a private contract between two parties. An agreement between two parties to exchange an asset for a price that is specified todays. These are settled at end of contract. Future contracts: - It is an Agreement to buy or sell an asset it is at a certain time in the future for a certain price. Futures will be traded in exchanges only.These is settled daily. Futures are four types: Commodity Futures: Wheat, Soyo, Tea, Corn etc..,. Financial Futures: Treasury bills, Debentures, Equity Shares, bonds, etc.., Currency Futures: Major convertible Currencies like Dollars, Founds, Yens, and Euros. Index Futures: Underline assets are famous stock market indicies. NewYork Stock Exchange. Options: An option gives its Owner the right to buy or sell an Underlying asset on or before a given date at a fixed price. There can be as may different option contracts as the number of items to buy or sell they are, Stock options, Commodity options, Foreign exchange options and interest rate options are traded on and off organized exchanges across the globe. Options belong to a broader class of assets called Contingent claims. The option to buy is a call option.The option to sell is a PutOption. The option holder is the buyer of the option and the option writer is the seller of the option. The fixed price at which the option holder can buy or sell the underlying asset is called the exercise price or Striking price. A European option can be excercised only on the expiration date where as an American option can be excercised on or before the expiration date. Options traded on an exchange are called exchange traded option and options not traded on an exchange are called over-the-counter optios. When stock price (S1) <= Exercise price (E1) the call is said to be out of money and is worthless. When S1>E1 the call is said to be in the money and its value is S1-E1. Swaps: Swaps are private agreements between two companies to exchange casflows in the future according to a prearranged formula. So this can be regarded as portfolios of forward contracts. Types of swaps: Interest rate Swaps Currency Swaps. Interest rate Swaps: The most common type of interest rate swap is Plain Venilla . Normal life of swap is 2 to 15 Years. It is a transaction involving an exchange of one stream of interest obligations for another. Typically, it results in an exchange of ficed rate interest payments for floating rate interest payments. Currency Swaps: - Another type of Swap is known as Currency as Currency Swap. This involves exchanging principal amount and fixed rates interest payments on a loan in one currency for principal and fixed rate interest payments on an approximately equalant loan in another currency. Like interest rate swaps currency swars can be motivated by comparative advantage.

Warrants: Options generally have lives of upto one year. The majority of options traded on exchanges have maximum maturity of nine months. Longer dated options are called warrants and are generally traded over- the- counter. American Depository Receipts (ADR): It is a dollar denominated negotiable instruments or certificate. It represents non-US companies publicly traded equity. It was devised into late 1920s. To help American investors to invest in overseas securities and to assist non US companies wishing to have their stock traded in the American markets. These are listed in American stock market or exchanges. Global DepositoryReceipts (GDR): GDRs are essentially those instruments which posseses the certain number of underline shares in the custodial domestic bank of the company i.e., GDR is a negotiable instrument in the form of depository receipt or certificate created by the overseas depository bank out side India and issued to nonresident investors against the issue of ordinary share or foreign currency convertible bonds of the issuing company. GDRs are entitled to dividends and voting rights since the date of its issue. Capital account and Current account: The capital account of international purchase or sale of assets. The assets include any form which wealth may be held. Money held as cash or in the form of bank deposits, shares, debentures, debt instruments, real estate, land, antiques, etc The current account records all income related flows. These flows could arise on account of trade in goods and services and transfer payment among countries. A net outflow after taking all entries in current account is a current account deficit. Govt. expenditure and tax revenues do not fall in the current account. Dividend Yield: It gives the relationship between the current price of a stock and the dividend paid by its issuing company during the last 12 months. It is caliculated by aggregating past years dividend and dividing it by the current stock price. Historically, a higher dividend yield has been considered to be desirable among investors. A high dividend yield is considered to be evidence that a stock is under priced, where as a low dividend yield is considered evidence that a stock is over priced. Bridge Financing: It refers to loans taken by a company normally from commercial banks for a short period, pending disbursement of loans sanctioned by financial institutions. Generally, the rate of interest on bridge finance is higher as compared with term loans. Shares and Mutual Funds Company: Sec.3 (1) of the Companys act, 1956 defines a company. Company means a company formed and registered under this Act or existing company. Public Company: A corporate body other than a private company. In the public company, there is no upperlimit on the number of share holders and no restriction on transfer of shares. Private Company: A corporate entity in which limits the number of its members to 50. Does not invite public to subscribe to its capital and restricts the members right to transfer shares. Liquidity: A firms liquidity refers to its ability to meet its obligations in the short run. An assets liquidity refers to how quickly it can he sold at a reasonable price. Cost of Capital: The minimum rate of the firm must earn on its investments in order to satisfy the expectations of investors who provide the funds to the firm. Capital Structure: The composition of a firms financing consisting of equity, preference, and debt. Annual Report: The report issued annually by a company to its shareholders. It primarily contains financial statements. In addition, it represents the managements view of the operations of the previous year and the prospects for future. Proxy: The authorization given by one person to another to vote on his behalf in the shareholders meeting.

Joint Venture: It is a temporary partenership and comes to an end after the compleation of a particular venture. No limit in its. Insolvency: In case a debtor is not in a position to pay his debts in full, a petition can be filled by the debtor himself or by any creditors to get the debtor declared as an insolvent. Long Term Debt: The debt which is payable after one year is known as long term debt. Short Term Debt: The debt which is payable with in one year is known as short term debt. Amortisation: This term is used in two senses 1. Repayment of loan over a period of time 2.Write-off of an expenditure (like issue cost of shares) over a period of time. Arbitrage: A simultaneous purchase and sale of security or currency in different markets to derive benefit from price differential. Stock: The Stock of a company when fully paid they may be converted into stock. Share Premium: Excess of issue price over the face value is called as share premium. Equity Capital: It represents ownership capital, as equity shareholders collectively own the company. They enjoy the rewards and bear the risks of ownership. They will have the voting rights. Authorized Capital: The amount of capital that a company can potentially issue, as per its memorandum, represents the authorized capital. Issued Capital: The amount offered by the company to the investors. Subscribed capital: The part of issued capital which has been subscribed to by the investors Paid-up Capital: The actual amount paid up by the investors. Typically the issued, subscribed, paid-up capitals are the same. Par Value: The par value of an equity share is the value stated in the memorandum and written on the share scrip. The par value of equity share is generally Rs.10 or Rs.100. Issued price: It is the price at which the equity share is issued often, the issue price is higher than the Par Value Book Value: The book value of an equity share is = Paid up equity Capital + Reserve and Surplus / No. Of outstanding shares equity Market Value (M.V): The Market Value of an equity share is the price at which it is traded in the market. Preference Capital: It represents a hybrid form of financing it par takes some characteristics of equity and some attributes of debentures. It resembles equity in the following ways Preference dividend is payable only out of distributable profits. Preference dividend is not an obligatory payment. Preference dividend is not a tax deductible payment. Preference capital is similar to debentures in several ways. The dividend rate of Preference Capital is fixed. Preference Capital is redeemable in nature. Preference Shareholders do not normally enjoy the right to vote. Debenture: For large publicly traded firms. These are viable alternative to term loans. Skin to promissory note, debentures is instruments for raising long term debt. Debenture holders are creditors of company. Stock Split: The dividing of a companys existing stock into multiple stocks. When the Par Value of share is reduced and the number of share is increased. Calls-in-Arrears: It means that amount which is not yet been paid by share holders till the last day for the payment.

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Calls-in-advance: When a shareholder pays with an instalment in respect of call yet to make the amount so received is known as calls-in-advance. Calls-in-advance can be accepted by a company when it is authorized by the articles. Forfeiture of share: It means the cancellation or allotment of unpaid shareholders. Forfeiture and reissue of shares allotted on pro rata basis in case of over subscription. Prospectus: Inviting of the public for subscribing on shares or debentures of the company. It is issued by the public companies. The amount must be subscribed with in 120 days from the date of prospects. Simple Interest: It is the interest paid only on the principal amount borrowed. No interest is paid on the interest accured during the term of the loan. Compound Interest: It means that, the interest will include interest caliculated on interest. Time Value of Money: Money has time value. A rupee today is more valuable than a rupee a year hence. The relation between value of a rupee today and value of a rupee in future is known as Time Value of Money. NAV: Net Asset Value of the fund is the cumulative market value of the fund net of its liabilities. NAV per unit is simply the net value of assets divided by the number of units out standing. Buying and Selling into funds is done on the basis of NAV related prices. The NAV of a mutual fund are required to be published in news papers. The NAV of an open end scheme should be disclosed ona daily basis and the NAV of a closed end scheme should be disclosed atleast on a weekly basis. Financial markets: The financial markets can broadly be divided into money and capital market. Money Market: Money market is a market for debt securities that pay off in the short term usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc. Capital Market: Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets. Primary Market: It provides the channel for sale of new securities. Primary Market provides opportunity to issuers of securities; Government as well as corporate, to raise resources to meet their requirements of investment and/or discharge some obligation. They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market. Secondary Market: It refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange. Majority of the trading is done in the secondary market. It comprises of equity markets and the debt markets. Difference between the primary market and the secondary market: In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already existing/pre- issued securities are traded amongst investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market. SEBI and its role: The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote

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the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto. Portfolio: A portfolio is a combination of investment assets mixed and matched for the purpose of investors goal. Market Capitalisation: The market value of a quoted company, which is caliculated by multiplying its current share price (market price) by the number of shares in issue, is called as market capitalization. Book Building Process: It is basically a process used in IPOs for efficient price discovery. It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date. Cut off Price: In Book building issue, the issuer is required to indicate either the price band or a floor price in the red herring prospectus. The actual discovered issue price can be any price in the price band or any price above the floor price. This issue price is called Cut off price. This is decided by the issuer and LM after considering the book and investors appetite for the stock. SEBI (DIP) guidelines permit only retail individual investors to have an option of applying at cut off price. Bluechip Stock: Stock of a recognized, well established and financially sound company. Penny Stock: Penny stocks are any stock that trades at very low prices, but subject to extremely high risk. Debentures: Companies raise substantial amount of longterm funds through the issue of debentures. The amount to be raised by way of loan from the public is divided into small units called debentures. Debenture may be defined as written instrument acknowledging a debt issued under the seal of company containing provisions regarding the payment of interest, repayment of principal sum, and charge on the assets of the company etc Large Cap / Big Cap: Companies having a large market capitalization For example, In US companies with market capitalization between $10 billion and $20 billion, and in the Indian context companies market capitalization of above Rs. 1000 crore are considered large caps. Mid Cap: Companies having a mid sized market capitalization, for example, In US companies with market capitalization between $2 billion and $10 billion, and in the Indian context companies market capitalization between Rs. 500 crore to Rs. 1000 crore are considered mid caps. Small Cap: Refers to stocks with a relatively small market capitalization, i.e. lessthan $2 billion in US or lessthan Rs.500 crore in India. Holding Company: A holding company is one which controls one or more companies either by holding shares in that company or companies are having power to appoint the directors of those company. The company controlled by holding company is known as the Subsidary Company. Consolidated Balance Sheet: It is the b/s of the holding company and its subsidiary company taken together. Partnership act 1932: Partnership means an association between two or more persons who agree to carry the business and to share profits and losses arising from it. 20 members in ordinary trade and 10 in banking business IPO: First time when a company announces its shares to the public is called as an IPO. (Intial Public Offer) A Further public offering (FPO): It is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations. Rights Issue (RI): It is when a listed company which proposes to issue fresh securities to its shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue.

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Preferential Issue: It is an issue of shares or of convertible securities by listed companies to a select group of persons under sec.81 of the Indian companies act, 1956 which is neither a rights issue nor a public issue.This is a faster way for a company to raise equity capital. Index: An index shows how specified portfolios of share prices are moving in order to give an indication of market trends. It is a basket of securities and the average price movement of the basket of securities indicates the index movement, whether upward or downwards. Dematerialisation: It is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited to the investors account with his depository participant. Bull and Bear Market: Bull market is where the prices go up and Bear market where the prices come down. Exchange Rate: It is a rate at which the currencies are bought and sold. Forex: The Foreign Exchange Market is the place where currencies are traded. The overall FOREX markets is the largest, most liquid market in the world with an average traded value that exceeds $ 1.9 trillion per day and includes all of the currencies in the world.It is open 24 hours a day, five days a week. Mutual Fund: A mutual fund is a pool of money, collected from investors, and invested according to certain investment objectives. Asset Management Company (AMC): A company set up under Indian companys act, 1956 primarily for performing as the investment manager of mutual funds. It makes investment decisions and manages mutual funds in accordance with the scheme objectives, deed of trust and provisions of the investment management agreement. Back-End Load: A kind of sales charge incurred when investors redeem or sell shares of a fund. Front-End Load: A kind of sales charge that is paid before any amount gets invested into the mutual fund. Off Shore Funds: The funds setup abroad to channalise foreign investment in the domestic capital markets. Under Writer: The organization that acts as the distributor of mutual funds share to broker or dealers and investors. Registrar: The institution that maintains a registry of shareholders of a fund and their share ownership. Normally the registrar also distributes dividends and provides periodic statements to shareholders. Trustee: A person or a group of persons having an overall supervisory authority over the fund managers. Bid (or Redemption) Price: In newspaper listings, the pre-share price that a fund will pay its shareholders when they sell back shares of a fund, usually the same as the net asset value of the fund. Schemes according to Maturity Period: A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period. Open-ended Fund/ Scheme An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity. Close-ended Fund/ Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges

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where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis. Schemes according to Investment Objective: A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows: Growth / Equity Oriented Scheme The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. Gilt Fund These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the

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same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. Earning per share (EPS): It is a financial ratio that gives the information regarding earing available to each equity share. It is very important financial ratio for assessing the state of market price of share. The EPS statement is applicable to the enterprise whose equity shares are listed in stock exchange. Types of EPS: Basic EPS ( with normal shares) Diluted EPS (with normal shares and convertible shares) EPS Statement: Sales Less: variable cost Less: Fixed cost Less: Interest EBT Less: Tax Earnimgs Less: preference dividend Earnings available to equity Share holders (A) **** **** Contribution *** **** EBIT ***** *** **** **** **** **** *****

EPS=A/ No of outstanding Shares EBIT and Operating Income are same The higher the EPS, the better is the performance of the company. Cash Flow Statement: It is a statement which shows inflows (receipts) and outflows (payments) of cash and its equivalents in an enterprise during a specified period of time. According to the revised accounting standard 3, an enterprise prepares a cash flow statement and should present it for each period for which financial statements are presented. Funds Flow Statement: Fund means the net working capital. Funds flow statement is a statement which lists first all the sources of funds and then all the applications of funds that have taken place in a business enterprise during the particular period of time for which the statement has been prepared. The statement finally shows the net increase or net decrease in the working capital that has taken place over the period of time. Float: The difference between the available balance and the ledger balance is referred to as the float. Collection Float: The amount of cheque deposited by the firm in the bank but not cleared. Payment Float: The amount of cheques issued by the firm but not paid for by the bank. Operating Cycle: The operating cycle of a firm begins with the acquisition of raw material and ends with the collection of receivables.

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Marginal Costing: Sales VaribleCost=FixedCost Profit/Loss Contribution= Sales VaribleCost Contribution= FixedCost Profit/Loss P / V Ratio= (Contribution / Sales)*100 Per 1 unit information is given, P / V Ratio = (Contribution per Unit / Sales per Unit)*100 Two years information is given, P / V Ratio= (Change in Profit / Change in Sales) * 100 Through Sales, P / V Ratio Contribution =Sales * P / v Ratio Through P / V Ratio, Contribution Sales = Contribution / P / VRatio Break Even Point (B.E.P) IN Value = (Fixed Cost) / (P / v Ratio) OR (Fixed Cost / Contribution) * Sales In Units = Fixed Cost / Contribution OR Fixed Cost / (SalesPrice per Unit V.C per Unit) Margin of Safety = Total Sales Sales at B.E.P (OR) Profit / PV Ratio Sales at desired profit (in units) = FixedCost+ DesiredProfit / Contribution per Unit Sales at desired profit (in Value) = FixedCost+ DesiredProfit / PV ratio (OR) Contribution / PV Ratio RATIO ANALYSIS: A ratio analysis is a mathematical expression. It is the quantitative relation between two. It is the technique of interpretation of financial statements with the help of meaningful ratios. Ratios may be used for comparison in any of the following ways. Comparison of a firm its own performance in the past. Comparison of a firm with the another firm in the industry Comparison of a firm with the industry as a whole Types Of Ratios Liquidity ratio Activity ratio Leverage ratio profitability ratio 1. Liquidity ratio: These are ratios which measure the short term financial position of a firm. i. Current Ratio: It is also called as working capital ratio. The current ratio measures the ability of the firm to meet its currnt liabilities-current assets get converted into cash during the operating cycle of the firm and provide the funds needed to pay current liabilities. i.e Current assets Current liabilities Ideal ratio is 2:1 ii. Quick or Acid test Ratio: It tells about the firms liquidity position. It is a fairly stringent measure of liquidity. =Quick assets/Current Liabilities Ideal ratio is 1:1 Quick Assets =Current Assets Stock - Prepaid Expenses

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iii. Absolute Liquid Ratio: A.L.A/C.L AL assets=Cash + Bank + Marketable Securities. 2. Activity Ratios or Current Assets management or Efficiency Ratios: These ratios measure the efficiency or effectiveness of the firm in managing its resources or assets Stock or Inventory Turnover Ratio: It indicates the number of times the stock has turned over into sales in a year. A stock turn over ratio of 8 is considered ideal. A high stock turn over ratio indicates that the stocks are fast moving and get converted into sales quickly. = Cost of goods Sold/ Avg. Inventory Debtors Turnover Ratio: It expresses the relationship between debtors and sales. =Credit Sales /Average Debtors Creditors Turnover Ratio: It expresses the relationship between creditors and purchases. =Credit Purchases /Average Creditors Fixed Assets Turnover Ratio: A high fixed asset turn over ratio indicates better utilization of the firm fixed assets. A ratio of around 5 is considered ideal. = Net Sales / Fixed Assets Working Capital Turnover Ratio: A high working capital turn over ratio indicates efficiency utilization of the firms funds. =CGS/Working Capital =W.C=C.A C.L. 3. Leverage Ratio: These ratios are mainly calculated to know the long term solvency position of the company. Debt Equity Ratio: The debt-equity ratio shows the relative contributions of creditors and owners. = outsiders fund/Share holders fund Ideal ratios 2:1 Proprietary ratio or Equity ratio: It expresses the relationship between networth and total assets. A high proprietary ratio is indicativeof strong financial position of the business. =Share holders funds/Total Assets = (Equity Capital +Preference capital +Reserves Fictitious assets) / Total Assets Fixed Assets to net worth Ratio: This ratio indicates the mode of financing the fixed assets. The ideal ratio is 0.67 =Fixed Assets (After Depreciation.)/Shareholder Fund 4. Profitability Ratios: Profitability ratios measure the profitability of a concern generally. They are calculated either in relation to sales or in relation to investment. Return on Capital Employed or Return on Investment (ROI): This ratio reveals the earning capacity of the capital employed in the business. =PBIT /Capital Employed Return on Proprietors Fund / Earning Ratio: Earn on Net Worth =Net Profit (After tax)/Proprietors Fund Return on Ordinary shareholders Equity or Return on Equity Capital: It expresses the return earned by the equity shareholders on their investment. =Net Profit after tax and Dividend / Proprietors fund or Paid up equity Capital

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 Price Earning Ratio: It expresses the relationship between marketprice of share on a company and the earnings per share of that company. =MPS (Market Price per Share) / EPS Earning Price Ratio/ Earning Yield: = EPS / MPS EPS= Net Profit (After tax and Interest) / No. Of Outstanding Shares. Dividend Yield ratio: It expresses the relationship between dividend earned per share to earnings per share. = Dividend per share (DPS) / Market value per share Dividend pay-out ratio: It is the ratio of dividend per share to earning per share. = DPS / EPS DPS: It is the amount of the dividend payable to the holder of one equity share. =Dividend paid to ordinary shareholders / No. of ordinary shares C.G.S=Sales- G.P G.P= Sales C.G.S G.P.Ratio =G.P/Net sales*100 Net Sales= Gross Sales Return inward- Cash discount allowed Net profit ratio=Net Profit/ Net Sales*100 Operating Profit ratio=O.P/Net Sales*100 Interest Coverage Ratio= Net Profit (Before Tax & Interest) / Fixed Interest Classes Return on Investment (ROI): It reveals the earning capacity of the capital employed in the business. It is calculated as, EBIT/Capital employed. The return on capital employed should be more than the cost of capital employed. Capital employed =EquityCapital+Preference sharecapital+Reserves+Longterm loans and Debentures - Fictitious Assets Non OperatingAssets

Difference between funds flow and cash flow

Fund flow means incoming and outgoing payments in any manner Like cheque, cash etc Cash flow means incoming and outgoing payments only through Liquid cash What will your outlook towards maintenance of liquid assets to ensure that the firm has adequate cash in hands to meet its obligation at all times? The standard current ratio is 1: 1.33 means any firm / Company is having adequate funds to meet its obligation in Time.

What do you mean by Forefieted shares?

Shares in a no-liability company, which is forfeited (lost) to the previous owner because of non-payment of a call on the shares. What is zero base budgeting A method of budgeting in which all expenses must be Justified for each new period. Zero-based budgeting starts From a "zero base" and every function within an organization Is analyzed for its needs and costs. Budgets are then built Around what is needed for the upcoming period, regardless of

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Whether the budget is higher or lower than the previous one. What is meant by bridge finance Bridge finance lones taken by company normally from Commercial bank for a short pending payment of loan

Sanction by the financial instituitons..................... What is brs?

BRS Means Bank Reconcilatin Statement.To know the actual Difference between Bank Book and our Cash Book

16. Eurodollars are best described as

The new currency of the European Union What are fictious assets? Give some examples? fictious assets are those which are illegal, and not owned By the company Goodwill,Patents,Copy rights, Discount on issue of shares, Preliminary expenses. What is minority interest? The share of the outsiders in the subsidary company is Called minarity interest. Equity of all stockholders (shareholders) who do not hold a Controlling interest in a firm. In the consolidated-accounts of a holding firm, the Subsidiaries in which the firm does not hold controlling interest. What is finance? Management of funds, the practice of manipulating and managing money is called Finance Finance is art & science of managing money & accounting is subfunction of finance What is the diffrence between gross profit& net proffit? gross profit is the result of the operating activities i.e. sale and purchase (items of the trading a/c)whereas while calculating net profit we also take into consideration the non-operating expenses and income(items of p&l a/c). NET PROFIT IS THE PROFIT THAT ARAISES AFTER THE DEDUCTION OF ALL EXPENSES INCLUDING OFFICE EXPENSES. AND GROSS PROFIT ARAISES AFTER DEDUCTIONS OF ONLY TRADING A. CEXPENSES AND IN THESE ONLY MANUFACTURING COST IS DEDUCTED What is suspence capital? suspense account is an account used temporarily to carry doubtful receipts and disbursements or discrepancies pending their analysis and permanent classification.

9. Meaning of journal: journal means chronological record of transactions. 10 Meaning of ledger: ledger is a set of accounts. It contains all accounts of the business enterprise whether real, nominal, personal. 11. Posting: it means transferring the debit and credit items from the journal to their respective accounts in the ledger. 12. Trial balance: trial balance is a statement containing the various ledger balances on a particular date.

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13. Credit note: the customer when returns the goods get credit for the value of the goods returned. A credit note is sent to him intimating that his a/c has been credited with the value of the goods returned. 14. Debit note: when the goods are returned to the supplier, a debit note is sent to him indicating that his a/c has been debited with the amount mentioned in the debit note. 15. Contra entry: which accounting entry is recorded on both the debit and credit side of the cash book is known as the contra entry. 16. Petty cash book: petty cash is maintained by business to record petty cash expenses of the business, such as postage, cartage, stationery, etc. 17.promisory note: an instrument in writing containing an unconditional undertaking signed by the maker, to pay certain sum of money only to or to the order of a certain person or to the barer of the instrument. 18. Cheque: a bill of exchange drawn on a specified banker and payable on demand. 19. Stale cheque: a stale cheque means not valid of cheque that means more than six months the cheque is not valid. 20. Bank reconciliation statement: it is a statement reconciling the balance as shown by the bank pass book and the balance as shown by the Cash Book. Obj: to know the difference & pass necessary correcting, adjusting entries in the books. 21. Matching concept: matching means requires proper matching of expense with the revenue. 22. Capital income: the term capital income means an income which does not grow out of or pertain to the running of the business proper. 23. Revenue income: the income which arises out of and in the course of the regular business transactions of a concern. 24. Capital expenditure: it means an expenditure which has been incurred for the purpose of obtaining a long term advantage for the business. 25. Revenue expenditure: an expenditure that incurred in the course of regular business transactions of a concern. 26. Differed revenue expenditure: an expenditure which is incurred during an accounting period but is applicable further periods also. Eg: heavy advertisement. 27. Bad debts: bad debts denote the amount lost from debtors to whom the goods were sold on credit. 20

28. Depreciation: depreciation denotes gradually and permanent decrease in the value of asset due to wear and tear, technology changes, laps of time and accident. 29. Fictitious assets: These are assets not represented by tangible possession or property. Examples of preliminary expenses, discount on issue of shares, debit balance in the profit and loss account when shown on the assets side in the balance sheet. 30.Intanglbe Assets : Intangible assets means the assets which is not having the physical appearance. And its have the real value, it shown on the assets side of the balance sheet. 31. Accrued Income : Accrued income means income which has been earned by the business during the accounting year but which has not yet been due and, therefore, has not been received. 32. Out standing Income : Outstanding Income means income which has become due during the accounting year but which has not so far been received by the firm. 33. Suspense account: the suspense account is an account to which the difference in the trial balance has been put temporarily. 34. Depletion: it implies removal of an available but not replaceable source, Such as extracting coal from a coal mine. 35. Amortization: the process of writing of intangible assets is term as amortization. 36. Dilapidations: the term dilapidations to damage done to a building or other property during tenancy. 37. Capital employed: the term capital employed means sum of total long term funds employed in the business. i.e. (share capital+ reserves & surplus +long term loans (non business assets + fictitious assets) 38. Equity shares: those shares which are not having pref. rights are called equity shares. 39. Pref.shares: Those shares which are carrying the pref.rights is called pref. shares
o o

Pref.rights in respect of fixed dividend. Pref.right to repayment of capital in the even of company winding up. 40. Leverage: It is a force applied at a particular point to get the desired result.

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41. Operating leverage: the operating leverage takes place when a changes revenue greater changes in EBIT.

in

42. Financial leverage : it is nothing but a process of using debt capital to increase the rate of return on equity 43. Combine leverage: it is used to measure of the total risk of the firm = operating risk + financial risk. 44. Joint venture : A joint venture is an association of two or more the persons who combined for the execution of a specific transaction and divide the profit or loss their of an agreed ratio. 45. Partnership: partnership is the relation b/w the persons who have agreed to share the profits of business carried on by all or any of them acting for all. 46. Factoring: It is an arrangement under which a firm (called borrower) receives advances against its receivables, from a financial institutions (called factor) 47. Capital reserve: The reserve which transferred from the capital gains is called capital reserve. 48. General reserve: the reserve which is transferred from normal profits of the firm is called general reserve 49. Free Cash: The cash not for any specific purpose free from any encumbrance like surplus cash. 50. Minority Interest: minority interest refers to the equity of the minority shareholders in a subsidiary company. 51. Capital receipts: capital receipts may be defined as non-recurring receipts from the owner of the business or lender of the money crating a liability to either of them. 52. Revenue receipts: Revenue receipts may defined as A recurring receipts against sale of goods in the normal course of business and which generally the result of the trading activities. 53. Meaning of Company: A company is an association of many persons who contribute money or moneys worth to common stock and employs it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company. 59. Equity share capital: The total sum of equity shares is called equity share capital. 60. Authorized share capital: it is the maximum amount of the share capital which a company can raise for the time being.

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61. Issued capital: It is that part of the authorized capital which has been allotted to the public for subscriptions. 62. Subscribed capital: it is the part of the issued capital which has been allotted to the public 63. Called up capital: It has been portion of the subscribed capital which has been called up by the company. 64. Paid up capital: It is the portion of the called up capital against which payment has been received. 65. Debentures: Debenture is a certificate issued by a company under its seal acknowledging a debt due by it to its holder. 66. Cash profit: cash profit is the profit it is occurred from the cash sales. 67. Deemed public Ltd. Company: A private company is a subsidiary company to public company it satisfies the following terms/conditions Sec 3(1)3: 1. 2. 3. 4. 5. having minimum share capital 5 lakhs accepting investments from the public no restriction of the transferable of shares No restriction of no. of members. accepting deposits from the investors

68. Secret reserves: secret reserves are reserves the existence of which does not appear on the face of balance sheet. In such a situation, net assets position of the business is stronger than that disclosed by the balance sheet. These reserves are crated by: 1. Excessive dep.of an asset, excessive over-valuation of a liability. 2. Complete elimination of an asset, or under valuation of an asset.

69. Provision: provision usually means any amount written off or retained by way of providing depreciation, renewals or diminutions in the value of assets or retained by way of providing for any known liability of which the amount can not be determined with substantial accuracy. 70. Reserve: The provision in excess of the amount considered necessary for the purpose it was originally made is also considered as reserve Provision is charge against profits while reserves is an appropriation of profits

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Creation of reserve increase proprietors fund while creation of provisions decreases his funds in the business.

71. Reserve fund: the term reserve fund means such reserve against which clearly investment etc., 72. Undisclosed reserves: Sometimes a reserve is created but its identity is merged with some other a/c or group of accounts so that the existence of the reserve is not known such reserve is called an undisclosed reserve. 73. finance management: financial management deals with procurement of funds and their effective utilization in business. 74. Objectives of financial management: financial management having two objectives that Is: 1. Profit maximization: the finance manager has to make his decisions in a manner so that the profits of the concern are maximized. 2. Wealth maximization: wealth maximization means the objective of a firm should be to maximize its value or wealth, or value of a firm is represented by the market price of its common stock. 75. Functions of financial manager:
o o o o o o

Investment decision Dividend decision Finance decision Cash management decisions Performance evaluation Market impact analysis

76. Time value of money: the time value of money means that worth of a rupee received today is different from the worth of a rupee to be received in future. 77. Capital structure: it refers to the mix of sources from where the long-term funds required in a business may be raised; in other words, it refers to the proportion of debt, preference capital and equity capital. 78. Optimum capital structure: capital structure is optimum when the firm has a combination of equity and debt so that the wealth of the firm is maximum. 79. Wacc: it denotes weighted average cost of capital. It is defined as the overall cost of capital computed by reference to the proportion of each component of capital as weights. 24

80. Financial break even point: it denotes the level at which a firms EBIT is just sufficient to cover interest and preference dividend. 81. Capital budgeting: capital budgeting involves the process of decision making with regard to investment in fixed assets. Or decision making with regard to investment of money in long term projects. 82. Pay back period: payback period represents the time period required for complete recovery of the initial investment in the project. 83. ARR: accounting or average rate of return means the average annual yield on the project. 84. NPV: the net present value of an investment proposal is defined as the sum of the present values of all future cash in flows less the sum of the present values of all cash out flows associated with the proposal. 85. Profitability index: where different investment proposal each involving different initial investments and cash inflows are to be compared. 86. IRR: internal rate of return is the rate at which the sum total of discounted cash inflows equals the discounted cash out flow. 87. Treasury management: it means it is defined as the efficient management of liquidity and financial risk in business. 88. Concentration banking: it means identify locations or places where customers are placed and open a local bank a/c in each of these locations and open local collection centre. 89. Marketable securities: surplus cash can be invested in short term instruments in order to earn interest. 90. Ageing schedule: in a ageing schedule the receivables are classified according to their age. 91. Maximum permissible bank finance (MPBF): it is the maximum amount that banks can lend a borrower towards his working capital requirements. 92. Commercial paper: a cp is a short term promissory note issued by a company, negotiable by endorsement and delivery, issued at a discount on face value as may be determined by the issuing company. 93. Bridge finance: It refers to the loans taken by the company normally from a commercial banks for a short period pending disbursement of loans sanctioned by the financial institutions. 94. Venture capital: It refers to the financing of high risk ventures promoted by new qualified entrepreneurs who require funds to give shape to their ideas.

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95. Debt securitization: It is a mode of financing, where in securities are issued on the basis of a package of assets (called asset pool). 96. Lease financing: Leasing is a contract where one party (owner) purchases assets and permits its views by another party (lessee) over a specified period 97. Trade Credit: It represents credit granted by suppliers of goods, in the normal course of business. 98. Over draft: Under this facility a fixed limit is granted within which the borrower allowed to overdraw from his account. 99. Cash credit: It is an arrangement under which a customer is allowed an advance up to certain limit against credit granted by bank. 100. Clean overdraft: It refers to an advance by way of overdraft facility, but not back by any tangible security. 101. Share capital: The sum total of the nominal value of the shares of a company is called share capital. 102. Funds flow statement: It is the statement deals with the financial resources for running business activities. It explains how the funds obtained and how they used. 103. Sources of funds: There are two sources of funds Internal sources and external sources. Internal source: Funds from operations is the only internal sources of funds and some important points add to it they do not result in the outflow of funds (a)Depreciation on fixed assets (b) Preliminary expenses or goodwill written off, Loss on sale of fixed assets Deduct the following items as they do not increase the funds: Profit on sale of fixed assets, profit on revaluation of fixed assets External sources: (a) Funds from long term loans (b) Sale of fixed assets (c) Funds from increase in share capital 104. Application of funds: (a) Purchase of fixed assets (b) Payment of dividend (c)Payment of tax liability (d) Payment of fixed liability 105. ICD (Inter corporate deposits): Companies can borrow funds for a short period. For example 6 months or less from another company which have surplus liquidity. Such deposits made by one company in another company are called ICD. 106. Certificate of deposits: The CD is a document of title similar to a fixed deposit receipt issued by banks there is no prescribed interest rate on such CDs it is based on the prevailing market conditions. 26

107. Public deposits: It is very important source of short term and medium term finance. The company can accept PD from members of the public and shareholders. It has the maturity period of 6 months to 3 years. 108.Euro issues: The euro issues means that the issues is listed on a European stock Exchange. The subscription can come from any part of the world except India. 109.GDR (Global depository receipts): A depository receipt is basically a negotiable certificate , dominated in us dollars that represents a non-US company publicly traded in local currency equity shares. 110. ADR (American depository receipts): Depository receipt issued by a company in the USA are known as ADRs. Such receipts are to be issued in accordance with the provisions stipulated by the securities Exchange commission (SEC) of USA like SEBI in India. 111.Commercial banks: Commercial banks extend foreign currency loans for international operations, just like rupee loans. The banks also provided overdraft. 112.Development banks: It offers long-term and medium term loans including foreign currency loans 113.International agencies: International agencies like the IFC,IBRD,ADB,IMF etc. provide indirect assistance for obtaining foreign currency. 114. Seed capital assistance: The seed capital assistance scheme is desired by the IDBI for professionally or technically qualified entrepreneurs and persons possessing relevant experience and skills and entrepreneur traits. 115. Unsecured l0ans: It constitutes a significant part of long-term finance available to an enterprise. 116. Cash flow statement: It is a statement depicting change in cash position from one period to another. 117.Sources of cash: Internal sources-(a)Depreciation (b)Amortization (c)Loss on sale of fixed assets (d)Gains from sale of fixed assets (e) Creation of reserves External sources-(a)Issue of new shares (b)Raising long term loans (c)Short-term borrowings (d)Sale of fixed assets, investments 118. Application of cash: (a) Purchase of fixed assets (b) Payment of long-term loans (c) Decrease in deferred payment liabilities (d) Payment of tax, dividend (e) Decrease in unsecured loans and deposits 119. Budget: It is a detailed plan of operations for some specific future period. It is an estimate prepared in advance of the period to which it applies.

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120. Budgetary control: It is the system of management control and accounting in which all operations are forecasted and so for as possible planned ahead, and the actual results compared with the forecasted and planned ones. 121. Cash budget: It is a summary statement of firms expected cash inflow and outflow over a specified time period. 122. Master budget: A summary of budget schedules in capsule form made for the purpose of presenting in one report the highlights of the budget forecast. 123. Fixed budget: It is a budget which is designed to remain unchanged irrespective of the level of activity actually attained. 124. Zero- base- budgeting: It is a management tool which provides a systematic method for evaluating all operations and programmes, current of new allows for budget reductions and expansions in a rational manner and allows reallocation of source from low to high priority programs. 125. Goodwill: The present value of firms anticipated excess earnings. 126. BRS: It is a statement reconciling the balance as shown by the bank pass book and balance shown by the cash book. 127. Objective of BRS: The objective of preparing such a statement is to know the causes of difference between the two balances and pass necessary correcting or adjusting entries in the books of the firm. 128. Responsibilities of accounting: It is a system of control by delegating and locating the responsibilities for costs. 129. Profit centre: A centre whose performance is measured in terms of both the expense incurs and revenue it earns. 130. Cost centre: A location, person or item of equipment for which cost may be ascertained and used for the purpose of cost control. 131. Cost: The amount of expenditure incurred on to a given thing. 132. Cost accounting: It is thus concerned with recording, classifying, and summarizing costs for determination of costs of products or services planning, controlling and reducing such costs and furnishing of information management for decision making. 133. Elements of cost: (A) Material (B) Labour (C) Expenses (D) Overheads 134. Components of total costs: (A) Prime cost (B) Factory cost (C)Total cost of production (D) Total c0st

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135. Prime cost: It consists of direct material direct labour and direct expenses. It is also known as basic or first or flat cost. 136. Factory cost: It comprises prime cost, in addition factory overheads which include cost of indirect material indirect labour and indirect expenses incurred in factory. This cost is also known as works cost or production cost or manufacturing cost. 137. Cost of production: In office and administration overheads are added to factory cost, office cost is arrived at. 138. Total cost: Selling and distribution overheads are added to total cost of production to get the total cost or cost of sales. 139. Cost unit: A unit of quantity of a product, service or time in relation to which costs may be ascertained or expressed. 140.Methods of costing: (A)Job costing (B)Contract costing (C)Process costing (D)Operation costing (E)Operating costing (F)Unit costing (G)Batch costing. 141. Techniques of costing: (a) marginal costing (b) direct costing (c)absorption costing (d) uniform costing. 142. Standard costing: standard costing is a system under which the cost of the product is determined in advance on certain predetermined standards. 143. Marginal costing: it is a technique of costing in which allocation of expenditure to production is restricted to those expenses which arise as a result of production, i.e., materials, labour, direct expenses and variable overheads. 144. Derivative: derivative is product whose value is derived from the value of one or more basic variables of underlying asset. 145. Forwards: a forward contract is customized contracts between two entities were settlement takes place on a specific date in the future at todays pre agreed price. 146. Futures: a future contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Future contracts are standardized exchange traded contracts. 147. Options: an option gives the holder of the option the right to do some thing. The option holder option may exercise or not. 148. Call option: a call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price. 149. Put option: a put option gives the holder the right but not obligation to sell an asset by a certain date for a certain price.

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150. Option price: option price is the price which the option buyer pays to the option seller. It is also referred to as the option premium. 151. Expiration date: the date which is specified in the option contract is called expiration date. 152. European option: it is the option at exercised only on expiration date it self. 153. Basis: basis means future price minus spot price. 154. Cost of carry: the relation between future prices and spot prices can be summarized in terms of what is known as cost of carry. 155. Initial margin: the amount that must be deposited in the margin a/c at the time of first entered into future contract is known as initial margin. 156 Maintenance margin: this is some what lower than initial margin.

157. Mark to market: in future market, at the end of the each trading day, the margin a/c is adjusted to reflect the investors gains or loss depending upon the futures selling price. This is called mark to market. 158. Baskets : basket options are options on portfolio of underlying asset. 159. Swaps: swaps are private agreements between two parties to exchange cash flows in the future according to a pre agreed formula. 160. Impact cost: impact cost is cost it is measure of liquidity of the market. It reflects the costs faced when actually trading in index. 161. Hedging: hedging means minimize the risk. 162. Capital market: capital market is the market it deals with the long term investment funds. It consists of two markets 1.primary market 2.secondary market. 163. Primary market: those companies which are issuing new shares in this market. It is also called new issue market. 164. Secondary market: secondary market is the market where shares buying and selling. In India secondary market is called stock exchange. 165. Arbitrage: it means purchase and sale of securities in different markets in order to profit from price discrepancies. In other words arbitrage is a way of reducing risk of loss caused by price fluctuations of securities held in a portfolio. 166. Meaning of ratio: Ratios are relationships expressed in mathematical terms between figures which are connected with each other in same manner.

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167. Activity ratio: it is a measure of the level of activity attained over a period. 168. mutual fund : a mutual fund is a pool of money, collected from investors, and is invested according to certain investment objectives. 169. characteristics of mutual fund :

Ownership of the MF is in the hands of the of the investors MF managed by investment professionals The value of portfolio is updated every day

170.advantage of MF to investors :

Portfolio diversification Professional management Reduction in risk Reduction of transaction casts Liquidity Convenience and flexibility

171.net asset value : the value of one unit of investment is called as the Net Asset Value 172.open-ended fund : open ended funds means investors can buy and sell units of fund, at NAV related prices at any time, directly from the fund this is called open ended fund. For ex; unit 64 173.close ended funds : close ended funds means it is open for sale to investors for a specific period, after which further sales are closed. Any further transaction for buying the units or repurchasing them, happen, in the secondary markets. 174. dividend option : investors who choose a dividend on their investments, will receive dividends from the MF, as when such dividends are declared. 175.growth option : investors who do not require periodic income distributions can be choose the growth option. 176.equity funds : equity funds are those that invest pre-dominantly in equity shares of company. 177.types of equity funds :

Simple equity funds Primary market funds Sectoral funds 31

Index funds

178. sectoral funds : sectoral funds choose to invest in one or more chosen sectors of the equity markets. 179.index funds :the fund manager takes a view on companies that are expected to perform well, and invests in these companies.

180.debt funds : the debt funds are those that are pre-dominantly invest in debt securities. 181. liquid funds : the debt funds invest only in instruments with maturities less than one year. 182. gilt funds : gilt funds invests only in securities that are issued by the GOVT. and therefore does not carry any credit risk. 183.balanced funds :funds that invest both in debt and equity markets are called balanced funds. 184. sponsor : sponsor is the promoter of the MF and appoints trustees, custodians and the AMC with prior approval of SEBI . 185. trustee : trustee is responsible to the investors in the MF and appoint the AMC for managing the investment portfolio. 186. AMC : the AMC describes Asset Management Company, it is the business face of the MF, as it manages all the affairs of the MF. 187. R & T Agents : the R&T agents are responsible for the investor servicing functions, as they maintain the records of investors in MF. 188. custodians : custodians are responsible for the securities held in the mutual funds portfolio. 189. scheme take over : if an existing MF scheme is taken over by the another AMC, it is called as scheme take over. 190.meaning of load: load is the factor that is applied to the NAV of a scheme to arrive at the price. 192. market capitalization : market capitalization means number of shares issued multiplied with market price per share. 193.price earning ratio : the ratio between the share price and the post tax earnings of company is called as price earning ratio.

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194. dividend yield : the dividend paid out by the company, is usually a percentage of the face value of a share. 195. market risk : it refers to the risk which the investor is exposed to as a result of adverse movements in the interest rates. It also referred to as the interest rate risk. 196. Re-investment risk : it the risk which an investor has to face as a result of a fall in the interest rates at the time of reinvesting the interest income flows from the fixed income security. 197. call risk : call risk is associated with bonds have an embedded call option in them. This option hives the issuer the right to call back the bonds prior to maturity. 198. credit risk : credit risk refers to the probability that a borrower could default on a commitment to repay debt or band loans 199.inflation risk : inflation risk reflects the changes in the purchasing power of the cash flows resulting from the fixed income security. 200.liquid risk : it is also called market risk, it refers to the ease with which bonds could be traded in the market. 201.drawings : drawings denotes the money withdrawn by the proprietor from the business for his personal use. 202.outstanding Income : Outstanding Income means income which has become due during the accounting year but which has not so far been received by the firm. 203.Outstanding Expenses : Outstanding Expenses refer to those expenses which have become due during the accounting period for which the Final Accounts have been prepared but have not yet been paid. 204.closing stock : The term closing stock means goods lying unsold with the businessman at the end of the accounting year. 205. Methods of depreciation : 1.Unirorm charge methods : a. Fixed installment method b .Depletion method c. Machine hour rate method. 2. Declining charge methods : a. Diminishing balance method b.Sum of years digits method 33

c. Double declining method 3. Other methods : a. Group depreciation method b. Inventory system of depreciation c. Annuity method d. Depreciation fund method e. Insurance policy method. 206.Accrued Income : Accrued Income means income which has been earned by the business during the accounting year but which has not yet become due and, therefore, has not been received.
Financial derivatives

Net realized gains or losses on foreign currency transactions represent net foreign exchange gains or losses from the holdings of foreign currencies, currency gains or losses realized between the trade and settlement dates on security transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains or losses from valuing foreign currency denominated assets and liabilities (other than investments) at period end exchange rates are reflected as a component of net unrealized appreciation (depreciation) on foreign currencies. Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin as a result of, among other factors, the possibility of political and economic instability and the level of governmental supervision and regulation of foreign securities markets.

Financial Futures Contracts: A agreement to purchase (long) or sell (short) a set

financial

futures

contract

is

an at

an agreed amount

of securities

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price for delivery on a future date. Upon entering into a financial futures contract, the Fund is required to pledge to the broker an amount of cash and/or other assets equal to a certain percentage of the contract amount. This amount is known as the initial margin. Subsequent payments, known as variation margin, are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying security. Such variation margin is recorded for financial statement purposes on a daily basis as unrealized gain or loss. When the contract expires or is closed, the gain or loss is realized and is presented in the Statement of Operations as net realized gain or loss on financial futures transactions. The Fund invests in financial futures contracts in order to hedge its existing portfolio securities, or securities the Fund intends to purchase, against fluctuations in value caused by changes in prevailing interest rates or market conditions. Should interest rates move unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets. Forward Currency Contracts: A forward currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The Fund may enter into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings or on specific receivables and payables denominated in a foreign currency. The contracts are valued daily at current exchange rates and any unrealized gain or loss is included in the Statement of Assets and Liabilities as unrealized appreciation and/or depreciation on forward foreign currency contracts. Gain or loss is realized on the settlement date of the contract equal to the difference between the settlement value of the original and renegotiated forward contracts. This gain or loss, if any, is included in net realized gain or loss on foreign currency transactions.

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Risks may arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts. Options: The Fund may either purchase or write options in order to hedge against adverse market movements or fluctuations in value caused by changes in prevailing interest rates with respect to securities which the Fund currently owns or intends to purchase. The Funds principal reason for writing options is to realize, through receipt of premiums, a greater current return than would be realized on the underlying security alone. When the Fund purchases an option, it pays a premium and an amount equal to that premium is recorded as an asset. When the Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The asset or liability is adjusted daily to reflect the current market value of the option. If an option expires unexercised, the Fund realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is recorded as an adjustment to the proceeds from the sale or the cost of the purchase in determining whether the Fund has realized a gain or loss. The difference between the premium and the amount received or paid on effecting a closing purchase or sale transaction is also treated as a realized gain or loss. Gain or loss on purchased options is included in net realized gain or loss on investment transactions. Gain or loss on written options is presented separately as net realized gain or loss on option written. The Fund, as writer of an option, may have no control over whether the underlying securities may be sold (called) or purchased (put). As a result, the Fund bears the market risk of an unfavorable change in the price of the security underlying the written option. The Fund, as purchaser of an option, bears the risk of the potential inability of the counterparties to meet the terms of their contracts. Short Sales: The Fund may make short sales of securities as a method of hedging potential price declines in similar securities owned. The Fund may sell a security it does not own in anticipation of a decline in the market

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value of that security (short sale). When the Fund makes a short sale, it will borrow the security sold short and deliver it to the broker-dealer through which it made the short sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Fund may have to pay a fee to borrow the particular securities and may be obligated to return any interest or dividends received on such borrowed securities. A gain, limited to the price at which the Fund sold the security short, or a loss, unlimited as to dollar amount, will be recognized upon the termination of a short sale if the market price is less or greater than the proceeds originally received, respectively, and is presented in the Statement of Operations as net realized gain or loss on short sales. Swaps: The Fund may enter into swap agreements. A swap is an agreement to exchange the return generated by one instrument for the return generated by another instrument. The Fund enters into interest rate swap agreements to manage its exposure to interest rates and credit risk. Securities Lending: The Fund may lend its portfolio securities to broker-dealers. The loans are secured by collateral at least equal at all times to the market value of the securities loaned. Loans are subject to termination at the option of the borrower or the Fund. Upon termination of the loan, the borrower will return to the Fund securities identical to the loaned securities. Should the borrower of the securities fail financially, the Fund has the right to repurchase the securities using the collateral in the open market. The Fund recognizes income, net of any rebate and securities lending agent fees, for lending its securities in the form of fees or interest on the investment of any cash received as collateral. The Fund also continues to receive interest and dividends or amounts equivalent thereto, on the securities loaned and recognizes any unrealized gain or loss in the market price of the securities loaned that may occur during the term of the loan. Liquidity risk:

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Liquidity risk arises through excess financial obligations over available financial assets due at any point in time. The Corporation's objective in managing liquidity risk is to maintain sufficient available reserves in order to meet its liquidity requirements at any point in time. The Corporation believes that it has access to sufficient capital through internally generated cash flows and external equity sources, and to undrawn committed credit facilities to meet current spending forecasts. All of the Corporation's current liabilities mature within a one year period. Interest rate risk: The Corporation is exposed to interest rate risk as changes in interest rates may affect future cash flows and the fair value of its financial instruments. The Corporation's primary debt facility has a floating interest rate that will fluctuate based on prevailing market conditions. Cash flows are sensitive to changes in interest rates on this instrument. Given the amount of debt employed, the Corporation's strategy is to manage interest rate risk within the cur ent framework. If interest rates on the floating instrument were to change by 1% it is estimated that annual cash flow would change by approximately $2.5 million. Market risk: Market risk is the risk of uncertainty arising from possible market price movements and their impact on the future performance of the business. The market price movements that could adversely affect the value of the Corporation's financial assets, liabilities and expected future cash flows include commodity price risk and interest rate risk. It is estimated that annual cash flow would change approximately by $2.0 million and by $4.8 million, respectively, due to a $1 USD WTI and a $0.25/Mcf CDN change in oil and natural gas prices.

what is minut Which sistuation Current Assets become worKing capital? Explain the role of working capital in capital budgeting? What is Current Assets minus current Liabilities? a company getting losses from last 3 years. if u r a analyst what u will recommend to u r clint.? what is the difference bitween Consolidated and Parent Companies? what do u mean by Guidance Explain about SEC EBIT stands for? what is fixed cost? In Banking industry difference between interest income and interest expenses is called as ............. 38

what is the effect of crr hike on market? how cash enters in market? what is capitaemployed? what do you mean by semi-variable cost? What is Money market & Capital Market? what is the difference b/w acquisation by subsidy & acquisation by a company? Who is the governer of RBI Name 2 stock exchanges of U.S.A What are subordinated debt? what is Contra Entry? 18. If the real gross domestic product of US has increased, but the production of goods remained the same, then the production of services has; a) Increases b) Decreases c) Remained same d) Would vary What is capital expenditure? bonus shares? THE DEBIT BALANCE OF THE P&L A/C IS SHOWN IN WHICH COLUMN OF BALANCE SHEET BY WHOME THE BANK RECONSILIATION STATEMENT IS PREPARED What is capex
the expenditure which is incurred in the purpose of long term advantagious of the firm or money spent to acquire fixed assets such as land building or machinery What is GDP? How is it calculated? GDP-Gross Domistic product. There methods are there for calculation GDP. India is following Exp base calculation. Formula is as follows: Y = C + I + G + (X-M)

Y Income (or GDP) C- Consumption (or Private Final Consumption Expenditure). I- Investment (or Gross Final Consumption Exp) X- Exports M- Imports

What is split shares..... spilt shares is a process where the no of the share are increases but the value of the share remains same as per the allocation by the company.It is the corpate action taken by the broad of dirtector.

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Capital IQ serves as the primary information source for tens of thousands of investment bankers, financial analysts, and fund managers. Combining proprietary research with select third-party content, Capital IQ provides highly structured profiles of public and private companies, investment firms, and professionals. Depth of information includes company financials, relationships among firms and people, biographical and contact data, transactions, events, securities data, ownership, brokerage estimates, corporate governance, regulatory filings, and news. Tens of thousands of sell-side and buy-side professionals use Capital IQ to drastically reduce the time it takes to analyze company fundamentals, create charts/reports, and build various financial models for comparables analysis, valuation analysis, transaction scenarios, and various other situations. Capital IQ provides more financial and supplemental data points than any other information source, adjusts for non-recurring charges to enhance comparability, and has robust "click through" features that allow users to trace specific items to source documents. Moreover, Capital IQ's analytical tools are easy to use and incorporate best practice methodologies used by the world's leading financial institutions.

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