The term capital broadly refers to the total investment of the company in terms of money and assets. It is also called the total wealth of the company. When a company invests a large amount of finance into the business, it is called capital. Capitalization is a more specific concept. It refers to the process of determining the quantum of funds that a firm needs to run its business. It can also be defined as Read more
Working Capital is a crucial concept in financial management, representing the capital needed to meet the day-to-day transactions of a business concern. It is also described as the funds available for day-to-day operations of an enterprise. Unlike Fixed Capital, which is invested in long-term assets [previous conversation], working capital is required for short-term financial needs. Working capital can be understood through different concepts, based on value and time. Concepts of Working Capital The permanent working Read more
Fixed Capital is a fundamental concept in financial management, representing the capital required for meeting the permanent or long-term purposes of a business concern. It is distinct from working capital, which is needed for short-term, temporary requirements. Purpose and Nature The primary purpose of Fixed Capital is to fund the capital expenditure of the business. It is used over a long period. This means it is the amount invested in various fixed or permanent assets Read more
Estimating capital requirements is a fundamental part of financial planning for a business. This process involves determining the amount of funds a firm needs to operate its business. Capital refers to the total investment of the company in terms of money and assets, also known as the total wealth of the company. Investing a large amount of finance into the business is referred to as capital. Financial planning includes several important parts, with estimating the Read more
Introduction to Financial Planning and Capital Structure Financial Management is a managerial activity focused on the planning and controlling of a firm’s financial resources. It involves crucial financial decisions, including investment decisions (Capital Budgeting), financing decisions (Capital Structure), dividend decisions, and working capital management decisions. Financial Planning and Capital Structure are identified as key topics and major areas within the field of financial management. Financial Management is broadly concerned with the managerial decisions that result Read more
Capital investment decisions, also known as capital budgeting decisions or long-term investment decisions, are a crucial aspect of financial management. These decisions involve the selection of assets in which a firm will invest funds, typically relating to fixed assets or long-term assets expected to yield a return over a period usually exceeding one year. The successful operation of any business depends on investing resources in a way that brings benefits or the best possible returns. Read more
Capital rationing is a significant situation in financial management, particularly within the realm of investment decisions or capital budgeting. It arises when a firm is faced with a constraint, either externally imposed or self-imposed, that limits its ability to obtain the necessary funds to invest in all available projects that are financially viable and have a positive Net Present Value (NPV). Meaning and Definition In simple terms, capital rationing refers to a situation where the Read more
Financial management involves key decisions, including financing decisions, investment decisions, and dividend decisions. Investment decisions are concerned with the selection of assets where funds will be invested by a firm. These decisions can relate to long-term or short-term investments. Long-term investment decisions are related to investment in long-term assets or projects for generating future benefits and are popularly known as capital budgeting decisions. Capital budgeting is the firm’s decision to invest its current funds most Read more
Capital budgeting, also referred to as investment decision-making, is a crucial area within financial management. It involves the firm’s decision to invest its current funds most efficiently in long-term activities with the anticipation of receiving a flow of future benefits over a series of years. This area is concerned with the optimum utilization of funds to maximize the wealth of the organization and, in turn, the wealth of its shareholders. Importance and Nature of Capital Read more
Capital budgeting is a fundamental area within financial management. It is also referred to by several other terms, including capital expenditure decision, capital expenditure management, long-term investment decision, and management of fixed assets. At its core, capital budgeting is the process of making investment decisions in capital expenditure. It involves the planning and control of capital expenditure. Essentially, it is the process of deciding whether or not to commit resources to particular long-term projects whose Read more