Institutional Structure and Finance

8/9/2019 Institutional Structure and Finance

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Institutional StructureInstitutional Structure

andandFinanceFinance


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Short-term FinanceShort-term Finance

Refers to the funds required for a period of less than one year.Required to meet variable or working capitalrequirements.It includes sources like banks, trade credit,installment credit and customers advances.


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Medium Term FinanceMedium Term Finance

Finance for the period of one year to five years may beregarded as a medium-term finance.Medium term finance usually required for workingcapital, small expansions, replacements, modificationsetc.

Medium term finance may be raised byIssue of sharesIssue of debenturesBorrowing from bank

Finance InstitutionsPloughing back of profits


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Long Term FinanceLong Term Finance

Finance for the periods exceeding 5 years are regardedas long terms funds.Long term finance is required for procuring fixed assets,establishment if existing business, modernization etc

The important sources of long term finance are

Issue of sharesIssue of debenturesLoans from financial InstitutionsPublic deposits

Lease financingRetained earning


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Working capitalWorking capital

Working capital is the difference betweenthe inflow and outflow of fundsWorking capital is difference betweencurrent assets and current liabilities.Working capital required to manage the daytoday operations of the organization.


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Types Working CapitalTypes Working Capital

1. Net Working CapitalIs the difference between current assets andcurrent liabilities.

2. Gross Working Capital The amount of funds invested in the variouscomponents of current assets.

3. Permanent Working Capital

The minimum amount of current assets whichis needed to conduct a business even duringthe dullest season of the year.


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Factors determining Working capitalFactors determining Working capital

Nature of IndustryDemand of ProductTechnologyTime

salesBusiness CycleProduction cycle

Variations in salesCredit control


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Methods of Estimating Working CapitalMethods of Estimating Working Capital

There are two methods-1. Conventional MethodAccording to the conventional method, cashinflows and outflows are matched with each

other.Greater emphasis is laid on liquidity.Greater importance is attached to currentratio, liquidity ratio.


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3. Operating Cycle MethodIn this method the length of time ( operatingcycle) is calculated.Length of tine is time required to convert

cash into resources, resources into finalproduct, final product into receivables andreceivables into back into cash.


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There are four major components of theoperating cycle of a manufacturing company- The cycle starts with capital in the form of cashand credit, followed by investment in inmaterials, manpower and the services.Production phaseStorage of finished goods and salesCash and account receivable collection period.


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When new liquid capital becomes available forrecommitment to production activity, a new operating cyclebegins.

This method is more dynamic and it refers to computingworking capital in a realistic way.

Different component of working capital are directed tofullest utilization of plant and machinery. This method considers production and other businessoperations, and forecasts the changes that may benecessary in the pursuit of the future activity.


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Indian ConstitutionIndian Constitution

The Indian Constitution incorporates a number of matters thatare economically very significant and have far reachingimplications.

The constitution of India is the most significant documentwhich is fundamental to the governance of the state.

The constitution has three partsPreambleFundamental rights and dutiesDirective principles of state policy


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PreamblePreamble

The preamble is an introduction to the constitution and containsits basic philosophy.

The Preamble to the Indian Constitution States that- We the people of India having solemnly resolved to constitute

ourselves into a sovereign, socialist, secular, democratic, republicand to secure to all citizens.

Justice, social, economic and politicalLiberty of thought, expression, belief faith and worship.Equity of status and opportunity;


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PreamblePreamble

and to promote among them all fraternityassuring the dignity of the individual and theintegrity of the nation.


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Fundamental Rights and DutiesFundamental Rights and Duties


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Directive PrinciplesDirective Principles

The directive principles of state policy is a unique feature of Indias constitution.

The directive principles are in the nature of directions to thelegislative and executive that they should exercise their authorityin such a way manner as to ensure due respect to theseprinciples.

The directive principles may be classified under four heads-1. Provisions dealing with welfare (Article 38, 42, 45, 47)

State shall promote the welfare of the people by securing a socialorder with justice- social, economic, political.


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2. Provisions dealing with Social justice (Article 39, 41,43,46)State shall direct its policy towards securing-Adequate means of livelihood to all citizensProper distribution of materialEqual pay for equal workPrevention of concentration of wealth.Protection of child hood and youth against exploitation


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3. Provisions Promoting democracy (Article 40,44, 45) The state shall take steps to organize village panchayatsand endow them with such powers and authority as maybe necessary to enable them to function as units of self-government.

4. Miscellaneous Provisions (Article 48, 49, 50, 51)Organization of agriculture and animal husbandry.Safeguard of the forests and wild life


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ConstitutionalEnvironment


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ConstitutionConstitution

JudiciaryJudiciary ExecutiveExecutive

Central ListCentral List Concurrent ListConcurrent List

BudgetBudgetDirectDirect

InvolvementInvolvementin Businessin Business

Policies,Policies,guidelines,guidelines,codes andcodes and

lawslaws

DevelopmDevelopmentalental

OrganizatiOrganizationsons

Constitutional EnvironmentConstitutional Environment

LegislativeLegislative

State listState list

Central Govt.Central Govt. State Govt.State Govt. Local Govt.Local Govt.

RegulatoryRegulatory

OrganizatioOrganizationsns

Institutional Structure and Finance

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