Financial management Notes in Hindi CS Executive - CSHindinotes

CS EXECUTIVE FINANCIAL MANAGEMENT
Chapter ‐ 1
Financial Management
Financial Management: ‐ Financial Management ls vk'k; gS foŸk dk izca/k djukA
Financial Management 2 words ls feydj cuk gS foŸkh; vkSj izca/kA
foŸkh; ls vk'k; gS O;olk; esa foŸk dh vko';drk dk vuqeku yxkuk] foŸk ds L=ksr dh
ryk'k djuk] foŸk dh izkfIr djuk rFkk bldk izHkkoh :i ls fofu;kstu djukA
izca/k ls vk'k; gS O;fDr;ksa rFkk foŸk ds L=ksr dk vkil esa leUo; LFkkfir dj O;kikj ds
mÌs';ksa dh iwfrZ djukA
Theoretical Point: ‐
� Profit Maximization v/s wealth Maximization: ‐
1) Profit Maximization: ‐
A) Arguments of favour of Profit Maximization: ‐ ¼i{k esa½
(i) O;olk; dk eq[; mÌs'; ykHk vftZr djuk ekuk tkrk gSA vr% foŸkh; izca/k dk
eq[; mÌs'; Hkh ykHkksa dks vf/kdre djuk ekuk tkuk pkfg,A
(ii) fdlh O;olk; dh o`f) ykHkksa dh ek=k ij fuHkZj djrh gSA vr% O;olk; dh o`f)
ds fy, foŸkh; izca/ku bl izdkj fd;k tkuk pkfg, fd ykHk vf/kdre gksA
(iii) tks dEiuh ykHk vf/kd vftZr djrh gS og vius lkekftd mŸkjnkf;Roksa dk
fuokZg vklkuh ls dj ldrh gSA
B) Arguments in against of Profit Maximization: ‐
(i) fdlh O;olk; esa dbZ izdkj ds ykHk izkIr gksrs gSA Gross Profit, Operating
Profit, Net Profit vkfnA buesa ls fdl ykHk dks c

CS EXECUTIVE FINANCIAL MANAGEMENT
Share ds ewY; dks c

CS EXECUTIVE FINANCIAL MANAGEMENT
(‐) Current Liability (xx) = xx
Capital Employed = xx
Vertical P& L A/c
Sales (Net) = xx
(‐) Cost of Goods Sold (Op. Stock + Purchase ‐ Closing Stock) = (xx)
Gross Profit = xx
(‐) Operating Exp. (Admin. Exp. Selling & Dist. Exp. Etc.) =
(xx)
Operating Profit = xx
(+) Non Operating Income = xx
(‐) Non Operating Exp. = (xx)
Profit Before Interest & Tax = xx (Return
on Cap. Emp.)
(‐) Interest = (xx)
Profit Before Tax = xx
(‐) Tax = (xx)
Profit after Tax (Net Profit) = xx (Return
on Net worth)
(‐) Pref. Share Dividend = (xx)
Earning for Equity Share = xx
(‐) Equity Share Dividend = (xx)
Reserve & Surplus/Retained Earning = xxx
Types of Ratio: ‐
1. Liquidity Ratio
2. Profitability Ratio
3. Activity Ratio
4. Investment Analysis Ratio
5. Capital Structure Ratio
1. Liquidity Position (Ratio): ‐ fdlh Comapny ds pkyw nkf;Roksa dk Hkqxrku djus ds fy,
pkyw lEifÙk;ksa dh miyC/krk rjyrk fLFkfr dks izdV djrh gSA
rjyrk dh fLFkfr dh tk¡p ds fy, fuEufyf[kr Ratio Kkr fd;s tkrs gS &
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CS EXECUTIVE FINANCIAL MANAGEMENT
(i) Current Ratio (Working Capital Ratio) =
Standard = 2 : 1
Current Assets Current Liability
Cash Balance xx Creditors xx
Debtors xx Bills Payable xx
Bills Receivable xx Bank Overdraft xx
Advances xx Proposed Dividend xx
Bank Balance xx Provision for Tax xx
Short Term Investment xx Prov. For Doubtful Debt xx
Stock xx Outstanding Exp. xx
Prepaid Exp. xx __
xx xx
Note: ‐ Short Term Investment is known as Marketable Security.
(ii) Quick Ratio/ Acid Test Ratio/ Liquid Ratio =
Standard = 1 : 1
Quick Assets = Current Assets ‐ (Stock & Prepaid Exp.)
(iii) Absolute Quick Ratio =
2. Profitability Ratio: ‐
(i) Gross Profit Ratio = 100
Standard = 5 : 1
Gross Profit = Sales ‐ Cost of Goods Sold
Sales =
(ii) Operating Profit Ratio = 100
Operating Profit = Gross Profit ‐ Operating Expenses
(iii) Net Profit Ratio = 100
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CS EXECUTIVE FINANCIAL MANAGEMENT
(iv) Operating Ratio = 100
Operating Cost = Cost of Goods Sold + Operating Expenses
(v) Return on Capital Employed (Return on Investment) =
100
(vi) Return on Net Worth = 100
Net Worth = E/S Capital + Pref. Share Capital + Reserve and Surplus ‐
Misc. Expenditure
(vii) Return on Equity Share Capital =
100
(viii) Return on Total Assets = 100
3. Activity Ratio: ‐
(i) Stock Turnover Ratio =
Cost of Goods Sold = Sales ‐ Gross Profit
OR
C.O.G.S. = Opening Stock + Purchase ‐ Closing Stock
Average Stock =
;fn Opening Stock ugha fn;k x;k gks rks
Average Stock = Opening Stock
Stock Velocity [Average Storage Period] =
(ii) Debtors Turnover Ratio =
Debtors Velocity [Average Collection Period] =
OR
= Avg. (Debtors + B/R)
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CS EXECUTIVE FINANCIAL MANAGEMENT
(iii) Creditors Turnover Ratio =
Creditors Velocity [Creditors Payment Period] =
(iv) Capital Turnover Ratio =
(v) Total Assets Turnover Ratio =
(vi) Fixed Assets Turnover Ratio =
(vii) Net Worth Turnover Ratio =
(viii) Working Capital Turnover Ratio =
(ix) Fixed Assets Ratio =
4. Investment Analysis Ratio: ‐
(i) Earnings Per Share (E.P.S.) =
(ii) Dividend Per Share (D.P.S.) =
(iii) Dividend Payout Ratio = 100
(iv) Retention Ratio = 100% ‐ Dividend Payout Ratio
OR
(v) Dividend Yield = 100
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100

CS EXECUTIVE FINANCIAL MANAGEMENT
(vi) Earning Yield = 100
(vii) Price Earnings Ratio (P/E Ratio) =
(viii) Interest Coverage Ratio =
(ix) Debt Service Coverage Ratio =
5. Capital Structure Ratio: ‐
(i) Debt Equity Ratio =
=
OR
(ii) Capital Gearing Ratio =
=
OR
(iii) Proprietary Ratio = 100
(iv) Solvency Ratio = 100
Chapter ‐ 14
Operating and Financial Leverage
Sales = xx
(‐) Variable Cost = (xx)
Contribution = xx
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CS EXECUTIVE FINANCIAL MANAGEMENT
(‐) Fixed Cost = (xx)
E.B.I.T. = xx
(‐) Interest = (xx)
E.B.T. = xx
(‐) Tax = (xx)
P.A.T. = xx
(‐) Pref. Share Dividend = (xx)
Earning for Eq. Share = xx (is also known as E.P.S.)
Leverage: ‐ vk; forj.k dh fdUgha Hkh nks vUrj lacaf/kr enksa esa ,d laca/k tks O;kikj dh tksf[ke
rFkk Fixed Cost ds dkj.k ykHkksa ij iM+us okys izHkko dks iznf'kZr djs Leverage dgrs gSA
Fixed cost can be divided into two part: ‐
(i) Operating Fixed Cost ¼ifjpkyu fLFkj ykxr½
(ii) Financial Fixed Cost ¼foŸkh; fLFkj ykxr½
rFkk blds vk/kkj ij Leverage dks rhu Jsf.k;ksa esa foHkDr fd;k tkrk gS &
(A) Operating Leverage
(B) Financial Leverage
(C) Combined Leverage
(A) Operating Leverage: ‐
OR
=
;fn fdlh dEiuh dh fcØh esa 1% dk ifjorZu fd;k tk, rks blds dkj.k (Operating
Profit) esa gksus okys ifjorZu dh nj dks Operating Leverage dgrs gSA
(B) Financial Leverage: ‐
OR
= OR =
;fn fdlh dEiuh dh E.B.I.T. esa 1% dk ifjorZu fd;k tk, rks blds dkj.k E.B.T. esa gksus
okys ifjorZu dh nj dks Financial Leverage dgrs gSA
(C) Combined Leverage: ‐ Operating Leverage Financial Leverage
OR
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CS EXECUTIVE FINANCIAL MANAGEMENT
=
=
OR
Chapter ‐ 10
Management of Inventory
1) Reorder Level = Maximum Consumption Maximum Reorder Period
2) Minimum Stock Level = Reorder Level
Period.
Avg. Consumption Avg. Reorder
3) Safety Stock = Reorder Level Avg. Consumption Avg. Reorder Period.
Maximum Stock Level = Safety Stock
4) Reorder Level = Safety Stock + Avg. Consumption Avg. Reorder Period.
5) Maximum Stock Level = R.O.Q. + R.O.L.
Reorder period.
Minimum consumption Min.
6) Maximum Stock Level = E.O.Q. + Safety Stock
7) Average Stock Level =
E.O.Q. is also known as Reorder Quantity
OR
= Safety Stock + (Reorder Quantity)
8) Danger Level = Reorder Period for emergency Purchase Avg.
Consumption
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CS EXECUTIVE FINANCIAL MANAGEMENT
9) E.O.Q. =
A = Annual Requirement
O = Order Placing Cost
C = Carrying Cost/Unit Per annum
10) Total Annual Cost = Purchase + Ordering Cost + Carrying Cost
Purchase = Annual Requirement Purchase Price.
Ordering Cost = Ordering Cost
Carrying Cost = [Safety Stock + (Reorder Quantity) Carry
Cost/Unit Per Annum)
Source of Capital: ‐
Equity = xx
Debt = xx
= xx
Chapter ‐ 7
Management of Working Capital
Application of Capital: ‐
Fixed Assets = xx
Investment = xx
Current Assets = xx
(‐) Current Liability = xx
Net Working Capital = xx
Estimation of Requirement of Working Capital: ‐
1) Operating Cycle Method
2) Forecasting Method
1) Operating Cycle Method: ‐
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CS EXECUTIVE FINANCIAL MANAGEMENT
� I Step: ‐ Operating Cycle Days:‐
(i) Raw Material Storage Period: ‐
Operating Cycle
= Avg. Raw Material
(ii) W.I.P Conversion Period: ‐
= Avg. Work in Progress
(iii) Finished Goods Storage Period: ‐
= Avg. finished Goods
(iv) Debtors Collection Period: ‐
= Avg. (Debtors + B/R)
(v) Creditors Payment Period: ‐
= Avg. (Creditors + B/P)
Operating Cycle Days = [ i + ii + iii + iv ‐ v ]
� II Step: ‐ No. of Operation = =
� III Step: ‐ Working Capital Requirement : ‐
= + Cash Balance
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CS EXECUTIVE FINANCIAL MANAGEMENT
Chapter ‐ 17
Funds Flow Analysis
Fund Flow Statement
Source of Funds Amount Application of Funds Amount
Issue of Share
Issue of Debenture
Loan Taken
Sale of Fixed Assets
Sale of Investment
Interest, Dividend Received
Funds From Operation
Decrease in Working Capital
xx
xx
xx
xx
xx
xx
xx
xx
Redemption of Share
Redemption of
Debenture
Repayment of Loan
Dividend Paid
Purchase of Fixed Assets
Purchase of Investment
Fund utilized from
operation
Tax paid
Increase in Working
Capital
A) Funds From Operation: ‐
Net Profit = xx
Add:‐ Non Cash/ No Operating Exp. = xx
Less:‐ Non‐Operating Income = (xx)
Funds From Operation = xxx
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xx
xx
xx
xx
xx
xx
xx
xx
xx
xx xx

CS EXECUTIVE FINANCIAL MANAGEMENT
B) Statement of Change in Working Capital: ‐
2005 2006
Current Assets
Stock
Debtors
B/R
Cash
Prepaid Expenses
Advances
Short Term
Investment
Bank
Other Current Assets
Less: ‐ Current Liabilities
Creditors
B/P
Bank O/D
Other Current
Liabilities
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xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx
xx xx
xx
xx
xx
xx
xx
xx
xx
xx
Working Capital xxx xxx
Increase/Decrease in Working Capital = xx
Chapter ‐ 6
Cost Volume and Profit Analysis
Marginal Cost: ‐ Variable Cost dks gh Marginal cost dgrs gSA ,slh ykxr tks mRiknu esa
ifjorZu ds lkFk&lkFk vkuqikfrd :i ls ifjofrZr gksrh gSA

CS EXECUTIVE FINANCIAL MANAGEMENT
Contribution = Sales ‐ Variable Cost
Contribution = Fixed Cost + Profit
Profit Volume Ratio (P/V Ratio): ‐ Sales ea ifjorZu ds dkj.k ykHk esa gksus okys ifjorZu
dh nj dks ykHk ek=k vuqikr (Profit Volume Ratio) dgrs gSA
P/V Ratio = 100
Sales for Desired Profit
Additional Sales =
Break‐even Sales =
P/V Ratio = 100
P/V Ratio = 100
P/V Ratio = 100
Sales =
Margin of Safety: ‐ Sales rFkk Break even Sales ds vUrj dks Margin of Safety dgrs
gSA
Margin of Safety = Sales ‐ Break Even Sales
OR
=
Sales (Units) =
Break even Sales (units) =
Margin of Safety (units) =
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CS EXECUTIVE FINANCIAL MANAGEMENT
Margin of Safety dk Sales ds lkFk Ratio: ‐
Margin of Safety Ratio = 100
P/V Ratio = 100 & 100
Units esa Change gksus ij gh Variable cost Change gksrh gSA Sales Price esa Change gksus
ij Variable Cost Change ugha gksrh gSA
Chapter ‐ 13
Cost of Capital
Source of Capital
Equity Share Capital
Preference Share Capital Dividend
Reserve and Surplus
Debenture
Long Term Loan Interest
� Cost of Debts (Kd)
1. Short Term Debt
2. Long Term Debt
� Short Term Debt
Kd (before tax) = 100
Kd (after tax) = 100 (1 ‐ tax)
� Long Term Debt : ‐
(i) Irredeemable Debt
(ii) Redeemable Debt
T = Tax rate
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CS EXECUTIVE FINANCIAL MANAGEMENT
(i) Irredeemable Debt: ‐
Kd (Before Tax) = 100
Kd (after tax) = 100 (1 ‐ tax)
(ii) Redeemable Debt: ‐
Kd (before tax) = 100
Kd (after tax) = 100
Cost of Preference Share (Kp)
(i) Irredeemable Preference Share Capital : ‐
Kp (before tax) = 100
Kp (after tax) =
(ii) Redeemable Preference Share Capital: ‐
Kp (before tax) = 100
Kp (after tax) =
Cost of Equity Share Capital (Ke): ‐
(i) Dividend Yield Method = 100
(ii) Earning Yield Method = 100
(iii) Dividend Plus Growth Rate Method= 100 + G
(iv) If new Shares are issued =
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CS EXECUTIVE FINANCIAL MANAGEMENT
Ke = 100 + G
N.P. = Net Proceedsdssssssss
Intrinsic Value =
Cost of Retained Earnings (Kr)
Kr = Ke (1 ‐ tp) (1 ‐ B)
tp = individual Tax Rate
B = Brokrage
it tp & B is not given in question then we consider it both = 0
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