capital iq.docx

8/9/2019 Capital IQ.docx

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B.R.SThe statement in which the bank reconciliation is done is called B.R.S

[OR] The statement in which we do bank reconciliation is done is called

B.R.S B.R.S a Complete and satisfactory explanation for the dierence

between Cash book balance and pass book balance and helps to

e!ali"e cash book balance to pass book balance.

MINORITY INTEREST

#. $ si%ni&cant b!t non'controllin% ownership of less than ()* of a

company+s ,otin% shares by either an in,estor or another company.

-. $ non'c!rrent liability that can be fo!nd on a parent company+s

balance sheet that represents the proportion of its s!bsidiaries owned

by minority shareholders.

n acco!ntin% terms/ if a company owns a minority interest in another

company b!t only has a minority passi,e position 0i.e. it is !nable toexert in1!ence2/ then all that is recorded from this in,estment are the

di,idends recei,ed from the minority interest. f the company has a

minority acti,e position 0i.e. it is able to exert in1!ence2/ then both

di,idends and a percent of income are recorded on the company+s

books.

3xample 4f $BC Corp. owns 5)* of 678 nc./ which is a 9#)) million

company/ on $BC Corp.+s balance sheet/ there wo!ld be a 9#) million

liability in minority interest acco!nt to represent the #)* of 678 nc.that $BC Corp does not own.

Depreciation $n expense that is s!pposed to re1ect the loss in ,al!e of a &xedasset. :or3xample/ if a machine will completely wear o!t after ten year+s !se/the cost of the machine is char%ed as an expense o,er the ten;year liferather than all at once/ when the machine is p!rchased. Strai%ht linedepreciation char%es the same amo!nt to expense each year.

$ccelerated depreciation char%es more to expense in early years/ lessin later years.


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:OR:3T3< S=$R3

$ share in a company that the owner loses 0forfeits2 by failin% to meet

the p!rchase re!irements. Re!irements may incl!de payin% any

allotment or call money owed/ or a,oidin% sellin% or transferrin% shares

d!rin% a restricted period. >hen a share is forfeited/ the shareholder

no lon%er owes any remainin% balance/ s!rrenders any potential

capital %ain on the shares and the shares become the property of the

iss!in% company. The iss!in% company can re'iss!e forfeited shares at

par/ a premi!m or a disco!nt as determined by the board of directors.

?$R$B@3 COST

$ corporate expense that ,aries with prod!ction o!tp!t. ?ariable costs

are those costs that ,ary dependin% on a company+s prod!ction

,ol!meA they rise as prod!ction increases and fall as prod!ction

decreases. ?ariable costs dier from &xed costs s!ch as rent/

ad,ertisin%/ ins!rance and oce s!pplies/ which tend to remain the

same re%ardless of prod!ction o!tp!t. :ixed costs and ,ariable costscomprise total cost.

Reserves

#. t is created by debitin% the pro&t and loss appropriation acco!nt.

-. t is created to meet an !nknown liability/ or to stren%then the

&nancial position of the company or for e!ali"ation of di,idends etc.

. $ reser,e is created only when there is pro&t in the b!siness.

D. t can be distrib!ted amon% shareholders as di,idend.

(. The reser,e is created witho!t takin% into consideration the act!al

amo!nt re!ired except in the case of redemption of debent!res when

a de&nite s!m is set aside.

E. Creation of reser,e depends !pon the &nancial policy of the

businessand discretion of its mana%ement.
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F. t is !s!ally shown on the liability side of the balance sheet as it is

not a speci&c reser,e.

rovisions

#. t is created by debitin% the pro&t and loss acco!nt.

-. t is created to meet a known liability or a speci&c contin%ency/ e.%..pro,ision for bad and do!btf!l debts/ or pro,ision for depreciation etc.

. $ pro,ision is created irrespecti,e of whether there is pro&t or loss in

the b!siness.

D. t is not a,ailable for distrib!tion as di,idend amon% shareholders.

(. $ pro,ision is made for a de&nite amo!nt and/ therefore/ a de&nite

s!m is set aside e,ery year to meet the known contin%ency.

E. Gakin% of a pro,ision is a m!st to meet known liability or

contin%ency.F. The pro,ision is %enerally shown on the assets side of the balance

sheet.

C!rrent ratio an" #!ick ratio

#. The c!rrent ratio is a &nancial ratio that in,estors and analysts !se to

examine the li!idity of a company and its ability to pay short'term

liabilities 0debt and payables2 with its short'term assets 0cash/

in,entory/ recei,ables2. The c!rrent ratio is calc!lated by di,idin%

c!rrent assets by c!rrent liabilities.

-. The !ick ratio/ on the other hand/ is a li!idity indicator that &lters

the c!rrent ratio by meas!rin% the amo!nt of the most li!id c!rrent

assets there are to co,er c!rrent liabilities 0yo! can think of the

H!ickI part as meanin% assets that can be li!idated fast2. The

!ick ratio/ also called the Hacid'test ratio/I is calc!lated by addin%

cash J e!i,alents/ marketable in,estments and acco!nts

recei,ables/ and di,idin% that s!m by c!rrent liabilities.

3. The main difference between the current ratio and the quick ratio is that the latter

offers a more conservative view of the companys ability to meets its short-term


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liabilities with its short-term assets because it does not include inventory and other

current assets that are more difficult to liquidate (i.e., turn into cash). y e!cludin"

inventory (and other less liquid assets) the quick ratio focuses on the companys more

liquid assets.

Invest$ent o%&ectiveSafety/ Krowth of capital/ ncome/Tax Ginimi"ation/ Garketability/ and li!idity

Capital B!d%etin%t is the process by which the &rm decides which lon%'termin,estments to make. Capital B!d%etin% proLects/ i.e.,potential lon%'term in,estments/ are expected to %enerate cash 1ows o,er se,eralyears. The decision to accept or reLect a Capital B!d%etin% proLectdepends on an analysis of the cash 1ows %enerated by the proLect andits cost. The followin% three Capital B!d%etin% decision r!les will bepresented4

Mayback Meriod

Net Mresent ?al!e0NM?2

nternal Rate of Ret!rn0RR2

R$TO $N$@7SS

!antitati,e analysis of information contained in a companyPs &nancial

statements. Ratio analysis is based on line items in &nancial

statements like the balance sheet/ income statement and cash 1ow

statementA the ratios of one item Q or a combination of items ' to

another item or combination are then calc!lated. Ratio analysis is !sed

to e,al!ate ,ario!s aspects of a companyPs operatin% and &nancial

performance s!ch as its eciency/ li!idity/ pro&tability and sol,ency.

The trend of these ratios o,er time is st!died to check whether they

are impro,in% or deterioratin%. Ratios are also compared across

dierent companies in the same sector to see how they stack !p/ and

to %et an idea of comparati,e ,al!ations. Ratio analysis is a

cornerstone of f!ndamental analysis.

'$orti(ation
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s!ally refers to spreadin% an intan%ible asset+scost o,er that asset+s

!sef!l life. :or example/ a patent on a piece of medical e!ipment

!s!ally has a life of #F years. The cost in,ol,ed with creatin% the

medical e!ipment is spread o!t o,er the life of the patent/ with each

portion bein% recorded as an expense on the company+s income

statement.

Depreciation)on the other hand/ refers to proratin% a tan%ible

asset+scost o,er that asset+s life. :or example/ an oce b!ildin% can

be !sed for a n!mber of years before it becomes r!n down and is sold.

The cost of the b!ildin% is spread o!t o,er the predicted life of the

b!ildin%/ with a portion of the cost bein% expensed each acco!ntin%

year.

COST O: C$MT$@+

The cost of f!nds !sed for &nancin% a b!siness. Cost of capital depends

on the mode of &nancin% !sed Q it refers to the cost of e!ity if the

b!siness is &nanced solely thro!%h e!ity/ or to the cost of debt if it is

&nanced solely thro!%h debt. Gany companies !se a combination of

debt and e!ity to &nance their b!sinesses/ and for s!ch companies/their o,erall cost of capital is deri,ed from a wei%hted a,era%e of all

capital so!rces/ widely known as the wei%hted a,era%e cost of capital

0>$CC2. Since the cost of capital represents a h!rdle rate that a

company m!st o,ercome before it can %enerate ,al!e/ it is extensi,ely

!sed in the capital b!d%etin% process to determine whether the

company sho!ld proceed with a proLect.

Operatin% 3xpenses

Operatin% expenses are the costs a b!siness inc!rs as part of itsre%!lar b!siness acti,ities/ not incl!din% the cost of %oods sold. Thesecosts incl!de administrati,e expenses s!ch as oce s!pplies andsalaries for administrati,e personnel. Commissions and ad,ertisin% areexamples of sales expenses. 7o! also ha,e %eneral operatin% expensess!ch as rent and !tilities.
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Non'Operatin% 3xpenses

Some b!siness expendit!res are inc!rred for reasons that donPt in,ol,enormal b!siness operations. One example of a non'operatin% expenseis interest on borrowed money. Non'operatin% expenses also incl!deone'time or !n!s!al costs. The expendit!re re!ired for a b!sinessreor%ani"ation or to pay expenses d!e t a laws!it are examples.

Char%es for obsolescence of e!ipment or c!rrency exchan%e are alsonon'operatin% expenses.

Operatin% ncome

Operatin% income is operatin% re,en!es less operatin% expenses and

depreciation. $ company %enerates operatin% re,en!es from the %oods

and ser,ices it pro,ides to its c!stomers. Operatin% expenses are tied

to the prod!ction/ sale and deli,ery of these %oods and ser,ices and

incl!de associated o,erhead and administrati,e expenses. Operatin%

income excl!des interest payments and income taxes. Operatin%

income is also called operatin% pro&t. t is sometimes referred to as

3BT '' earnin%s before interest and taxes '' b!t 3BT occasionally

incl!des non'operatin% items s!ch as asset sales.

Non'Operatin% ncome

Non'operatin% income is re,en!es and expenses %enerated by ab!siness that does not deri,e from ordinary b!siness operations. Non'

operatin% income incl!des re%!larly occ!rrin% items s!ch as interest

expense and income taxes. nterest expense shows the impact of a

company+s debt str!ct!re on the income statement/ and income taxes

can ,ary if the company has tax credits or prior net operatin% losses.

Non'operatin% income also incl!des nonrec!rrin% items s!ch as the

%ain or loss from sellin% a lar%e asset or s!bsidiary.

CONTNK3NT @$B@T7

$ potential obli%ation that may be inc!rred dependin% on the o!tcome

of a f!t!re e,ent. $ contin%ent liability is one where the o!tcome of an

existin% sit!ation is !ncertain/ and this !ncertainty will be resol,ed by

a f!t!re e,ent. $ contin%ent liability is recorded in the books of


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acco!nts only if the contin%ency is probable and the amo!nt of the

liability can be estimated.

' *ol"ing co$pan+

t is a company or &rm that owns other companies+ o!tstandin% stock.

The term !s!ally refers to a company that does not prod!ce %oods or

ser,ices itselfA rather/ its p!rpose is to own shares of

other companies to form a corporate %ro!p. $ parent corporation/

limited liability company or limited partnership that owns eno!%h

,otin% stock in another company to control its policies and

mana%ement.

SBS


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$ %eneral term !sed to refer to the consolidation of companies. $

mer%er is a combination of two companies to form a new company/

while an ac!isition is the p!rchase of one company by another in

which no new company is formed.

Kross national prod!ct 0KNM2 is the market ,al!e of allthe prod!cts and ser,ices prod!ced in one year by labo!r and propertys!pplied by the citi"ens of a co!ntry.

$n economic statistic that incl!des K


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two or more parties. ts ,al!e is determined by 1!ct!ations in the

!nderlyin% asset. The most common !nderlyin% assets incl!de stocks/

bonds/ commodities/ c!rrencies/ interest rates and market indexes.

Gost deri,ati,es are characteri"ed by hi%h le,era%e.

' 0nancial state$ent

0Or &nancial report2 is a formal record of the &nancial acti,ities of a

b!siness/ person/ or other entity. Rele,ant &nancial information is

presented in a str!ct!red manner and in a form easy to !nderstand.

They typically incl!de basic &nancial statements/ accompanied by

a mana%ement disc!ssion and analysis4[#]

#. $ balance sheet/ also referred to as a statement of &nancial

position/ reports on a company+s assets/ liabilities/ and e!ity at

a %i,en point in time.

-. $n income statement/ also known as a statement of

comprehensi,e income/ statement of re,en!e J

expense/ MJ@ or pro&t and loss report/ reports on a

company+s income/ expenses/ and pro&tso,er a period of time. $

pro&t and loss statement pro,ides information on the operation

of the enterprise. These incl!de sales and the ,ario!s expenses

inc!rred d!rin% the stated period.

. $ statement of cash 1owsreports on a company+s cash 1ow

acti,ities/ partic!larly its

operatin%/ in,estin%and &nancin%acti,ities.

DRs 1Depositar+ Receipts2

$ depositary receipt is a ne%otiable &nancial instr!ment iss!ed by abank to represent a forei%n company+s p!blicly traded sec!rities. The

depositary receipt trades on a local stock exchan%e/ s!ch as the New

7ork Stock 3xchan%e 0N7S32 in the .S./ b!t represents an interest in a

company that is head!artered o!tside of the nited States. $

depositary receipt traded in Kermany wo!ld represent a non'Kerman

company.
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$sset created by an acco!ntin% entry0and incl!ded !nder assetsin

the balance sheet2 that has no tan%ibleexistence or

reali"able ,al!eb!t representsact!al cashexpendit!re. The p!rpose

of creatin% a &ctitio!s asset is to acco!ntfor expenses0s!ch as

those inc!rredin startin% a b!siness2 that cannot be placed !nder any

normal acco!nt headin%. :ictitio!s assets are written oas soon as

possiblea%ainst the &rm+s earnin%s.

Capital Re"e$ption reserve

$ f!ndwhich exists both on the &nancial statementsof a company and

also as part of the company+sinternal acco!nts. $ b!sinesswith

a capitalredemption reser,ef!nd is le%ally mandated by the

.S. Sec!rities and 3xchan%e Commissionto make

capital redemptionsfor certain transactionsactin%as

a hed%ea%ainst capital red!ctions.

S=$R3 MR3GG $CCONT+

Capital -ease Operating -ease

@ease

criteria '

Ownershi

p

Ownership of the asset

mi%ht be transferred to

the lessee at the end of

the lease term.

Ownership is retained by the

lessor d!rin% and after the

lease term.

@ease

criteria '

Bar%ain

M!rchase

Option

The lease contains a

bar%ain p!rchase option

to b!y the e!ipment at

less than fair market

,al!e.

The lease cannot contain a

bar%ain p!rchase option.

@ease

criteria '

Term

The lease term e!als or

exceeds F(* of the

asset+s estimated !sef!l

life

The lease term is less than F(

percent of the estimated

economic life of the e!ipment
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s!ally fo!nd on the balance sheet/ this is the acco!nt to which the

amo!nt of money paid 0or promised to be paid2 by a shareholder for a

share is credited to/ only if the shareholder paid more than the cost of

the share.

!%lic Co$pan+ 'n" rivate Co$pan+

Mri,ately'held companies are ' no s!rprise here ' pri,ately held. This

means that/ in most cases/ the company is owned by the company+s

fo!nders/ mana%ement or a %ro!p of pri,ate in,estors. $ p!blic

company/ on the other hand/ is a company that has sold a portion ofitself to the p!blic ,ia an initial p!blic oerin%of some of its stock/

meanin% shareholders ha,e claim to part of the company+s assetsand

pro&ts.

Accounting Concepts

a. Separate 3ntity Conceptb. Koin% Concern Concept

c. Goney Geas!rement Concept

d. Cost Concept

e.

f. Meriodic Gatchin% of Cost and Re,en!e Concept

%. Reali"ation Concept

Accounting Conventions

a. Con,ention of Conser,atismb. Con,ention of :!ll


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c. Gatchin% Mrinciple

d. ObLecti,ity Mrinciple

e. Consistency Mrinciple

f. :!ll


14/38

Stock ,al!ation

n &nancial markets/ stock ,al!ation is the method of calc!latin%

theoretical ,al!es of companies and their stocks. The main !se of

these methods is to predict f!t!re market prices/ or more %enerally/

potential market prices/ and th!s to pro&t from price mo,ement Qstocks that are L!d%ed undervalued0with respect to their theoretical

,al!e2 are bo!%ht/ while stocks that are L!d%ed overvaluedare sold/ in

the expectation that !nder,al!ed stocks will/ on the whole/ rise in

,al!e/ while o,er,al!ed stocks will/ on the whole/ fall.

$G$@K$G$TON

The combination of one or more companies into a new entity. $n

amal%amation is distinct from a mer%er beca!se neither of the

combinin% companies s!r,i,es as a le%al entity. Rather/ a completely

new entity is formed to ho!se the combined assets and liabilities of

both companies.

Net asset val!e 1N',2

t is the ,al!e of an entity+s assetsmin!s the ,al!e of its liabilities/

often in relation to open'endor m!t!alf!nds/ since shares of s!ch

f!nds re%istered with the .S. Sec!rities and 3xchan%e Commissionare

redeemed at their net asset ,al!e. This may also be the same as

the book ,al!eor the e!ity,al!e of a b!siness. Net asset ,al!e may

represent the ,al!e of the total e!ity/ or it may be di,ided by the

n!mber of shares o!tstandin%held by in,estors/ thereby representin%

the net asset ,al!eper share.

BR


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n in,estment bankin% terms/ it is a method of &nancin% !sed by

companies before their MO/ to obtain necessary cash for the

maintenance of operations. Brid%e &nancin% is desi%ned to co,er

expenses associated with the MO and is typically short'term in nat!re.

Once the MO is complete/ the cash raised from the oerin% will

immediately payo the loan liability.

' $!t!al 5!n"

t is a professionally'mana%ed tr!st that pools the sa,in%s of many

in,estors and in,ests them in sec!rities like stocks/ bonds/ short'term

money market instr!ments and commodities s!ch as precio!s metals.

n,estors in a m!t!al f!nd ha,e a common &nancial %oal and their

money is in,ested in dierent asset classes in accordance with the

f!ndPs in,estment obLecti,e. n,estments in m!t!al f!nds entail

comparati,ely small amo!nts/ %i,in% retail in,estors the ad,anta%e of

ha,in% &nance professionals control their money e,en if it is a few

tho!sand r!pees.

Based on the mat!rity period

Open'ended :!nd$n open'ended f!nd is a f!nd that is a,ailable for s!bscription and can

be redeemed on a contin!o!s basis. t is a,ailable for s!bscriptionthro!%ho!t the year and in,estors can b!y and sell !nits at N$? relatedprices. These f!nds do not ha,e a &xed mat!rity date. The key feat!reof an open'ended f!nd is li!idity.

Close'ended :!nd$ close'ended f!nd is a f!nd that has a de&ned mat!rity period/ e.%. 'E years. These f!nds are open for s!bscription for a speci&ed period atthe time of initial la!nch. These f!nds are listed on a reco%ni"ed stockexchan%e.

nter,al :!ndsnter,al f!nds combine the feat!res of open'ended and close'endedf!nds. These f!nds may trade on stock exchan%es and are open forsale or redemption at predetermined inter,als on the pre,ailin% N$?.

Based on in,estment obLecti,es

3!ityUKrowth :!nds3!ityUKrowth f!nds in,est a maLor part of its corp!s in stocks and the


16/38


17/38


18/38

Breakeven point;;The amo!nt of re,en!e from sales which exactly e!als the amo!nt of3xpense. Breake,en point is often expressed as the n!mber of !nitsthat m!st be sold to prod!ce re,en!es exactly e!al to expenses.

Sales abo,e the breake,en point prod!ce a pro&tA below prod!ces aloss.

Gar%in of safety 0safety mar%in2 is the dierence between the intrinsic

,al!eof a stock and its market price.

$nother de&nition4 n Break e,en analysis0acco!ntin%2/ mar%in of

safety is how m!ch o!tp!tor sales le,el can fall before a b!siness

reaches its breake,enpoint.

Market capitali(ation

0or market cap2 is the total ,al!e of the shares o!tstandin% of

a p!blicly traded companyA it is e!al to the share pricetimes the

n!mber of shares o!tstandin%.[-][]$s o!tstandin% stockis bo!%ht and

sold in p!blic markets/ capitali"ation co!ld be !sed as a proxyfor the

p!blic opinion of a company+s net worthand is a determinin% factor in

some forms of stock ,al!ation. f a company has ( million shares

o!tstandin%/ each with a market ,al!e of 9#))/ the company+s market

capitali"ation is 9.( billion 0(/)))/))) x 9#)) per share2.

Econo$ic or"er 6!antit+#. 03O2 is the order !antity that minimi"es total in,entory

holdin% costs and orderin% costs.-. The 3conomic Order !antity 03O2 is the n!mber of !nits that a

company sho!ld add to in,entory with each order to minimi"e the totalcosts of in,entoryVs!ch as holdin% costs/ order costs/ and shorta%ecosts. The 3O is !sed as part of a contin!o!s re,iew in,entory systemin which the le,el of in,entory is monitored at all times and a &xed!antity is ordered each time the in,entory le,el reaches a speci&creorder point.
http://en.wikipedia.org/wiki/Intrinsic_value_(finance)http://en.wikipedia.org/wiki/Intrinsic_value_(finance)http://en.wikipedia.org/wiki/Break_even_analysishttp://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Output_(economics)http://en.wikipedia.org/wiki/Breakevenhttp://en.wikipedia.org/wiki/Publicly_traded_companyhttp://en.wikipedia.org/wiki/Share_pricehttp://en.wikipedia.org/wiki/Shares_outstandinghttp://en.wikipedia.org/wiki/Market_capitalization#cite_note-investmcd-2http://en.wikipedia.org/wiki/Market_capitalization#cite_note-3http://en.wikipedia.org/wiki/Share_(finance)http://en.wikipedia.org/wiki/Proxy_(statistics)http://en.wikipedia.org/wiki/Net_worthhttp://en.wikipedia.org/wiki/Stock_valuationhttp://en.wikipedia.org/wiki/Intrinsic_value_(finance)http://en.wikipedia.org/wiki/Intrinsic_value_(finance)http://en.wikipedia.org/wiki/Break_even_analysishttp://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Output_(economics)http://en.wikipedia.org/wiki/Breakevenhttp://en.wikipedia.org/wiki/Publicly_traded_companyhttp://en.wikipedia.org/wiki/Share_pricehttp://en.wikipedia.org/wiki/Shares_outstandinghttp://en.wikipedia.org/wiki/Market_capitalization#cite_note-investmcd-2http://en.wikipedia.org/wiki/Market_capitalization#cite_note-3http://en.wikipedia.org/wiki/Share_(finance)http://en.wikipedia.org/wiki/Proxy_(statistics)http://en.wikipedia.org/wiki/Net_worthhttp://en.wikipedia.org/wiki/Stock_valuation


19/38

' Cas* 4lo7 State$ent

t is a statement showin% chan%es in cash position of the &rm from one

period to another. t explains the in1ows 0receipts2 and o!t1ows

0disb!rsements2 of cash o,er a period of time. The in1ows of cash may

occ!r from sale of %oods/ sale of assets/ receipts from debtors/

interest/ di,idend/ rent/ iss!e of new shares and debent!res/ raisin% ofloans/ short'term borrowin%/ etc. The cash o!t1ows may occ!r on

acco!nt of p!rchase of %oods/ p!rchase of assets/ payment of loans

loss on operations/ payment of tax and di,idend/ etc. Cash :low

Statement comprises information on followin% acti,ities4

1. Operating Activities 2. Investing Activities 3. Financing Activities

#. Operatin% $cti,ities4 Operatin% acti,ities incl!de cash 1ows from allstandard b!siness operations. Cash receipts from sellin% %oods andser,ices represent the in1ows. The re,en!es from interest anddi,idends are also incl!ded here. The operational expendit!res areconsidered as o!t1ows for this section. $ltho!%h interest expensesfall !nder this section b!t the di,idends are not incl!ded .


20/38

. n,entoryC!rrent @iabilities#. Mayables

Table of


21/38

B!d%ets are then b!ilt aro!nd what is needed for the !pcomin% period/

re%ardless of whether the b!d%et is hi%her or lower than the pre,io!s

one.

Me$oran"!$ o5 'ssociation

t is the doc!ment that %o,erns the relationship between the company

and the o!tside. The memorand!mof association %i,es the company+s

name/ namesof its members0shareholders2 and n!mber

of sharesheldby them/ and locationof its re%istered oce. t

also statesthe company+s 0#2 obLecti,es/ 0-2 amo!ntof a!thori"ed

share capital/ 02 whether liabilityof its members is limitedby shares

or by %!aranty/ and 0D2 what type of contractsthe company is allowed

to enter into. $lmost all of its pro,isions0except those mandated

by corporate le%islation2 can be altered by the company+s members by

followin% the prescribed proced!res. The memorand!m is a p!blic

doc!mentand may be inspected by anyone/ !s!ally at the

p!blic ocewhere it is lod%ed.

'rticle o5 'ssociation


22/38

-. Gemorand!m of association de&nes the relation of the companywith the ri%hts of the members of the company interest and alsoestablishes the relationship of the company with the members.. Gemorand!m of association cannot be altered except in the mannerand to the extent pro,ided by the act/ whereas the articles bein% onlythe byelaws of the company can be altered by a special resol!tion.D. Gemorand!m is a s!preme doc!ment of the company whereasarticles are s!bordinate to the memorand!m. They cannot alter orcontrol the memorand!m.(. 3,ery company m!st ha,e its own memorand!m. B!t a companylimited by shares need not re%ister its articles. n s!ch a case table $applies.E. $ company cannot depart from the pro,isions contained in itsmemorand!m/ and if it does/ it wo!ld be !ltra',ires the company.$nythin% done a%ainst the pro,isions of articles/ b!t which is intra',iresthe memorand!m/ can be rati&ed.

3oo"7ill n acco!ntin%/ the dierence between what a company pays when itb!ys the assets of another company and the book ,al!e of thoseassets. Sometimes/ real %oodwill is in,ol,ed ; a company+s %oodrep!tation/ the loyalty of its c!stomers/ and so on. Sometimes/%oodwill is an o,erpayment.

Bo$%a+ Stock E8c*ange0BS32 is an ndian stock exchan%elocatedat G!mbai/ Gaharashtra/ ndia. 3stablished in #WF( and is consideredto be one of $siaPs fastest stock exchan%es/ with a speed of -))microseconds and one of ndiaPs leadin% exchan%e %ro!ps and one ofthe oldest stock exchan%es in So!th $sia re%ion. Gore than (/)))companies are listed on BS3/ makin% it the world+s top exchan%e interms of listed members. The companies listed on BS3 @td. command atotal market capitali"ationof S


23/38


24/38

De%t M!t!al 4!n"smainly in,est in a mix of debt or &xed incomesec!rities s!ch as Treas!ry Bills/ Ko,ernment Sec!rities/ CorporateBonds/ Goney Garket instr!ments and other debt sec!rities of dierenttime hori"ons. Kenerally/ debt sec!rities ha,e a &xed mat!rity date Jpay a &xed rate of interest.

The ret!rns of a debt m!t!al f!nd comprises of '

nterest income

Capital appreciation U depreciation in the ,al!e of the sec!rity

d!e to chan%es in market dynamics

There is a wide ran%e of &xed income or


25/38

#. The act!al ,al!e of a company or an asset based on an !nderlyin%

perception of its tr!e ,al!e incl!din% all aspects of the b!siness/ in

terms of both tan%ible and intan%ible factors. This ,al!e may or may

not be the same as the c!rrent market ,al!e. ?al!e in,estors !se a

,ariety of analytical techni!es in order to estimate the intrinsic ,al!e

of sec!rities in hopes of &ndin% in,estments where the tr!e ,al!e ofthe in,estment exceeds its c!rrent market ,al!e.


26/38

p!rchase the stocks or bonds iss!ed by the companies.

Goney th!s earned from the sellin% of sec!rities %oes directly to the

iss!in% company. The primary markets are also called New ss!e

Garket 0NG2. nitial M!blic Oerin% is a typical method of iss!in%

sec!rity in the primary market. The f!nctionin% of the primary marketis cr!cial for both the capital market and economy as it is the place

where the capital formation takes place.

Secon"ar+ Market

$lready existin% sec!rities are traded

M!rpose of capital appreciation

Secondary Garket '


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the b!yer is !nable to make payment on the p!rchase/ the bank will be

re!ired to co,er the f!ll or remainin% amo!nt of the p!rchase.

@etters of credit are often !sed in international transactions to ens!re

that payment will be recei,ed.

dealin%s incl!din% factors s!ch as distance/ dierin% laws in eachco!ntry and dic!lty in knowin% each party personally/ the !se of

letters of credit has become a ,ery important aspect of international

trade. The bank also acts on behalf of the b!yer 0holder of letter of

credit2 by ens!rin% that the s!pplier will not be paid !ntil the bank

recei,es a con&rmation that the %oods ha,e been shipped.

Stat!tor+ li6!i"it+ ratio 0S@R2 is the ndian %o,ernment term

for reser,e re!irementthat the commercial banksin ndia re!ire to

maintain in the form of %old or %o,ernment appro,ed sec!rities before

pro,idin% credit to the c!stomers. Stat!tory @i!idity Ratio is

determined and maintained by Reser,e Bank of ndiain order to

control the expansion of bank credit.

CRR

or cash reser,e ratio is the minim!m proportion U percenta%e of a

bank+s deposits to be held in the form of cash. Banks act!ally don+t

hold these as cash with themsel,es/ b!t deposit the same with RB U

c!rrency chests/ which is considered e!i,alent to holdin% cash with

themsel,es.

>hen a bank+s deposits increase by Rs. #)) crore/ and considerin% the

present cash reser,e ratio of E*/ bank will ha,e to hold additional Rs.

E crore with RB and will be able to !se only Rs. 5D crore for

in,estments and lendin%. Therefore/ hi%her the CRR/ lower the amo!nt

that banks can lend. Th!s RB can control the li!idity by chan%in% the

CRR i.e. increase CRR to red!ce the lendable amo!nt and ,ice',ersa.

S@R
http://en.wikipedia.org/wiki/Reserve_requirementhttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_requirementhttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Reserve_Bank_of_India


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or stat!tory li!idity ratio is the minim!m percenta%e of deposits that

a bank has to maintain in form of %old/ cash or other appro,ed

sec!rities. t is the ratio of li!id assets 0cash and appro,ed sec!rities2

to the demand and term liabilities U deposits.

:actorin% is a &nancial transactionand a type of debtor &nanceinwhich a b!siness sellsits acco!nts recei,able0i.e./ in,oices2 to a third

party 0called factor2 at a disco!nt.[#][-][][D]$ B!siness will

sometimes :actor its Recei,able $ssets to meet its present and

immediate Cashneeds.[(][E]:orfaitin%is a :actorin% arran%ement !sed

in nternational Trade :inanceby 3xporterswho wish to sell

their recei,ablesto a forfeiter.

Short'term/ non'bank &nancin%of acco!nts'recei,able. t is of fo!r

main types4 0#2 n mat!rityfactorin% 0also calledser,ice factorin%2/

the factormaintainsthe seller+ssales led%er/ controlscredit/ follows !p

on the payments/ and paysthe amo!nt0after ded!ctin% a commission2

of each in,oiceas it falls d!e/ whether or not the payment was

collected. 0-2 n &nance factorin%/ the factor 0called the &nancin%

factor2 ad,ancesf!ndsto a prod!ceror a man!fact!rin%&rm/ on

the sec!rityof prod!ce or %oodsthat will be prod!cedor man!fact!red

!tili"in% those f!nds. 02 n disco!ntfactorin% 0also called ser,ice pl!s

&nance factorin%2 the factor ad,ances a percenta%e 0!s!ally between

F) to W( percentof the ,al!eof acco!nts recei,able2 to the seller on

a non'reco!rsebasis and ass!mesthe f!ll responsibilityof collectin%

the debts. 0D2 n !ndisclosed factorin%/ a factor b!ysthe %oods from

a primaryparty0prod!cer/ man!fact!rer/ or seller2 and then appoints

the same party as its a%entto resell those %oods and to collect the

payments. This arran%ementpre,ents the disclos!rethat %oods are

bein% sold !nder a factorin% a%reement.

Bond ,al!ation

is the determination of the fair priceof a bond. $s with any sec!rity or

capital in,estment/ the theoretical fair ,al!e of a bond is the present

,al!eof the stream of cash 1ows it is expected to %enerate. =ence/ the
http://en.wikipedia.org/wiki/Financial_transactionhttp://en.wikipedia.org/wiki/Debtor_financehttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Invoicehttp://en.wikipedia.org/wiki/Discountinghttp://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-1http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-CPA_Finance-2http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-CPA_ExamReview-3http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-CPA_ExamReview-3http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-4http://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-Finance-5http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-WallStreetJournal-6http://en.wikipedia.org/wiki/Forfaitinghttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Exporthttp://en.wikipedia.org/wiki/Accounts_receivablehttp://www.businessdictionary.com/definition/short-term.htmlhttp://www.businessdictionary.com/definition/financing.htmlhttp://www.businessdictionary.com/definition/type.htmlhttp://www.businessdictionary.com/definition/maturity.htmlhttp://www.businessdictionary.com/definition/call.htmlhttp://www.businessdictionary.com/definition/service-factoring.htmlhttp://www.businessdictionary.com/definition/factor.htmlhttp://www.businessdictionary.com/definition/maintain.htmlhttp://www.businessdictionary.com/definition/seller.htmlhttp://www.businessdictionary.com/definition/sales-ledger.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.businessdictionary.com/definition/credit.htmlhttp://www.businessdictionary.com/definition/payment.htmlhttp://www.businessdictionary.com/definition/pay.htmlhttp://www.businessdictionary.com/definition/amount.htmlhttp://www.businessdictionary.com/definition/commission.htmlhttp://www.businessdictionary.com/definition/invoice.htmlhttp://www.businessdictionary.com/definition/due.htmlhttp://www.businessdictionary.com/definition/advances.htmlhttp://www.businessdictionary.com/definition/funds.htmlhttp://www.businessdictionary.com/definition/producer.htmlhttp://www.businessdictionary.com/definition/manufacturer.htmlhttp://www.businessdictionary.com/definition/security.htmlhttp://www.businessdictionary.com/definition/goods.htmlhttp://www.businessdictionary.com/definition/produce.htmlhttp://www.businessdictionary.com/definition/discount.htmlhttp://www.businessdictionary.com/definition/service-plus-finance-factoring.htmlhttp://www.businessdictionary.com/definition/service-plus-finance-factoring.htmlhttp://www.businessdictionary.com/definition/percent.htmlhttp://www.businessdictionary.com/definition/value.htmlhttp://www.businessdictionary.com/definition/accounts-receivable-A-R.htmlhttp://www.businessdictionary.com/definition/non-recourse.htmlhttp://www.businessdictionary.com/definition/assume.htmlhttp://www.businessdictionary.com/definition/responsibility.htmlhttp://www.businessdictionary.com/definition/debt.htmlhttp://www.businessdictionary.com/definition/buy.htmlhttp://www.businessdictionary.com/definition/primary.htmlhttp://www.businessdictionary.com/definition/party.htmlhttp://www.businessdictionary.com/definition/agent.htmlhttp://www.businessdictionary.com/definition/arrangement.htmlhttp://www.businessdictionary.com/definition/disclosure.htmlhttp://www.businessdictionary.com/definition/agreement.htmlhttp://en.wikipedia.org/wiki/Fair_pricehttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Present_valuehttp://en.wikipedia.org/wiki/Present_valuehttp://en.wikipedia.org/wiki/Financial_transactionhttp://en.wikipedia.org/wiki/Debtor_financehttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Invoicehttp://en.wikipedia.org/wiki/Discountinghttp://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-1http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-CPA_Finance-2http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-CPA_ExamReview-3http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-4http://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-Finance-5http://en.wikipedia.org/wiki/Factoring_(finance)#cite_note-WallStreetJournal-6http://en.wikipedia.org/wiki/Forfaitinghttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Exporthttp://en.wikipedia.org/wiki/Accounts_receivablehttp://www.businessdictionary.com/definition/short-term.htmlhttp://www.businessdictionary.com/definition/financing.htmlhttp://www.businessdictionary.com/definition/type.htmlhttp://www.businessdictionary.com/definition/maturity.htmlhttp://www.businessdictionary.com/definition/call.htmlhttp://www.businessdictionary.com/definition/service-factoring.htmlhttp://www.businessdictionary.com/definition/factor.htmlhttp://www.businessdictionary.com/definition/maintain.htmlhttp://www.businessdictionary.com/definition/seller.htmlhttp://www.businessdictionary.com/definition/sales-ledger.htmlhttp://www.businessdictionary.com/definition/control.htmlhttp://www.businessdictionary.com/definition/credit.htmlhttp://www.businessdictionary.com/definition/payment.htmlhttp://www.businessdictionary.com/definition/pay.htmlhttp://www.businessdictionary.com/definition/amount.htmlhttp://www.businessdictionary.com/definition/commission.htmlhttp://www.businessdictionary.com/definition/invoice.htmlhttp://www.businessdictionary.com/definition/due.htmlhttp://www.businessdictionary.com/definition/advances.htmlhttp://www.businessdictionary.com/definition/funds.htmlhttp://www.businessdictionary.com/definition/producer.htmlhttp://www.businessdictionary.com/definition/manufacturer.htmlhttp://www.businessdictionary.com/definition/security.htmlhttp://www.businessdictionary.com/definition/goods.htmlhttp://www.businessdictionary.com/definition/produce.htmlhttp://www.businessdictionary.com/definition/discount.htmlhttp://www.businessdictionary.com/definition/service-plus-finance-factoring.htmlhttp://www.businessdictionary.com/definition/service-plus-finance-factoring.htmlhttp://www.businessdictionary.com/definition/percent.htmlhttp://www.businessdictionary.com/definition/value.htmlhttp://www.businessdictionary.com/definition/accounts-receivable-A-R.htmlhttp://www.businessdictionary.com/definition/non-recourse.htmlhttp://www.businessdictionary.com/definition/assume.htmlhttp://www.businessdictionary.com/definition/responsibility.htmlhttp://www.businessdictionary.com/definition/debt.htmlhttp://www.businessdictionary.com/definition/buy.htmlhttp://www.businessdictionary.com/definition/primary.htmlhttp://www.businessdictionary.com/definition/party.htmlhttp://www.businessdictionary.com/definition/agent.htmlhttp://www.businessdictionary.com/definition/arrangement.htmlhttp://www.businessdictionary.com/definition/disclosure.htmlhttp://www.businessdictionary.com/definition/agreement.htmlhttp://en.wikipedia.org/wiki/Fair_pricehttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Present_valuehttp://en.wikipedia.org/wiki/Present_value


29/38

,al!e of a bond is obtained by disco!ntin% the bond+s expected cash

1ows to the present !sin% an appropriate disco!nt rate.

The f!ndamental principle of bond ,al!ation is that the bond+s ,al!e is

e!al to the present ,al!e of its expected 0f!t!re2 cash 1ows. The

,al!ation process in,ol,es the followin% three steps4

#. 3stimate the expected cash 1ows.

-.


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said to be less le,era%ed. $s the ,ol!me of sales in a b!siness

increases/ each new sale contrib!tes less to &xed costs and more to

pro&tability.

-. $ b!siness that has a hi%her proportion of &xed costs and a lower

proportion of ,ariable costs is said to ha,e !sed more operatin%

le,era%e. Those b!sinesses with lower &xed costs and hi%her ,ariablecosts are said to employ less operatin% le,era%e.

The debtUe!ity ratio also depends on the ind!stry in which the

company operates. :or example/ capital'intensi,e ind!stries s!ch as

a!to man!fact!rin% tend to ha,e a debtUe!ity ratio abo,e -/ while

personal comp!ter companies ha,e a debtUe!ity of !nder ).(.

SN COST+

$ cost that has already been inc!rred and th!s cannot be reco,ered. $

s!nk cost diers from other/ f!t!re costs that a b!siness may face/

s!ch as in,entory costs or RJ< expenses/ beca!se it has already

happened. S!nk costs are independent of any e,ent that may occ!r in

the f!t!re.

:RST N/ :RST OT ' ::O+

$n asset'mana%ement and ,al!ation method in which the assets

prod!ced or ac!ired &rst are sold/ !sed or disposed of &rst. ::O may

be !sed by a indi,id!al or a corporation.

Co$$ercial paper/ in the %lobal &nancial market/ isan !nsec!redpromissory notewith a &xed mat!rityof no more than

-F) days.

Commercial paper is a money'marketsec!rityiss!ed 0sold2 by

lar%e corporationsto obtain f!ndsto meet short'term debtobli%ations

0for example/ payroll2/ and is backed only by an iss!in% bank or

corporation+s promise to pay the face amo!nt on the mat!rity date

speci&ed on the note.
http://en.wikipedia.org/wiki/Unsecured_debthttp://en.wikipedia.org/wiki/Promissory_notehttp://en.wikipedia.org/wiki/Maturity_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Payrollhttp://en.wikipedia.org/wiki/Unsecured_debthttp://en.wikipedia.org/wiki/Promissory_notehttp://en.wikipedia.org/wiki/Maturity_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Payroll


31/38

' cas* cre"itis a short'term cash loan to a company. $ bank pro,idesthis type of f!ndin%/ b!t only after the re!ired sec!rity is %i,en tosec!re the loan. Once a sec!rity for repayment has been %i,en/ theb!siness that recei,es the loan can contin!o!sly draw from the bank!p to a certain speci&ed amo!nt.Over"ra5t$n o,erdraft occ!rs when money is withdrawn from a bankacco!ntand the a,ailable balance%oes below "ero. n this sit!ation the acco!ntis said to be o,erdrawn. f there is a prior a%reement with theacco!nt pro,ider for an o,erdraft/ and the amo!nt o,erdrawn is withinthe a!thori"ed o,erdraft limit/ then interestis normally char%ed at thea%reed rate. f the ne%ati,e balance exceeds the a%reed terms/then additional feesmay be char%ed and hi%her interest rates mayapply.$n extension of credit from a lendin% instit!tion when an acco!ntreaches "ero. $n o,erdraft allows the indi,id!al to contin!ewithdrawin% money e,en if the acco!nt has no f!nds in it. Basically thebank allows people to borrow a set amo!nt of money.

S3G'?$R$B@3 COST+

$ cost composed of a mixt!re of &xed and ,ariable components. Costs

are &xed for a set le,el of prod!ction or cons!mption/ becomin%

,ariable after the le,el is exceeded. The &xed cost element shall be a

part of the cost that needs to be paid irrespecti,e of the le,el of

acti,ity achie,ed by the entity. On the other hand the ,ariable

component of the cost is payable proportionate to the le,el of acti,ity.

The primary market is the part of the capital marketthat deals with

iss!in% of new sec!rities. Companies/ %o,ernments or p!blic sector

instit!tions can obtain f!nds thro!%h the sale of a new stockor bond

iss!esthro!%h primary market. Mrimary markets are facilitated by!nderwritin% %ro!ps/ which consist of in,estment banks that will set a

be%innin% price ran%e for a %i,en sec!rity and then o,ersee its sale

directly to in,estors.

3arnin%s per share 03MS2 is the monetary ,al!e of earnin%s per

each o!tstandin% shareof a company+s common stock.
http://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Balance_(accounting)http://en.wikipedia.org/wiki/Interest_(finance)http://en.wikipedia.org/wiki/Bank_chargeshttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Stock_issuehttp://en.wikipedia.org/wiki/Bond_issuehttp://en.wikipedia.org/wiki/Bond_issuehttp://en.wikipedia.org/wiki/Outstanding_sharehttp://en.wikipedia.org/wiki/Common_stockhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Balance_(accounting)http://en.wikipedia.org/wiki/Interest_(finance)http://en.wikipedia.org/wiki/Bank_chargeshttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Stock_issuehttp://en.wikipedia.org/wiki/Bond_issuehttp://en.wikipedia.org/wiki/Bond_issuehttp://en.wikipedia.org/wiki/Outstanding_sharehttp://en.wikipedia.org/wiki/Common_stock


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3arnin%s per share 0basic form!la2

3arnin%s per share 0net income form!la2

3arnin%s per share 0contin!in% operations form!la2

3arnin%s per share ser,es as an indicator of a company+s pro&tability.


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rospect!s

$ formal le%al doc!ment/ which is re!ired by and &led with the

Sec!rities and 3xchan%e Commission/ that pro,ides details abo!t an

in,estment oerin% for sale to the p!blic. $ prospect!s sho!ld contain

the facts that an in,estor needs to make an informed in,estment

decision.

$ prospect!s/ in &nance/ is a disclos!re doc!ment that describes a

&nancial sec!rity for potential b!yers. t commonly pro,ides in,estors

with material information abo!t m!t!al f!nds/ stocks/ bondsand

other in,estments/ s!ch as a description of the company+s

b!siness/ &nancial statements/ bio%raphies of ocers and directors/

detailed information abo!t their compensation/ any liti%ation that is

takin% place/ a list of material properties and any other material

information. n the context of an indi,id!al sec!rities oerin%/ s!ch as

an initial p!blic oerin%/ a prospect!s is distrib!ted

by !nderwritersor brokera%esto potential in,estors.

Dierence %et7een pre5erence s*are an" e6!it+ s*are

#.Rate Of


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D. ?otin%

3!ity shareholders enLoy ,otin% ri%hts. Mreference shareholders

do not ha,e the ri%ht to participate in the mana%ement of the

company.

(. Mayment Of


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MRO67+

#. $n a%entle%ally a!thori"ed to act on behalf of another

party. Shareholdersnot attendin% a company+s ann!al meetin%may

choose to ,ote their sharesby proxy by allowin% someone else to

cast ,otes on their behalf.

-. Gana%ement often enco!ra%es shareholders to ,ote by proxy so

that ownership interests are f!lly represented e,en if shareholders

are !nable to attend the company+s ann!al meetin%s in person.

BOO; ,'-E ER COMMON Shen a stock is sold/ the sellin%

price less the book ,al!e is the capital %ain 0or loss2 from the

in,estment.
http://www.investopedia.com/terms/a/agent.asphttp://www.investopedia.com/terms/s/shareholder.asphttp://www.investopedia.com/terms/a/agm.asphttp://www.investopedia.com/terms/s/shares.asphttp://www.investopedia.com/terms/a/agent.asphttp://www.investopedia.com/terms/s/shareholder.asphttp://www.investopedia.com/terms/a/agm.asphttp://www.investopedia.com/terms/s/shares.asp


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b

=ypothecation is a way of creatin% a char%e a%ainst the sec!rity of

mo,able assets/ which is m!ch similar to pled%e.0example p!rchasin%

a bike from bank loan2. The possession and the ownership remains with

the borrower.Since the possession remains with the borrower/ he may/at any time either create a s!bse!ent char%e by way of pled%e o,er

same %oods or may sell them. n s!ch cases/ the ri%hts of the pled%ee

!s!ally s!percedes the ri%hts of the person in whose fa,o!r the %oods

were hypothecated/ if the fact of existence of s!ch a char%e is not

known to the s!bse!ent pled%ee..

le"ge

Mled%e arises when the lender0 pled%ee2 takes possession of either the

%oods or bearer sec!rities for extendin% a credit facility to the borrower

0pled%or2. The pled%ee can retain the possession of the %oods !ntil the

pled%or repays the entire debt amo!nt and in case of a defa!lt/ the

pled%ee has the ri%ht to sell the %oods in his possession and adL!st its

proceeds towards the amo!nt d!e.0example Xewel loan2

Mortgage

Gort%a%e is a type of char%e related to immo,able property.

mmo,able property shall incl!de land/ bene&ts to arise o!t of land and

thin%s attached to the earth or permanently fastened to anythin%

attached to the earth. t does not incl!de standin% timber/ %rowin%

crops or %rass.

hen an in,estor asks a broker to p!rchase sec!rities on mar%in/

hypothecation can occ!r in two senses. The p!rchased assets can be

hypothecated so that/ if the in,estor fails to keep !pcreditrepayments/

the broker can sell some of the sec!rities.[#]The broker can also sell the
http://en.wikipedia.org/wiki/Margin_accounthttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Hypothecation#cite_note-dictdef-1http://en.wikipedia.org/wiki/Margin_accounthttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Hypothecation#cite_note-dictdef-1


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sec!rities if they drop in ,al!e and the in,estor fails to respond to

a mar%in call.

Repo rateis the rate at which the central bank of a co!ntry 0Reser,e

Bank of ndia in case of ndia2 lends money to commercial banks in the

e,ent of any shortfall of f!nds. Repo rate is !sed by monetarya!thorities to control in1ation.

"escription#n the e,ent of in1ation/ central banks increase repo rateas this acts as a disincenti,e for banks to borrow from the central bank.

This !ltimately red!ces the money s!pply in the economy and th!s

helps in arrestin% in1ation.

Reverse repo rateis the rate at which the central bank of a co!ntry

0Reser,e Bank of ndia in case of ndia2 borrows money from

commercial banks within the co!ntry. t is a monetary policy

instr!ment which can be !sed to control the money s!pply in the

co!ntry.

"escription#$n increase in the re,erse repo rate will decrease themoney s!pply and ,ice',ersa/ other thin%s remainin% constant. $n

increase in re,erse repo rate means that commercial banks will %et

more incenti,es to park their f!nds with the RB/ thereby decreasin%

the s!pply of money in the market.

$SS3T G$N$K3G3NT COGM$N7 ' $GC+

$ company that in,ests its clients+ pooled f!nd into sec!rities that

match its declared &nancial obLecti,es. $sset mana%ement companies

pro,ide in,estors with more di,ersi&cation and in,estin% options than

they wo!ld ha,e by themsel,es.

G!t!al f!nds/ hed%e f!nds and pension plans are all r!n by asset

mana%ement companies. These companies earn income by char%in%

ser,ice fees to their clients.

Operating pro0t

The pro&t earned from a &rm+s normal core b!siness operations. This

,al!e does not incl!de any pro&t earned from the &rm+s in,estments
http://en.wikipedia.org/wiki/Margin_callhttp://en.wikipedia.org/wiki/Margin_call


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0s!ch as earnin%s from &rms in which the company has partial interest2

and the eects of interest and taxes.

Operatin% Mro&t Z Operatin% Re,en!e ' COKS ' Operatin% 3xpenses '

capital iq.docx

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