Current Liability:-
Current Liabilities are
short term Liabilities with a maturity of one year or less.
Examples are
- Account payable
- Accrued expenses
- Bank over Draft
- Income tax Payable
Tuesday, December 9, 2014
What is Current Liability
Current Liability:-
What is Current Asset
Current Asset:-
Current assets are
short term assets with a maturity of one year or less.
Examples are
- Cash
- Marketable Securities
- Inventories
- Short term Investments
- Accounts Receivable
- Prepaid Expenses
What is Long Term Liability
Long Term Liability:-
Long Term Liabilities
are Liabilities with a maturity of more than one year
For Example
Long term Bank Loans
Difference between Cost and Expense
Difference
between Cost and Expense:-
Cost is the Price of a
product and when the utility of that product is finished then it is expend.
For example if we buy a coke for BDT 35, then the cost of the coke is BDT 35
and when we finished the coke then it is expend.
What is EOQ
EOQ (Economic Order Quantity) :– EOQ is that quantity of ordering materials for which the organization has to bear optimum amount of cost for ordering and carrying materials.
Formula
for calculating EOQ:-
EOQ
=
√2AO/C
Where,
A = Annual usage units
O = Ordering cost per unit
C = Annual
carrying cost of one unit
i.e. Carrying cast % *
Carrying cost of unit
Saturday, December 6, 2014
What is Flotation Cost
Flotation cost is the total cost of issuing and selling a security. It reduces the net proceeds from the sale. Flotation cost has two components
i) Underwriting costs
ii) Administrative costs
i) Underwriting costs :- Compensation earned by the investment bankers for selling security.
ii) Administrative costs :- Issuers expenses like - legal, Accounting, Printing and other expenses.
i) Underwriting costs
ii) Administrative costs
i) Underwriting costs :- Compensation earned by the investment bankers for selling security.
ii) Administrative costs :- Issuers expenses like - legal, Accounting, Printing and other expenses.
'Is equity capital free of cost'
Because of the following reasons equity capital is not free of cost.
- Common stockholders can claim on the residual income of a company and have the right to interfere to the company's various internal matters.
- If all the profit is distributed to the shareholders then the company needs to issue additional shares for financing.
- If the company decides to issue new shares then it will have to pay flotation cost.
'Debt is the cheapest source of capital'
'Debt is the cheapest source of capital' - We can give comment on this statement from both lender and borrower point of view.
From Lender point of view :-
From Lender point of view :-
- Lenders feel secure because the obligation of bondholders meet before both preferred and common stockholders in case of company's liquidation.
- The interest against bonds must be paid to bondholders either the company makes profit or not.
- The main advantage of using debt instruments as a source of financing is the interest against debt instruments is tax deductible expenses. So the company can enjoy a tax reduction.
- The required rate of return of lenders is lower than other financing instruments. So the cost of debt or the cost of capital is lower for the company.
- Common stockholders can claim on the residual income of a company and have the right to interfere to the company's various internal matters but bondholders have not such right.
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