What is Reverse Split

 

Reverse split: - Reverse split decreases the total number of shares of a company. Due to reverse split total number of shares decreases, par value of shares is increased but market capitalization will remain same and EPS of the company will increase as the no of share outstanding decrease.

For example consider a company which has 1,00,000 shares outstanding with a par value of BDT 10, now it decides to make a reverse split of 1 for 2. So the new number of shares outstanding will be 50,000 and par value will be increased to BDT 20.

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What is Stock Split

Stock Split – Stock split increases the total number of shares of a company. Due to stock split total number of shares increase, par value of shares is reduced but market capitalization will remain same and EPS of the company also reduced as the no of share outstanding increase.

For example consider a company which has 1,00,000 shares outstanding with a par value of BDT 10, now it decides to make a stock split of 2 for 1. So the new number of shares outstanding will be 2,00,000 and par value will be reduced to BDT 5.

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What are the decisions taken by a financial manager

      A Financial manager takes various decisions for a business Organization. Broadly a financial manager takes three types of decisions 

1.  Investment decision  
2. Financing decision   
3.  Dividend decision

Investment decision: - Investment decisions involve choosing the best alternative from the available investment opportunities. There are two types of investment opportunities in a business organization, one is short term and another one is long term. Capital Budgeting is a technique for evaluating long term investment projects.

      

     Financing decision: - Financing decision involves choosing the best sources of fund so that the company can minimize weighted average cost of capital.

        Dividend decision: - Dividend decision involves decisions about distributing dividends or retaining for reinvestment.

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What is Financial Risk

Financial Risk : - Financial Risk refers to the risk of the company not able to cover its fixed financial cost. Fixed financial cost includes payment of interest that is to be paid whether the company can make profit or not. Degree of financial leverage measures the degree of financial risk. If the degree of financial leverage is high then the firm has more financial risk. If EBIT (Earnings before interest and tax) decreases, financial risk increases because the firm may not be in a position to pay its interest obligations.

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What are compound interest and simple interest

Compound Interest:-

Compound interest means earning Interest on interest. For example we have BDT 100 to deposit at 10% interest for 3 years. Then interest for the first year will be BDT 10 and it will be added with the principle amount so the principle amount will be BDT 110 for the second year and interest will be charged on 110 for the second year. This is called compound interest.

Simple Interest:-

Interest earned only on the original investment and no interest is earned on interest. For example if we have BDT 100 to deposit at 10% interest for 3 years. Then interest for the first year will be BDT 10 and it will not be added with the principle amount. So the principle amount will remain unchanged during the 3 years and interest revenue will also be same during the 3 years. This is simple interest.

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