FINANCING AND DIVIDEND DECISION : leverages

Jun 18th, 2015
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1. Give the meaning of the term leverage.It refers to the employment of an asset or funds for which the firm pays a fixed cost or fixed return. 2.Define composite Leverage.-It is combination of both operating and financial leverages. It expresses the effect of change in sales over change in taxable profit.

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WORKING CAPITAL - Meaning of Working CapitalCapital required for a business can be classified under two main categories via,1) Fixed Capital2) Working Capital Every business needs funds for two purposes for its establishment and to carry out its day- to-day operations. Long terms funds are required to create production facilities through purchase of fixed assets such as p&m, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day to- day expenses etc.These funds are known as working capital. In simple words, working capital refers to that part of the firms capital which is required for financing short- term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assts keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital.CONCEPT OF WORKING CAPITALThere are two concepts of working capital:1. Gross working capital2. Net working capital The gross working capital is the capital invested in the total current assets of the enterprises current assets are thoseAssets which can con

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