Opting for a loan?.. think a while to decide up on fixed & flexible rate of intetest that fits for your business needs..

While taking a loan, interest rate is always remains an impotent criteria to consider in to. Further, in time of taking up a term loan most of the people finds difficult to decide up on what mode of interest will be ultimate beneficial for the business regards to future course of payments. Lets put few words in defining what do we exactly mean by fixed & floating rate of interest charge. Fixed rate of interest, as the terms suggests rest in a definite rate being fixed at the time of signing in to loan agreement. Again, floating rate of interest floats accordingly as per change in interest rate portfolio of the lender( commonly a bank, other non banking financial institutions etc). At the time of entering in to the contract, either of these types of interest is settled as per relation between the borrower & lender, creditworthiness of the loan seeker & prevailing rate equals or more than the prime rate as prescribed by the governing rules. However, very often people get puzzled in opting out the most appropriate payment mode that will serve best for them. Taking in to account of the following factors can be helpful in taking suitable payment option. Lets have a look..

Firstly while signing in to contract deal, take a wise look in to the current economic scenario as well as future outlook in present term. For instance, if one opts for a loan & the economic strength & stability remains intact.. can be settle of in a fixed rate as the further economic boom may boost up the interest rate to a new high.

Secondly, the present as well as future viability of the industry with in the economy in which the object of the borrower persists. If one asks for home loan, the respective rigidity of the housing industry need to be considered. Henceforth, if the demand is on, it can be presume that the rate will not fall in near future rather it may go up as long as demand dominates.

Thirdly, need to compare the current rate with the prime rate, i.e, the rate prescribed by the regulating authority. If the rate is varies too much need to have further negotiation with the lender or look out other alternative options.

Fourthly, the current REPO & Reverse REPO is also a critical criterion to opine up on mode of interest rate fixation. If there is enough liquidity in money & capital markets, it is expected to encounter a strict monitory policy. Accordingly, the banks & other financial institutions are forced to increase the interest rate to restrict the borrowing capacity of the probable buyers & encourage in savings.

Fifthly & most impotently self risk tolerance capability & anticipation upon future economic credibility plays a vital role in resorting in to either of the payment rate.

Lastly, the tenure or the loan acts in the decision making. If the tenure to too long, it is quite impossible to opine upon what can be the social as well as economical scenario after several years. In such cases, fixed rate can be preferable.

InVestment in CoMModities: An IneVitable tRading opTion..

In recent times, a coroborative curicity pops up among traderes across the countries in commodities & their tradability. Many of them beting over these commodities as an inevitable investment option in coming days. But.. all these words are more prospective over present perspects. Lets find out what these commodities actually do mean.

Commodites can be largely termed as goods having a little distinctive aspect. What differs them from common term is their world wide avilability & acceptability along in the line of consistency with a least variation in standard & quality. Lets take few examples of commodities that are commonly in use like precious metal(gold, silver, copper etc), agricultural products such as rubber, corn, rice ,sugar etc., energy & industrial resources like crude oil, coal & aluminium etc. However their respective trading value varries in accordence with their tradability.

Now lets see how traders play in this market. Although here we deals in commodities, it doesn't necessorily mean that we need to buy or sell commodities in physical sence. Moreover, what actually do mean is to buy a future contract of an underlaying commodity at a certain price at a certain future date more like future trading in equity market. Accordingly, in the mean time the daily price of such commodity varries accordingly. the extent of these varrietions effects in fixing up future contract price. In technical term, commodity trading commonly practices in derivative tools rather than dumping up for further deal in real term.

As I have stated earlier, commodity market gradually growing up with global applosure. Now days commodities are traded accross the countries in various exchanges like Chicago Mercantile Exchange, Australian Securities Exchange, the Tokyo Commodity Exchange etc. These exchanges facilitates the platform for plotting future course of contracts. Now, unlike eqity market, valuation of a commodity depends upon several events strats from environmental to social,political & economical outlooks. For exampale, price of crops varries yearly in accordance with change in climate & it's favourability. Similarly, for crude oil the pricing depends up on economical & political stability of eastern countries as well as economic conditions of other countries. These seriees of fluctuations among commodities helps in fueling momentum in to the commodity market. Accordingly for a trader, need to predict the future contract price taking the factors like cyclical trend in supply & demand, social, economical & political aspects as well as future viability.

Comodity Trading: an emerging Investment option..

Commodities can be defined as goods having wide demand & doesn't differ much in terms of quality. On the basis of such standardized quality, these goods are considered as an useful investment as well as trading options. For instance, gold, silver, crude oil etc doesn't differs much in due course. Apart from these, other popular traded commodities are.. precious metals like gold, silver, copper etc. , agricultural products such as rubber, corn, rice & sugar., energy & industrial resources like crude oil, coal, aluminum etc.

In recent times, may investors & traders are taking their bet in to the commodity market as an inevitable invest option.

Few Tips on Maintaining Cash for your business..

In my previous article, I have tried to depict a detailed discussion up on needs of cash management. We have seen tactful management of cash can have a substantial impact upon profitability of an entity. However, the question of effective cash management rests in efficient maintenance of cash at an sustainable level. Further its also facilitates in better working capital management & accordingly improves the current ratio to define the financial stability of the business.

In recent times, major economic instability across the countries & as the recessionary roll outs ruthlessly in almost every industries, most of the small as well as middle scale business units are finding hard to cope up the financial curse & hence many of them are already winded up & rests are running short of fund. Henceforth, it is crucial concern for every business organization to work out a initial feasibility over the average maintainable level of cash requirements. However, these words doesn't have much value for an entity already in disaster. Henceforth, it will be better of to discuss upon few revival remedies for a staggering concern to get rid of financial rigidity.

For every business entity, the relative strength of available cash & cash equivalents reflects in current ratio. Accordingly, to maintain a healthy current ratio, sufficient amount of liquidity must be put in to business. However, if the available cash & cash equivalents are lagging behind the least requirements, then need to work out upon alternative options. Firstly, as all of us commonly do in time of crisis, evaluate the extent of scraps in process & non performing fixed assets & sale of accordingly to feed your financial needs. Also one need to console his operating activity as per the current economic circumstances where the demand in in downturn day by day. It will further help to bring down the working capital needs. However, it is not always easy to change the level of operational activities due to prospective impact upon cost effectiveness more precisely for big production houses. Secondly, if the above options are not sufficient enough to satisfy the severity, further steps can be taken in negotiation with creditors & debtors. Ask for longer credit period from the creditors as far as possible so also to debtors by keeping a constant track with them & make them to pay at their earliest. Also, if there is any negotiable instruments in hand, these can be easily discounted through any banks. Apart from these, non performing assets like doubtful debtors etc can be discharged off at a discounted value through some agencies & institutions deals in such. Thirdly, taking a term loan is a good option provided the business has the capability to cope up with that. For a public company, further fund can be raised through IPO's & right issues etc. Although, in recent terms I don't think there will be enough response in such practices. Fourthly, federal government of most of the countries in economic dire, offers several revival packages & grants to safeguard the business functions of every scale. As such, before taking off the entire activities, it will be apprehensive for every busines concen to evaluate these options wisely.

Few Tips on Effective MANAGEMENT of business CASH..

Cash maintanence & management are the crusial consideration for every concerned undertakings. To continue the regular course of operation for a business unit adiquate maintanence of cash as well as effective utilisation of excessive or idle cash is essential. For any business undertakings, irrespective of self propritorship or partnership or a company, excessive funding over estimated project cost amounts in to loss of opportunity cost & also increases cost of capital. Henceforth, it is importent to evaluate the requirement of liquid cash or cash equvallent to carry on the business function in terms of adiquate provision for bad debt, relation with creditor, market stability for the products in process, availability of the factors of production, current economic condition & political situations etc. However, so far I have discussed upon effects of inefficient cash management. Let's find out few techniques of tactful cash management.

Firstly, if you find your business is fueled with excessive funding the easiest way for a self propritorship or partnership firm is to take out the excess amount on account of dreawings.However, for big corporate houses (private & public companies) this procedure is a bit complicated. Here disbursment of excessive fund is termes as capital reduction. It is commonly practised through buy back of shares in complience with the respective governing act.

Secondly, in most of the cases & mainly corporate houses maintain a portion of their liquid fund in relatively illliquid invesment portfolio. It also helps them to diversify their source of income as well as appreciate balance aheet figures. Another prospectful aspect of this practise is that it facilitates in quick availability of fund as per requirement. In many times, holding company's stake in subsuderies also comprise of these excess funds.

Thirdly & most commonly major corporate houses often discharged off excess liquidity in terms of higher divident payouts. It also helps in inflating the equity value in the capital market.

Lastly, excessive cash is favorable for a business to the extent of it's effective utilisation. Henceforth, additional fund can be deployed in to business diversifications. As such, in recent days business diversification is a quite handy tool for better business promotion.

If you are looking to fuel fresh finance in to your business…wait!!... take a wise look on the following factors..

Capital is the backbone of every business. Although, in all aspects capital doesn’t necessarily mean cash, it can be comprise of cash equivalent or fixed assets that we very often find in self proprietorship or partnership firms. Also in course of conversion of any self proprietorship in to a company we can observe personal assets of the proprietor invested in the business are either taken back by the proprietor or subsidized by equivalent amount of share in the capital & of course the ownership of the property is immediately transferred to the company. However, in general terms, capital forms in finance. Now if one needs to extend his capital base due to new undertakings or expansion of existing business, selection of the best source of finance out of several other alternatives is quite crucial. In this aspect, the decision should be rest in the respective cost of each source of capital & estimated return on investment (ROI) of the new as well as expansion of the existing business. As such, if the calculated ROI is higher than the cost of capital, financing decision should be made on fixed interest bearing securities i.e, term loans, debenture etc. Further, the rate of interest is to be settled upon a negotiation between the lender & borrower in terms of financial stability, future viability & past records etc. For a company, generally a syndication among all the representative of the financial institutions & authorized representative of the company are called in. Often this entire process is undertaken by a investment bank. However, for a unstable company looking for capital reconstruction, finance through fresh issue of equities will be ideal as for these companies very often cost of capital remains at a higher side than ROI, if any. Henceforth financing through fixed interest bearing securities can be prove critical in terms of future uncertainty. Although, as I have said if ROI is greater than Cost of Capital, we will prefer for fixed charge carrying financing option, however the theory has got certain amount of limitation in terms of unforeseeable future. As we can’t sure on future, one need to take maximum possible caution in calculating future estimated cash flows. On the other hand, the theory of financial leverages also proves the fact that in the favorable scenario, financing through fixed interest bearing securities indirectly helps the equity share holders by appreciating the net worth of the company.

How to adopt an appropriate venture out of several alternatives..??

Whenever we plan for opening up a new venture, initial study over feasibility of the projects is quite essential. In other words, project analysis is the main theme of a successful business. However, there are several capital budgeting techniques that will help you to find out the best option. Amongst all, financial analytic prefers mostly the discounted cash flow method (or Net Present Value method) of project analysis. It is an extended version of existing net cash flow approach. Here, initial cash outflow & future cash inflows are discounted with inflationary functions. Henceforth, an estimated figure of the net profit in future terms can be prescribed. Apart from NPV, now a days Internal Rare of Return also a crucial consideration in determining project viability. This approach is fixed upon a rate that will equalizes the initial cash outlay & future inflows. Accordingly, if such rate is more than the estimated discounting factor (or inflation rate) for a particular project, that project is said to have some profitability. However a project carrying highest IRR will earn higher priority. However, in present days more emphasize is placed upon NPV or more precisely Profitability Index is considered more comprehensive than IRR on account of certain limitations. Now what is Profitability Index? It is also known as benefit cost ratio. It is calculated by taking the total discounted cash flows( including inflow & outflow) divided by the initial investment. If the index shows positive, we will take up the project. Apart from all these, another vital concern in project evaluation is the pattern or trend of cash inflows. If the flows furnishes an descending order, in spite of having a good net return or greater IRR, that project should be avoided on anticipation of further decline.