Some saving strategies

Life looks very difficult without savings. Its importance has grown manifold in this era of rising prices and uncertainties. You will need it the most when you are left with no job or business, health uncertainties and even after retirement.A good saving makes the future more secured.

Pay off high cost debt
Paying off high interest rate debt faster and sooner will help you to save more interest which would have been otherwise taken by some lender. Generally interest keeps on accumulating to grow into a large sum thereby forcing you to file bankruptcy. Paying high interest rate funds first will help you to narrow down your expenses and small loans on the other hand can be tackled gradually.

Retirement program
Participating in work related retirement program such as 401(k) helps in increasing the disposable income. With a dollar for dollar match program one could receive greater than 100% return on their investment.



Automatic fund transfer from checking to savings account
One should go ahead and take the advantages of such technology which is now available with banks. A portion of fixed monthly income automatically transfer into savings account there by leaving behind less money to spare and at the same time increases your savings.

Factors in your interest rate

How much you pay for a loan depends on many factors. Understanding such factors helps in saving time and money. Generally bank charges on the amount, period for such a loan and your credit history.

I have mentioned some important factors that accounts for interest rate calculation.


Credit score

Credit reporting agencies collect all information and transaction from your account. They know how many times you have applied for loans, your repayment dates, how you have paid your bills and whether you have filed for bankruptcy. Such agencies pass on such information to bangs and other lenders on basis of which interest rate for your loan is calculated.
A good credit score /credit report helps to borrow funds at a cheaper rate.

Federal Reserve discount rate

This is the interest rate which the federal bank charges from the commercial banks for borrowing funds. This interest rate directly affects the rate at which commercial bank floats the loan in the market. When federal discount rate is high, commercial banks are bound to charge high interest rate from their customers. One cannot do much about it.




Competition from other lenders

Financial institution and banks are there to make profits and are largely governed by the competitive forces among them. If they charge too little they have the chances of getting out of the business on account of low profits. Again, if they charge on higher side, customers may switch to other lending organization.
But you should know, allowing too many potential lenders to run your credit report may hamper your credit scores.
So as a customer you should always seek for selected options and avail the funds from the best and cheapest source


So to avail loans in the best rate you can do two things, look out for more options and try and keep a good credit score by prompt payments of bills etc…

Ways to fix your credit score

Without a good credit score it is impossible to get a loan with low interest rate and even getting other financial products at low cost would become difficult. The best alternative is to look out for increasing the credit scores that would help you in raising your credit rating.

Use automated payment/alert system

Delaying the payments or even skipping hampers the credit scores to a very large extent.
So the first step to fix the credit score is to avoid misplacing the bills by using electronic billing whenever possible. One can set up automated payment so that late payments can be avoided.

Mention your Circumstances to creditors

If you have missed your payments as a result of illness, job loss or other unavoidable circumstances, you can attach a note stating such reasons to your creditor. It can help in acceptance especially when your credit history shows that you have started paying again when circumstances improved.




Pay your debt
If your available credit limit has reached to its maximum limit, you should work fast to reduce it instead of letting things to worsen even more. Creditors judge you on your debt-credit ratio and if you keep it mounting you are only hurting your chances of getting a loan. Frequent payment always helps the cause.


Check for identity thefts
You can frequently check your credit scores to see that your credit information is not being manipulated. Checking credit information will not hamper your credit ratings.
Identity thefts and credit card hacking has become quite common that would only result in abnormal balances and worst credit scores. Track all your dealings through credit card so that you can limit the unauthorized use of your credit card before hand.

Attaining Financial freedom

Financial freedom sounds interesting and it is the pursuit of literally millions of people.But hardly some of them know that it has nothing to do with the amount of money and is more about our attitudes towards money.

Let me tell you that this article is no where related to money making tips or to propose you over a business idea. So what is financial freedom? Can it be achieved? Or is it deceptive?

So lets start our journey towards financial freedom……

First thing is to know that financial freedom goes inside you and has nothing to do with the amount of money you make or can make. Yes, some people are happy even if they make very little when you compare them with those who make a million every day.
Irony is that the millionaires are more stressed out over their financial situations.They have got a lot to loose and have the right to get tensed.





As far as you have the control over income and the expenses you can alleviate any of your worries. As truly said by some economist “Needs are unlimited but the resources are limited”. One needs to understand his basic needs that need to be filled out instead of creating needs to go out for a dinner in a five star every night, purchase another car when you have many and so on….

I know many people who are worth millions of dollars and I also know people who do not have a coin to toss. But some are happy and some aren’t. So is it related to money?
No, it is a mere state of mind and the attitude towards life. People end up in making billions over their life span and are still looking to make more. Is it to attain the financial freedom? Now you can answer better than me.

Money, money, money… What is it? Just a medium of exchange. Money is a means to an end, not an end itself.

If you are free to earn, free to spend and free to save , what else one should look for attaining the financial freedom.

Another aspect for financial freedom…….

Debt kills the freedom. So first thing one should do is to get out of his debt. Always remember that borrower is the servant of lender. Buy it now and struggle later works no more. Instead delay your purchases, invest money, set your priorities and live by a budget. When our budget loosens up a bit we will find enjoying even more.

Change your attitude towards money, look things a little differently and see the magic yourself.

Capital Structure – Determinants

Capital structure means a mix of company’s long-term debt, specific short term debt, common equity and preferred equity.
Capital structure is how a firm finances its overall operations and growth by using different sources of funds.

There are many factors that affect the capital structure such as trading on equity, sales, nature and size of firm, cost of capital, requirements of investors etc.


Growth and stability of sales
As far as a firm enjoys growth or stability in sales it could include long term debt or can employ debt financing. Constant sales indicate company’s healthy cash flows and its ability to pay the interests and the debt as well. Where sales are fluctuating debt financing is not a good option.


Nature and size of firm
Normally public utility undertakings employ long term debt due to stability in earnings.
Whereas manufacturing concern has to heavily on equity due to inherent trait of extending sales on credit. A small concern has to bring owned funds as it becomes very difficult for the concern to float equity in public.



Cost of capital

Every single dollar counts. Investor expects return on every cent they invest in the company, may be in the form of credit or purchasing equity shares.
Debt serves as the cheapest source of financing but has a fixed and legal obligation to pay the interest amount. Whereas equity is the most expensive source of financing but the company has no obligation to pay the dividends.
So the cost of raising such a capital has a large bearing over the capital structure.

Capital market conditions
Capital market condition does not remain stable for long and it keeps on fluctuating. There may a depression or a boom. When the share market goes down the company has to employ debt financing to serve the interest of its stock holders and vice-a versa.

Corporate tax rate
High rate of corporate tax on profits compel companies for debt financing because interest is allowed to be deducted while calculating taxable profits and on the other hand dividend is not an allowable expense in that purpose.

Aims of financial functions

The primary aim of finance function is to arrange as much funds for the business as are required from time to time and manage funds in such a way so as to ensure their optimum utilization and their procurement in a manner that the risk, cost and control considerations are properly balanced in a given situation.

Acquiring sufficient funds

The main aim of finance function is to assess the financial needs of an enterprise and the finding out suitable sources for raising them. The sources should be commensurate with the needs of the business.

Proper utilization of Funds

The funds should be used in such a way that maximum benefit is derived from them. The returns from their use should be more than their cost. It should be ensured that funds do not remain idle at any point of time. Those projects should be preferred which are beneficial to the business.

Increasing Profitability

It is true that the money generates money. To increase profitability, sufficient funds will have to be invested. Finance function should be so planned that the concern neither suffers from inadequacy of funds nor wastes more funds than required. The proper control should also be exercised so that the scarce resources are not frittered away on uneconomical operations.

Maximizing Firm’s value

Finance function also aims at maximizing the value of the firm. It is generally said that a concern’s value is linked with its profitability. Even though profitability influences a firm’s value but it is not all. There are some other considerations which also influence a firm’s value like the condition of money market, the cost of funds etc.

An effective finance function, which includes all aspects of finance, tax, and treasury and, typically, risk management, makes a positive contribution to the achievement of the organization’s strategic objectives and to its value creation goals.

Factors influencing size of receivable

Receivables represent the amounts owed to the company as a result of sales of goods and services in normal course of business. These are the claims of the firm against customers and form a part of current assets. Receivables are also termed as account receivables, customer receivables, trade receivables or book debts.





Size of credit sales

The volume of credit sale is the first factor that influences receivables. Firm adhering to cash sales would have low receivables when compared to firms allowing sales on credit.
Higher the credit allowed more will be the receivables and vice a versa

Credit Policies

Firm with conservative credit policies will have low receivables when compared with firms following liberal credit policies. The vigour with which the concern collects the receivables also affects the size of its receivables. Prompt collections even with liberal credit policies will help in keeping receivables under control. Outstanding for long period may result in bad debts.

Terms of trade

The period for which the credit is allowed will decide the extent of receivables. Longer the period of credit more would be the receivables. Again, cash purchases followed up with credit sale is the main reason for increasing receivables.

Expansion plans
Concerns that want to expand has to enter new markets. To attract customers it becomes necessary for the enterprise to provide incentives in terms of credit. Once the concern gets the permanent customers it may start reducing the period for which credit was allowed.


Credit collection efforts
A concern should always have strong and well equipped credit collection machinery.
Periodical reminders should be sent to customers in order to reduce the size of outstanding. Delayed collection will increase receivables and will impose serious financial troubles for the company.

Dividend Policy- Determinants

Dividend is that part of profit that is distributed among the shareholders of the company .
The payment of dividend includes legal and financial formalities. It is difficult to determine general dividend policy which can be followed by a firm at different situations.


Magnitude of earnings
As dividend can be paid out of present and past earnings, trend and magnitude of earning becomes the starting point of consideration. Moreover retained earnings of the past generally go in investment and hence the amount of profit determines the dividend policy.



Future financial requirement
Dividend policy is also affected by firm’s future capital needs. Funds are required for diversification, expansion and tapping new opportunities. Firm looking out for such options may retain profit and may neglect announcing dividends for the current year.

Income tax
Dividend policy is tremendously affected by the income tax regulations. Income tax may affect the total profit of the company leaving behind a very small amount to be declared as dividend. Moreover if dividend income of the shareholders is heavily taxed the company may not announce dividends on a regular basis in order to safeguard the interests of its share holders.
Age of the company
A newly established business may not declare dividends as its major objective would be to increase the retained earnings that can be used at future period of time.Declaring dividend will result in lack of liquid resources which can limit the establishment in taking advantages of upcoming opportunities. Where as an old establishment can follow a liberal dividend policy because of its piled up profits from the past.

Liquid resources
Dividend can be paid out only when the firm has full control of its liquid resources like cash, marketable securities etc. Lack or requirement of liquid resources in near future goes up in deciding the type of dividend that has to be declared.

Institutional investors
The firm has also to keep in consideration the demands of its institutional investors which helps it time and again. Institutional investors like bank, financial houses etc generally favors a regular payment of cash dividends. Since these investors play a pivotal role in providing financial aid to the company, the company has to mould its dividend policy accordingly.

Finance Manager- Functions

The changed business environment has increased the role of finance manager. Increasing pace of industrialization, rise of larger-scale units, innovations in information processing techniques and intense competition has increased the need of financial planning and control.

Financial forecasting and planning
Finance manager has to estimate the requirement of funds to acquire assets. The decision has to be taken keeping in mind both the fixed capital and working capital requirement. How to acquire such funds and when to apply the raised funds is the crucial role of a finance manager.

Acquisition of funds
Funds can be raised from many sources such as banks , equity market , financial institution etc. Main role of the finance manager is to look out for the most cheapest source of finance after reviewing the pros and cons of each source that is available.

Investment of funds
Funds should be used in the best possible way. It should always be kept in mind that return on investment must be always higher than the cost of acquisition.
After the funds have been acquired it is the role of finance manager to allocate it to various areas of requirement. Such areas may be fixed assets, working capital or investment in other sources.
A finance manager has to keep the principles of safety, liquidity and soundness while investing funds.

Helping in value decision
Merger and acquisition has become a common phrase in this competitive market. A finance manager must help the management in such a valuation and must understand various methods of valuation of shares and other assets so that correct values are arrived at.

Maintaining proper liquidity
Maintaining liquidity is very essential for a business concern to finance short term capital need, day to day working requirements and to take advantages of sudden market opportunities. Finance manager has to take decision on the degree to which liquidity has to be maintained so that funds are not kept idle.

Financial Planning- Steps

Financial plan refers to a statement estimating the amount of funds that is required and deciding its composition. The quantum of funds depends on the asset requirement of the business. The time when funds are required has to be properly judged so that it can be brought into the business without any delay.

Steps that has to be taken in financial planning are very clear

Establishing financial objectives
Financial objective of the business must be clearly set. Both Short term and long term needs should be kept under consideration. Main aim must be the optimum utilization of the financial resource. The concern should take advantage of the prevailing economic conditions.


Formulating Financial Policies
Financial policies deal with the procurement, administration and distribution of funds. It must take care of the present and future financial needs simultaneously. It must have clear cut plans for raising funds as well as its probable uses.

Formulating procedures
Procedures are formed to ensure consistency of actions. The procedure follow the formulation of policy. If it is a policy to raise short term funds from bank, then a procedure must be laid to approach the lenders and the person authorized to initiate such actions.


Providing for flexibility
The financial planning should ensure proper flexibility in objectives, policies and procedures to adjust according to changing economic conditions. Changing economic conditions may offer new opportunities. The concern should be capable of taking advantage of such a situation. A rigid financial plan restricts to gain such advantages.

Working capital- Determinants

Working capital refers to that part of firm’s capital that is required to finance current assets of the company such as marketable securities, debtors, inventories and cash. Working capital comprises of funds that is used for wages, salaries and day to day expenses of the enterprise.
Working capital holds a very important place in the enterprise and must be planned carefully and strategically so to avoid unnecessary outlay of funds and simultaneously optimize profits.



Nature of the business
Financial firms and trading firms requires less working capital as funds are not tied to inventories. Whereas manufacturing concerns need large working capital to finance inventories to carry out the production cycle smoothly.

Scale of Business
Working capital is also determined by the scale of business and its turnover. Small scale business requires very less working capital when compared to the large scale businesses and Giant concerns. One has to determine such activities of the concern before making provisions for the working capital requirements.
Production Policy
Production depends on various factors like seasonal fluctuations, availability of raw materials etc. If production carries out continuously throughout the year then it would demand high working capital. Whereas in business where production is carried out seasonally, less working capital is tied up.

Rate of Stock turnover
High rolling stocks helps in realization of sales money whereby reducing the additional requirement of working capital. Dead Stocks and low turnover results in large sum of funds to get tied up.

Working capital cycle
It is the cycle that begins from purchase of raw materials to realization of cash after sales. It includes phases like work in progress, finished goods and sales of finished goods. The larger the cycle more would be working capital needs.


Credit Policy
It is often defined as terms of sales and purchase. An enterprise purchasing raw materials in cash and selling out finished goods on credit will require more working capital when compared to enterprise purchasing raw materials on credit and finished goods in cash.
Length of credit also has a substantial bearing over working capital requirements.

Synchronizing and correlating such factors and estimating their trade offs have helped large organization to grow as giants.

Corporate Finance- Making Simple

The main objective of financial management is to arrange sufficient finances for meeting short-term and long term needs. These funds have to be procured at minimum costs so that profitability of the business can be maximized.

Here are some simple steps that can be followed to manage the finances of a corporate

Estimating Financial Requirement

This is the foremost task to determine the short term and long term needs of finance on the basis of its strategic importance. Such an estimate must be screwed to perfection since shortage of funds would have an adverse effect and excess funds may lead in extravagant spending, speculative activities and rising interest figures.

Selecting sources of finance

There may be as many sources of finances such as shares, debentures, financial institutions, banks and public deposits. If funds are required on a long term basis then shares and debentures may help the cause. Financial institutions and banks can be used to finance on a short term need.
If the management does not want to tie its assets then public deposits may used as a source to finance.

Selecting a Pattern of Investment

After the finances are available it becomes very necessary to allocate it properly. Finances must be first allocated to procure fixed assets(Plant and Machinery) and then the remaining must be allocated to meet the working capital requirements(Day to day working requirements like wages, bills etc). Proper techniques like cost-benefit analysis and opportunity costs analysis must be followed before a capital investment.

Proper Cash Management

Cash may be required to purchase raw materials, pay creditors, wages, utility bills etc. Inadequate cash may hamper the production cycle or may limit the scope of some attaining seasonal and contingent advantages. Excess cash may cause funds to remain idle and increasing the cost of capital by rising Interest charges. Hence proper cash management becomes a must by maintaining balance between cash inflows and cash outflows.

Implementing Financial Controls

Various control Devices and techniques must be used in ordinary course of business to monitor the usage of finances. These devices are return on investment, budgetary control, break even analysis, cost control, ratio analysis and cost and internal audit.
Return on investment is taken as the best measure in many corporate

Proper use of Surplus

To gain maximum growth judicious use of surpluses becomes a must. Surplus can be used in diversification, expansion and to declare dividends that would satisfy shareholders and eventually helps in raising market prices of shares.
Ploughing back of profits may be used to finance expansion and diversification but may go against the interest of shareholders. So an optimum balance has to be carved out between the two options.

This simple process is used by businesses to grow into corporate.