5000 Equity Shares
of Rs. 10 each fully paid 1000, 10% Preference Shares of 100 each fully paid
Reserves & Surplus
General & Surplus
1000, 12% Debentures of
Rs. 100 each fully paid
Plant & Machinery
Cash in hand
Cash at Bank
Present capital structure
Proposed capital structure
Equity + Preference
Equity + Debt.
Earning before interest
Less Tax @ 50%
Less Pref. Dividend
No. of Equity share
Fixed capital refers to any kind of physical capital i.e. fixed assets.
Working capital refers to current assets minus current liabilities.
It stays in business almost permanently i.e. for more than one accounting year.
Working capital is circulating capital
It is not used up in production of product but invested in fixed assets such as land building, equipment, etc.
Working capital is invested in short term assets such as cash, account receivable, inventory, etc.
Fixed capital funding can come from selling shares, debentures, long term loans, bonds, etc.
Working capital can be funded with short term loans, deposits, trade credit, etc.
Objective of investor
Investor invests money in fixed capital hoping to make future profit.
Investor invests money in working capital for getting immediate return.
Investment in fixed capital implies a risk.
Investment in working capital is less risky.
a. Financial management
1. Minimise market value of equity shares
b. Wealth maximization
2. Investment in fixed assets
c. Financial plan
3. Ratio of buying and selling
d. Capital structure
4. Management of business funds
e. Fixed capital
5. Ad hoc programming of finance
6. Investment in current assets
7. Management of business activities
8. Maximise market value of equity shares
9. Ratio of different securities in capital
10. Advance programming of financial management