Question

Explain the following terms:

Balance Sheet
Capital budgeting decision
Capital structure decision
Net working capital
Forms of business organization
The goal of financial management
The agency problem
Regulation
Corporate governance notes
The balance sheet

Answer 1

Balance Sheet : Balance sheet is a timely prepared statement which shows the value of company's assets liabilities and owner's equity in that point of time. it illustrates the net worth of company. it is prepared monthly, quarterly or yearly. It can be comparative also which compares with previous year's position.

Capital budgeting decisions: The main aim of capital budgeting decision is value maximization of firm and shareholder both. These are the decision of important capital investment in plant, machinery or land or to take up any new project. there are various method which helps to arrive at decision which takes care of time value of money.

Capital Structure Decision: Decision of having a perfect combination of debt and equity in capital structure is called capital budgeting decision. such decision depends on the industry and requirement of liquidity. Through this decision, company achieve and growth and operational success

Net Working Capital : net working capital is difference between current assets and current liabilities on company's balance sheet, it show the ability of company to repay debts, having more current assets then liabilities shows the better position of company. It basically measures company's ability to pay short term obligations.

Forms of Business organisation: There are various forms of business forms based on the taxation and ownership, such business are controlled by the state law where the business in organised. The type of organisations are sole proprietorship, partnership, corporations, limited liabilities companies, sub chapters corporation. One should select the form of business depends on access and ownership.

The Goal of Financial Management: The goal of financial management is value maximization and wealth maximization. This goal is achieved through profit maximization and cost minimization, maximize of market share and increasing sales.

Agency Problem: The agency problem refers to conflict of interest between relationship of two parties in business, it is assumed that the manager acting as principal agent acts in creation of wealth and stakeholders believes that the decisions of manager are in favor of manager's wealth creation.

Regulation: There are some legal constitution which decides the do's and dont's of company's actions. The directors are primary members of company to take monitor the actions of company and other stake holder are secondary members.

Corporate Governance: Corporate governance is a structured frame work which takes care of legal regulatory and ethical aspects. it make sure that the company decisions are in favor of both company and stakeholders and not affecting society for that matter.

The Balance Sheet : Balance sheet is a timely prepared statement which shows the value of company's assets liabilities and owner's equity in that point of time. it illustrates the net worth of company. it is prepared monthly, quarterly or yearly. It can be comparative also which compares with previous year's position.

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