Ordinary Share

Ordinary shares are shares which entitle the holders to the remaining divisible profits (and, in a liquidation, the assets) after prior interests,

What is a Share

A share is a transferable form of property, carrying rights and obligations, by which the interest of a member of a company limited by shares is measured.

Over-the-Counter (OTC)

Over-the-Counter (OTC) means the facilities provided by an exchange for the purpose of buying or selling of unlisted or delisted securities from the stock exchanges.

Preference Share

Preference shares have a fixed percentage dividend before any dividend is paid to the ordinary shareholders. As with ordinary shares a preference dividend can only be paid if sufficient distributable profits are available, although with 'cumulative' preference shares the right to an unpaid dividend is carried forward to later years. The arrears of dividend on cumulative preference shares must be paid before any dividend is paid to the ordinary shareholders.

Rights issues

A rights issue provides a way of raising new share capital by means of an offer to existing shareholders, inviting them to subscribe cash for new shares in proportion to their existing holdings.

Temporary Working Capital vs Permanent Working Capital

Temporary working capital (TWC) is the temporary fluctuation of net working capital over and above the permanent working capital.

Sources of Funds

Sourcing finance may be done for a variety of reasons. Traditional areas of need may be for capital asset acquirement - new machinery or the construction of a new building or depot. The development of new products can be enormously costly and here again capital may be required. Normally, such developments are financed internally, whereas capital for the acquisition of machinery may come from external sources.

Financial Management

Financial management is concerned with the maintenance and creation of economic value or wealth/responsibilities and activities of financial managers.

Flexible Budgets

Budgets are usually used to evaluate performance after the fact, using a process known as variance analysis. Since some costs are variable with respect to output and some are fixed, changes in output will automatically lead to increases/decreases in costs absent any input from managers. Since static budgets reflect planned output rather than actual output, they are not a good basis of comparison to actual costs.

Budgeted Balance Sheet

Budgeted balance sheet - a statement of budgeted financial position.

The ending balance in a given account equals the beginning balance plus any estimated change.

The cash budget provides the ending cash balance on the balance sheet.

Budgeted Income Statement

The budgeted income statement is easily generated using information from the previous budgets.

To complete the computation of net income, an estimate must be made of tax expense.

Advantages and Disadvantages of Budgeting

A realistic budget will motivate action. This may be true, but what is important is that the budgetary control system keeps the organisation fit, monitors its progress and provides an important database in the decision-making-process. The benefits and drawbacks of budgeting.

Marketing and Administrative Costs Budget

The marketing and administrative costs budgeting objective is to estimate the amount of marketing and administrative costs required to:

• Operate the organization at its projected level of sales and production.
• Achieve long-term company goals.
• These estimates are often based on prior period expenditures or planned expenditures, but adjusted for inflation, changes in operations, etc.

Cost of Sales Budget

Computation requires estimates of beginning and ending levels of work-in-process and finished goods inventories.
If WIP levels are assumed to be constant, the calculation reduces to:

• Estimated cost of sales= Estimated production costs + Budgeted cost of beginning inventory – Budgeted cost of ending inventory

Purposes of Budgeting Systems

Budgeting system - procedures used to develop a budget. Budgeting systems have five major purposes:

• Planning.
• Facilitating communication and coordination.
• Allocating resources.
• Controlling profit and operations.
• Evaluating performance and providing incentives.

The Master Budget - Definition

Master budget - a financial plan of an organization for the coming year or other planning period.  It generally culminates in a cash budget, a budgeted income statement, and a budgeted balance sheet.

What is Responsibility Accounting

Responsibility accounting is based on the notion that managers should be held responsible for those (and only those) cost/revenue items that the manager can control to a significant extent.

Overhead Budget

Amounts of labor and overhead expected to be consumed are based on the production budget.

These amounts are also used to forecast staffing levels.

Overhead estimates tie back to estimated capital budgeting expenditures for capacity.

Materials Purchase Budget

We use the following relationship to forecast material purchase requirements:

• Required purchases in units= Materials to be used in production + Budgeted ending inventory- Budgeted beginning inventory

Ending Inventory and Production Budgets

We use the following relationship to forecast production requirements:

• Required production in units= Budgeted sales in unites + Budgeted ending inventory – Budgeted in beginning inventory