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Ploughing back of profits & Loan from financial institutions- long term sources (in Hindi)
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Heena Malhotra
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YB
hi mam, is there any difference b/w ploughing back of profits and retained earnings.
Rahenuma khan
8 months ago
both r same...
Ravi Enaganti
3 months ago
Retained earnings are called under different names such as Ploughing back of profits, Self finance, Inter finance. As prescribed by the central government, a part (not exceeding 10%) of the net profits after tax of a financial year have to be compulsorily transferred to reserve by a company before declaring dividend for the year.
YB
Yasmeen Begum
3 months ago
thank u
  1. Management of Working Capital By Heena Malhotra


  2. Financing of short-term working capital oSpontaneous sources O Trade Credit o Accrued Expenses o Bills Payable By Heena Malhotra


  3. Financing of short-term working capital o Indigenous Bankers O Installment Credit o Advances Accounts Receivable Credit Factoring O Deferred Incomes o Commercial Paper O WC Finance by Commercial Banks. By Heena Malhotra


  4. 9. Working Capital Finance by Commercial Banks: o Commercial banks are the most important source of short-term capital. The major portion of working capital loans are provided by commercial banks. They provide a wide variety of loans tailored to meet the specific requirements of a concern. O The different forms in which the banks normally provide loans and advances are as follows: o (a) Loans o (b) Cash Credits 0 (c) Overdrafts O (d) Purchasing and discounting of bills. By Heena Malhotra


  5. Long-Term Working Capital Source 0 1. Shares O2. Debentures O 3. Public Deposits O4. Ploughing Back of Profits O 5. Loans from Financial Institutions By Heena Malhotra


  6. 4. Ploughing Back of Profits: o Ploughing back of profits means the reinvestments by concern of its surplus earnings in its business. It is an internal source of finance and is most suitable for an established firm for its expansion, modernization and replacement etc. O This method of finance has a number of advantages as it is the cheapest , there is no need to keep securities; there is no dilution of control; it ensures stable dividend policy and gains confidence of the public. But excessive resort to ploughing back of profits may lead to monopolies, misuse of funds, over capitalization and speculation, et. By Heena Malhotra


  7. 5. Loans from Financial Institutions: O Financial institutions such as Commercial Banks, Life Insurance Corporation, Industrial Finance Corporation of India, State Financial Corporations, State Industrial Development Corporations, Industrial Development Bank of India, etc. also provide short-term, medium-term and long-term loans. O This source of finance is more suitable to meet the medium-term demands of working capital. Interest is charged on such loans at a fixed rate and the amount of the loan is to be repaid by way of installments in a number of years. By Heena Malhotra


  8. Long-Term Working Capital Source 0 1. Shares O2. Debentures O 3. Public Deposits O4. Ploughing Back of Profits O 5. Loans from Financial Institutions By Heena Malhotra


  9. Management of Working Capital By Heena Malhotra


  10. Approaches to WC Financing Aggressive Approach Matching Approach Conservative Approach By Heena Malhotra


  11. o The hedging approach suggests that the permanent working capital requirements should be financed with funds from long- term sources while the temporary or seasonal working capital requirements should be financed with short-term funds. By Heena Malhotra


  12. o With reference to financing mix, the term hedging refers to a process of matching maturities of debt with the maturities of financial needs' By Heena Malhotra


  13. Estimated Total Investment in Current Assets of Company X For the Year2008 Temporaryor Seasonal Invest Permanentor Fixed Investments (i 45.000 45,000 45,000 45,000 45,000 5,000 45,000 45,000 45,000 45,000 45,000 45,000 Total Investmentsin Current Assets Month 5,400 5,000 3,700 3,000 1,000 January February March April May June July August September October November December 50,400 50,000 48,700 48,000 46,000 45,000 47,500 48,000 49,500 50,700 52,000 48,500 2,500 3,000 4,500 5,700 7,000 3,500 44,300 By Heena Malhotra


  14. O The distinct features of this approach are: (I) Liquidity is severally greater; o (ii) Risk is minimized; and (i) The cost of financing is relatively more as interest has to be paid even on seasonal requirements for the entire period. By Heena Malhotra


  15. 3. The Aggressive Approach: O The aggressive approach suggests that the entire estimated requirements of currents asset should be financed from short-term sources and even a part of fixed assets investments be financed from short-term sources. This approach makes the finance-mix more risky, less costly and more profitable. By Heena Malhotra


  16. Approaches to WC Financing Aggressive Approach Matching Approach Conservative Approach By Heena Malhotra