Key Differences

In general, leverage means affect of one variable over another. In financial management, leverage is not much different, it means change in one element, results in change in profit. It implies, making use of such asset or source of funds like debentures for which the company has to pay fixed cost or financial charges, to get more return. There are three measures of Leverage i.e. operating leverage, financial leverage, and combined leverage. The operating leverage measures the effect of fixed … [Read more...]

A negotiable instrument is a commercial document in writing, that contain an order for payment of money either on demand or after a certain time. These are of three types, namely, bills of exchange, promissory note and cheques. There are instances when the bill of exchange is juxtaposed with a promissory note. The fundamental difference between Bill of Exchange and Promissory Note is that the former carries an order to pay money while the latter contains a promise to pay money. Acceptance is … [Read more...]

Bill Discounting and Factoring are two types of short-term finance through which the financial requirements of a company can be fulfilled quickly. The former is related to the borrowing from the commercial bank while the latter is associated with the management of book debts. The term factoring includes entire trade debts of a client. On the other hand, bill discounting includes only those trade debts which are supported by account receivables. In short, bill discounting, implies the advance … [Read more...]

Risk can be understood as the possibility of loss or danger. The finance department of a company tries to prepare such a capital structure that attracts ess risk and cost, as well as the existing management control, is diluted at the minimum level. There are two kinds of risk, as per risk principle, namely, Business Risk and Financial Risk. The former is the risk related to the business of the entity while the latter is the risk due to the use of debt funds. Risk is inherent in every … [Read more...]

Time Value of Money says that the worth of a unit of money is going to be changed in future. Put simply, the value of one rupee today will be decreased in future. The whole concept is about the present value and future value of money. There are two methods used for ascertaining the worth of money at different points of time, namely, compounding and discounting. Compounding method is used to know the future value of present money. Conversely, discounting is a way to compute the present value of … [Read more...]

When a person borrows money from the money lender or any bank/financial institution, some extra amount is charged by the lending entity for the use of money, called as interest. The interest rate is mutually decided by both the parties. Interest can be charged in two ways, i.e. simple interest and compound interest. The former is the type of interest where the interest is charged only on loaned amount but in the case of the latter interest is calculated on the amount lent plus accumulated … [Read more...]

One of the universally accepted fact is, money has time value, i.e. one rupee has higher value today, than one year later. Time value of money is helpful in determining the value of financial assets. There are two techniques used in this context, i.e. annuity and perpetuity. Annuity, may be defined as the a series of cash flows, usually of fixed amount, paid/received at regular intervals. The interval can be annually, semi-annually or tri-monthly, monthy etc. Perpetuity, on the other hand, is … [Read more...]

The material is an integral part of the production cost, as it is composed of 80% of the total product cost. So every manufacturing concern keeps a track of its inventory purchased, returned and issued during the year, through the inventory record system. The inventory system is of two types: Perpetual Inventory System, in which the movement of the stock is recorded continuously and Periodic Inventory System, which updates the inventory records from time to time only after the physical count of … [Read more...]