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Unformatted text preview: ital 21 Comments/derivations Company
Company reliance on borrowed funds has
declined whereas the dependence on owned
funds has increased which can be revealed by
80%. The company has gone for an expansion
program which is reflected by addition to the
Fixed assets which has increased by 50% in the
year 2003 and 70% in 2004 compared to the
base year calculated on net Fixed Assets.
22 Comments/derivations Due
Due to increase in Fixed Assets there is
also an additional requirement of working
capital in order to mobilize the Fixed
Assets which is reflected by 24% in the
year 2003 and 50% increase in the year
2004 compared to the base year.
2004 23 Advantages Indicates
Indicates the direction of movement of
financial performance of the company.
financial Indicates the increase or decrease in an
accounted Shows the magnitude change , hence
more effective than regular data.
more An efficient method to showcase the
financial performance of a company over a
period of time.
Any 1 trend by itself does not show the
true Trend percentages without absolute data
reference tend to be absurd.
reference Comparison of trend is meaningless if
accounting practices change during the
years. The base year selected may not be normal
25 Cash Management 26
26 Motives for Holding Cash: Transaction motive- Holding of cash to finance
routine transactions occurring during ordinary
course of business
course Precautionary motive- Holding of cash for
unpredictable circumstances E.g: Floods,
increase in cost of raw materials etc.
increase Speculative motive- Take advantage of
unexpected opportunities E.g: making purchase
at favorable prices
at Compensating motive- Banks use the minimum
balance in accounts to compensate themselves
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This document was uploaded on 02/09/2014.
- Spring '14