August 21, 2019

What are the effects of Over Capitalisation?

Effects of Over Capitalisation Effects on the company Loss of goodwill – reduced earning capacity>fall of market price Poor creditworthiness – difficult to get loans or credit at cheaper rates of interest. Difficulties in obtaining capital – loss of confidence in the company. Decline in efficiency of the company Loss of market – Inflated profits […]

What are the causes of Over Capitalisation?

Causes of over capitalisation Over issue of capital Promotion, formation or development during inflation. Buying assets of lower value at higher prices. High promotion expenses – preliminary expenses. Inadequate depreciation – leaves insufficient provision for replacement of assets. Liberal dividend policy – Taxation policy – high tax rates Inadequate demand for products – bring down […]

Difference between Cost theory and Earnings theory

Cost Theory Earnings Theory Meaning Capital value is determined by adding all costs. Capital value is determined based on its earning capacity. Base of theory Based on costs incurred Based on earning capacity Applicability to companies New companies Existing companies Calculation Easy and simple Difficult Superiority Not so Superior to cost theory

What are the factors determining the Capital Structure?

Factors determining the capital structure Financial leverage or trading on equity The use of long term debt increases, magnifies the EPS if the firm yields a return higher than the cost of debt. The EPS also increases with the use of preference share capital but due to the fact that interest is allowed to be […]

What are the important ethical principles in business?

Do not deceive or cheat customers by selling substandard or defective products. Do not destroy or distort competition Do not resort to black marketing or unfair profits.  Ensure sincerity in advertising, labelling and packaging.  Do not tarnish the image of competitors by unfair practices.  Make accurate business records available to all authorized persons.  Pay taxes […]

What is the ecological view of business?

Network of organisations – including suppliers, distributors, customers, government agencies, competitors etc. involved in the delivery of a specific product or service through both competition and cooperation.  Each entity in the ecosystem affects and is affected by others creating a constantly evolving relationship in which each entity must be flexible and adaptable in order to […]

Business, Society and Government – a comparison of their objectives

Business Society Government Reduce costs To have enough to eat and drink Manage resources fairly and cost effectively Increase sales Shelter from the environment and threats Support the population Maximise profit Education and healthcare Provide a regulation framework Improved lifestyle Self development