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Why Financial Capability Matters?

Why Financial Capability Matters?
What is Financial Capability? The availability, usage and #management of funds have a bearing on the financial capability of an organization and ability to implement its strategies. A financial manager has to pool, deploy and allocate #financial resources taking into consideration the capital or long term investments, working capital or short-term liabilities and repayment capacities. Factors that influence financial capability of an organization: 1. Factors related to #source of funds: Capital structure, procurement of capital, controllership, financing pattern, working capital availability, borrowing, capital and credit availability, reserves and surplus, and relationship with lenders, banks and #financial institutions. 2. Factors related to #usage of funds: Capital investment, fixed asset acquisition, current assets, loans and advances, dividend distribution and relationship with #shareholders. 3. Factors related to #management of funds: Financial #accounting and #budgeting systems, management control system, state of financial health, cash, inflation, return and #risk management, cost reduction and control, and #tax planning and advantages. Typical Strengths that Support Financial Capability: • Access to financial resources • Amicable relationship with financial institutions • High level of credit worthiness • Efficient capital budgeting system • Low cost of capital as compared to competitors • High level of shareholder’s confidence • Effective management control system • Tax benefits due to various #government policies The examples given below show how strengths and weakness affect the financial capability of organizations: • A company faced many problems due to instability in the top management, an unfavorable public image, unfavorable government relations etc., but it had inherent strengths like a huge amount- to the tune of Rs.1000 crores invested in fixed assets which the company used for funding its diversification plans. Here we see one particular strength over-shadowing all other weaknesses which can be rectified in due course of time. • A scooter company had collected nearly Rs.1150 crores as advance for booking of scooters, but within five years, its cash position deteriorated owing to sudden and unforeseen cancellation of bookings and withdrawal of deposits, resulting in a huge interest burden. Had the company had a strong financial backup, it would have survived the trouble. Matching strengths and weaknesses with #opportunities and threats requires that a firm should direct its strengths towards exploiting opportunities and blocking threats while minimizing exposure of its weaknesses at the same...
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There is no Business Success Without Risk

There is no Business Success Without Risk
There is no Business Success Without Risk What is the Risk of Taking a Chance in a Business Activity? Business is often viewed as a game or a gamble in which success is always at risk. Think about it, risk is present in every sphere and aspect of our lives and even when you are not running a business. So why the fuss? A thorough knowledge and research of the business activity you are about to perform will give you the needed confidence to go about it. A true business man is an entrepreneur who treats risk as an opportunity rather than a challenge. Business organizations are started with a single purpose, to make profit and then more profit. Only when the organizations grow, there comes the awareness and necessity to think about stakeholders’ interest and working towards a social cause. Initial stages definitely pose threats for the very survival of the organization. Risk is an inherent part of a business as you are not sure about the outcome of your business activity. What are the Chances or Probability? We talk more about probability and chance outcomes when you deal with a particular product. Retail segment is one area where the risk of duplication is high and people have to be cautious and careful in order to protect their copyrights and symbols from being replicated. Mild inflations can benefit the market but recessions put you in doldrums especially if you are dependent on a wholesaler or a manufacturer. Risk can aspect itself in the following ways: Economically- Attrition and effects of global economy Legally- Labor laws and enactments Socially- Expectations from the public in general Government rules and regulations- Government policies and export duties Stakeholder expectations- Wealth maximization and assured profits Environmental – Need to comply with changing standards like waste affluent treatment plants Political scenario- Effects due to changing governments Risk and Uncertainty Risk and uncertainty go hand in hand and you need a risk management template or a model for your reference to solve or manage risks. The first and foremost step would be to identify the risks in your sphere of business activity. Risk documentation or creating a risk profile is an inevitable move for a new organization. This prepares the organization mentally to face challenges in a structured manner and reduces disorientation. It is very important to keep in mind the organisation’s objectives while documenting the risk profile to keep your focus unaltered. Risks evolve continuously and it is the responsibility of the top management to be in line with the market economy to manage the adverse conditions that come in the way. How to Manage Risks? Risk management is an ongoing and continuous process and it cannot be looked upon as a distinct area to be managed by a set of individuals. In a small and upcoming organization the responsibility lies on the shoulders of each and every individual to self assess, evaluate and manage risks and find the right kind of solution that will not be detrimental to the core objectives of the organization. Bigger organizations can afford to have expert opinion by commissioning PROFESSIONALS to identify, assess and manage risks. An overall and broad perspective of risk is what has been analysed here. There are numerous possibilities of risks, whether big or small in magnitude, affecting an organization. A thorough study of the field you are about to venture into, the pros and cons of the business activity, time of launch are few things that will help you to analyse what the market niche warrants for and act accordingly. In further segments, let us look into the factors of risk, identifying and...
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