Management of fixed assets

Depreciation
Depreciation is the allocation of the cost of an asset over its useful life as determined at the time of purchase. It is calculated yearly to enforce the matching principle

Insurance
Insurance is the undertaking of one party to indemnify another, in exchange for a premium, against a certain eventuality.

Uninsured risks

• Bad debt
• Changes in fashion
• Time lapses between ordering and delivery
•  New machinery or technology
•  Different prices at different places

Requirements of an insurance contract
    * Insurable interest
          o The insured must derive a real financial gain from that which he is insuring, or stand to lose if it is 
             destroyed or lost.
          o The item must belong to the insured.
          o One person may take out insurance on the life of another if the second party owes the first money.
          o Must be some person or item which can, legally, be insured.
          o The insured must have a legal claim to that which he is insuring.
    * Good faith
          o Uberrimae fidei refers to absolute honesty and must characterise the dealings of both the insurer and the insured.

Shared Services
There is currently a move towards converging and consolidating Finance provisions into shared services within an organization. Rather than an organization having a number of separate Finance departments performing the same tasks from different locations a more centralized version can be created.

Finance of public entities
Public finance describes finance as related to sovereign states and sub-national entities (states/provinces, counties, municipalities, etc.) and related public entities (e.g. school districts) or agencies. It is concerned with:

    * Identification of required expenditure of a public sector entity
    * Source(s) of that entity's revenue
    * The budgeting process
    * Debt issuance (municipal bonds) for public works projects

Financial economics
Financial economics is the branch of economics studying the interrelation of financial variables, such as prices, interest rates and shares, as opposed to those concerning the real economy. Financial economics concentrates on influences of real economic variables on financial ones, in contrast to pure finance.

It studies:
    * Valuation - Determination of the fair value of an asset
          o How risky is the asset? (identification of the asset-appropriate discount rate)
          o What cash flows will it produce? (discounting of relevant cash flows)
          o How does the market price compare to similar assets? (relative valuation)
          o Are the cash flows dependent on some other asset or event? (derivatives, contingent claim valuation)

    * Financial markets and instruments
          o Commodities - topics
          o Stocks - topics
          o Bonds - topics
          o Money market instruments- topics
          o Derivatives - topics

    * Financial institutions and regulation

Financial Econometrics is the branch of Financial Economics that uses econometric techniques to parameterise the relationships.

Financial mathematics
Financial mathematics is a main branch of applied mathematics concerned with the financial markets. Financial mathematics is the study of financial data with the tools of mathematics, mainly statistics. Such data can be movements of securities—stocks and bonds etc.—and their relations. Another large subfield is insurance mathematics. This is also known as quantitative finance, practitioners as Quantitative analysts.

Experimental finance
Experimental finance aims to establish different market settings and environments to observe experimentally and provide a lens through which science can analyze agents' behavior and the resulting characteristics of trading flows, information diffusion and aggregation, price setting mechanisms, and returns processes. Researchers in experimental finance can study to what extent existing financial economics theory makes valid predictions, and attempt to discover new principles on which such theory can be extended. Research may proceed by conducting trading simulations or by establishing and studying the behaviour of people in artificial competitive market-like settings.

Behavioral finance
Behavioral Finance studies how the psychology of investors or managers affects financial decisions and markets. Behavioral finance has grown over the last few decades to become central to finance.

Behavioral finance includes such topics as:
   1. Empirical studies that demonstrate significant deviations from classical theories.
   2. Models of how psychology affects trading and prices
   3. Forecasting based on these methods.
   4. Studies of experimental asset markets and use of models to forecast experiments.

A strand of behavioral finance has been dubbed Quantitative Behavioral Finance, which uses mathematical and statistical methodology to understand behavioral biases in conjunction with valuation. Some of this endeavor has been led by Gunduz Caginalp (Professor of Mathematics and Editor of Journal of Behavioral Finance during 2001-2004) and collaborators including Vernon Smith (2002 Nobel Laureate in Economics), David Porter, Don Balenovich, Vladimira Ilieva, Ahmet Duran). Studies by Jeff Madura, Ray Sturm and others have demonstrated significant behavioral effects in stocks and exchange traded funds. Among other topics, quantitative behavioral finance studies behavioral effects together with the non-classical assumption of the finiteness of assets.

Intangible Asset Finance
Intangible asset finance is the area of finance that deals with intangible assets such as patents, trademarks, goodwill, reputation, etc.

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STOCK

Purpose of stock control

•  Ensures that enough stock is on hand to satisfy demand.
•  Protects and monitors theft.
•  Safeguards against having to stockpile.
•  Allows for control over selling and cost price.

Stockpiling
This refers to the purchase of stock at the right time, at the right price and in the right quantities.
There are several advantages to the stockpiling, the following are some of the examples:

•  Losses due to price fluctuations and stock loss kept to a minimum
•  Ensures that goods reach customers timeously; better service
•  Saves space and storage cost
•  Investment of working capital kept to minimum
•  No loss in production due to delays

There are several disadvantages to the stockpiling, the following are some of the examples:

• Obsolescence
• Danger of fire and theft
• Initial working capital investment is very large
• Losses due to price fluctuation

Rate of stock turnover
This refers to the number of times per year that the average level of stock is sold. It may be worked out by dividing the cost price of goods sold by the cost price of the average stock level.

Determining optimum stock levels

•  Maximum stock level refers to the maximum stock level that may be maintained to ensure cost effectiveness.
•  Minimum stock level refers to the point below which the stock level may not go.
•  Standard order refers to the amount of stock generally ordered.
•  Order level refers to the stock level which calls for an order to be made.

Cash
Reasons for keeping cash

•  Cash is usually referred to as the "king" in finance, as it is the most liquid asset.
•  The transaction motive refers to the money kept available to pay expenses.
•  The precautionary motive refers to the money kept aside for unforeseen expenses.
•  The speculative motive refers to the money kept aside to take advantage of suddenly arising opportunities.

Advantages of sufficient cash

•  Current liabilities may be catered for meeting the current obligations of the company
•  Cash discounts are given for cash payments.
•  Production is kept moving
•  Surplus cash may be invested on a short-term basis.
•  The business is able to pay its accounts in a timely manner, allowing for easily obtained credit.
•  Liquidity
•  Quick upfront pay.

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Management of current assets

Credit policy

Credit gives the consumer the opportunity to buy, purchase or acquire goods and services, and pay for them at a later date. This has its advantages and disadvantages as follows:

Advantages of credit trade
Usually results in more customers than cash trade.

•  Can charge more for goods to cover the risk of bad debt.
•  Gain goodwill and loyalty of customers.
•  People can buy goods and pay for them at a later date.
•  Farmers can buy seeds and implements, and pay for them only after the harvest.
•  Stimulates agricultural and industrial production and commerce.
•  Can be used as a promotional tool.
•   Increase the sales.
•   Modest rates to be filled.
•   can be a marketing tool

Disadvantages of credit trade

•   Risk of bad debt.
•   High administration expenses.
•   People can buy more than they can afford.
•   More working capital needed.
•   Risk of Bankruptcy.

Forms of credit

• Suppliers credit:
• Credit on ordinary open account
• Installment sales
• Bills of exchangeCredit cards
•  Contractor's credit
•  Factoring of debtors
•  Cash credit
•  Cpf credits
•  Exchange of product

Factors which influence credit conditions

•  Nature of the business's activities
•  Financial position
•  Product durability
•  Length of production process
•  Competition and competitors' credit conditions
•  Country's economic position
•  Conditions at financial institutions
•  Discount for early payment
•  Debtor's type of business and financial position

Credit collection
Overdue accounts

•  Attach a notice of overdue account to statement.
•  Send a letter asking for settlement of debt.
•  Send a second or third letter if first is ineffectual.
•   Threaten legal actions.

Effective credit control

• Increases sales
• Reduces bad debts
• Increases profits
• Builds customer loyalty
• Builds confidence of financial industry
• Increase company capitalisation
• Increase the customer relationship

Sources of information on creditworthiness

•  Business references
•  Bank references
•  Credit agencies
•  Chambers of commerce
•  Employers
•  Credit application forms

Duties of the credit department

• Legal action
• Taking necessary steps to ensure settlement of account
• Knowing the credit policy and procedures for credit control
• Setting credit limits
• Ensuring that statements of account are sent out
• Ensuring that thorough checks are carried out on credit customers
• Keeping records of all amounts owingEnsuring that debts are settled promptly
• Timely reporting to the upper level of management for better management.

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