Task 1

Introduction Finance is the like life blood of any company, cost of acquiring it and the dividends you have to pay to those who have provided it have a impact on the organisations . If the capital, of the company is acquired at cost level which are higher obviously this will affect the companies. This study will analyse the capital structure of a company and cost / management aspects related to it.

Capital structure of Reliance Life Insurance Company

Reliance Life Insurance Company is a part of Reliance capital limited. It is Indias one of leading companies. It has started its business in 1981 with a share capital of 4.9 million. Now the present authorised capital of Reliance life insurance is more than 500 million and paid up capital is 252 million. The establishment of reliance was steadily and smoothly. Its gross premium income has increased from .5 million in 1983 to 710 million in 2010.At the end of 2010 general reserve stood at 87 million and technical reserve stands in 493 million.

Capital structure of any organization describes the combination of a companys long term capital, which includes debt and equity (Klacik, Sue, 2010). A healthy part of equity capital over debt capital shows the financial fitness of the company. The capital structure will show how the company is distributing its fund for the day to day activities and long term needs.

Capital structure of Reliance Insurance

(Rs in crore)

From To Year year

Class of share

Authorised Issued capital capital

Paid up shares in Nos.

Paid Paid up up Face capital value 245.63 245.63 245.63 222.87 127.31

2009 2010 2008 2009 2007 2008 2006 2007 2005 2006

Equity 300.00 share Equity 300.00 share Equity 300.00 share Equity 200.00 share Equity 200.00 share

2.46.98 245632800 10 246.98 246.98 224.21 128.65 245632800 10 245632800 10 222866245 10 127306244 10

From the analysis of data and capital structure of reliance insurance, we can understand that the company has 100% paid up share capital. It is clearly understandable that the company is in better financial position. Besides, the number and amount of unsecured loan has increasing, it will interrupt the companys planning for further investment, because unsecured loans contains higher risk and contains higher return (Llano-Ferro, Fernando, 2009). It will make the company minimum liability and it will help

the company to take high risk and will generate high profit, because risk is directly related to return.

Financial options to the company

From the balance sheet of the company, we can effortlessly understand that the company is mainly focus in share capital, both equity and preference. The company is not interested in debentures, bonds etc. but it has some interest in secured and unsecured loans. It will increase the return of share holders, because the rising of capital through debentures is very high and the company has to pay fixed interest even though the company is not making profit.

As far as Reliance life insurance is concerned the following may be used as their funding option in order to get high return. First of all bank loan is acceptable one, because the interest rate will be very less and very easy to obtain the loan from bank. Equity share issuing is also very suitable for Reliance, because they dont need to pay any money if the company is not making any profit. Preference share also very profitable one, but try to reduce the amount of debentures, unsecured loans etc.

According to the market situation, Equity share is the moat suitable source of fund for Reliance life Insurance, because it is a long term and permanent capital for the company. The equity share basically represents ownership in the company. When a company needs capital or money to operate, it generates the required funds by selling ownership in the company. The main advantage of the company is that its the capital for the lifetime and no need to pay

back. Its not essential to pay the divident; the divident will paid only at the time of getting profit.

Task 2

Management of financial resources

An efficient way of handling finance is very essential for avoid financial distress. Cash is the main current asset for any business. So it should be handling very carefully. The company should keep the needed money only then only they can earn more profit. It should not be less or high, both will affect seriously (Yee, Kenton K. (2000). In order to ascertain the amount of needed money in advance, an effective management is very essential. As far as Reliance is concerned they have well equipped personals to handle the money. So their profit is increasing day by day.

Management of Receivables

Receivables are mainly result from credit sales. It is not possible to sell the goods always in cash, sometimes the firms forced to sell them in credit (Crean, Michael, 2005). But Reliance is adopting a 100% success in receivable handling. The amount of receivables should be minimum in order to get the profit. Reliance is following some procedures in order to reduce the amount of receivables such as, they clearly define the regulations before credit sales, they are sending reminders as soon as possible for slight delays in payment, they are issuing invoice promptly etc. By following these steps Reliance can reduce the amount of receivables.

Management of working capital

The working capital handling is deals with the handling of current assets and current liabilities. Working capital is the difference between current assets and current liabilities (Sang-Hoon Kim., 2010). According to the balance sheet, the working capital management of Reliance is excellent, so they can keep the optimum level of working capital. The working capital will give an idea to the investors about the efficiency of the company. In the case of Reliance also the investors trust them. It is the one of the reasons for trusting them. The amount of working capital will reflect the efficiency and current position of the organization. Conclusion
In this assignment we have tried issues is the financial management of a company in way that melds recommendations as well serious debate of the best practices that can be followed by companies. The effort was to understand the key issue in using the capital for todays companies taking principle from the academic research done in managerial finance . This exercise will provide the researcher key help in future decision making situations.

References:

1. Crean, Michael (2005). Revealing the True Meaning of the IRR via Profiling the IRR and Defining the ERR. Journal of Real Estate Portfolio Management. Vol. 11 Issue 3, p323-330, 8p.

2. Klacik, Sue (2010).Risky business: Risk analysis in CSSD. Healthcare Purchasing News, Vol. 34 Issue 8, p42-45, 4p.

3. Llano-Ferro, Fernando.(2009). The Weighted Average Cost of Capital (WACC) for Firm Valuation Calculations. International Research Journal of Finance & Economics.Issue 26, p148-150, 3p.

4. Sang-Hoon Kim. (2010) . Practical Aspects of the First Two Moments of the NPV. Proceedings of the Northeast Business & Economics Association,p309-311, 3p.

5. Yee, Kenton K. (2000). Aggregation, Dividend Irrelevancy, and Earnings-Value Relations. Contemporary Accounting Research. Vol.22 (2): p453480.