4th Chapter Financial maketing & services

Marketing & Financial Services

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Objectives Objectives

Copyright © 2009 Pearson Prentice Hall. All rights reserved.

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Importance of marketing services

Market research involves gathering statistical data to develop the organisation’s marketing strategy and plan. Advertising and promotion focus on communicating information with various departements. The important marketing services are :

A) advertising agencies.

b) market research companies.

c) logistics. d) customer support

e) crm service providers.

f) public relationship management companies,

What is logistics ?

logistics is the management of the flow of goods from point of origin to the point of consumption.

Material handeling ,packaging , transportation,warehousing, and often security are some of the services provided by logistic undertaking firms.

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Inbound v/s Outbond logistics Inbond logistics :

concentrating on purchasing and arranging the inbound movement of materials, parts, and/or finished goods from manufacturing unit , assembly point or warehouses

• Outbond logistics : related to the storage and movement of final products and related information flow from the end of production line to the end user/consumer.


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LOGISTICAL FIELDS

• Various logistical fields are :

• Procrument logistics : consists of activities like market research, requirements planning, make-or-buy decisions, supplier management.

• Production logistics: connects to distribution logistics

• Distribution logistics: main task is to delivery the finished products to the consumer

Contd…

• Disposal logistics: main function is to reduce logistics costs and enhance services related to the disposal of waste produced in production.

• Reverse logistics: the reverse logistics deals with products being returned back to the vendors by the buyers.the opposite of reverse logistics is forward logistics


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• Green logistics: describes all atempts to measure and minimize the ecological impact of logistics activities. This includes path optimization, vehicle saturation and use of city logistics.

• Domestic logistics: within the boundaries of a region or a nation.

• International logistics: multiple counries.

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• Example:-

• DHL (dalsey hillblom lynn) Is the world’s largest logistical company headquarted in Bonn, (germany) with operations in allmost all countries of the world including: USA,russia,malaysia,iran,iraq,singapore,china,canada,india,vietnam,australlia and various other african countries.


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Leasing

• Leasing is the process by which a firm can obtain the use of certain fixed assets for which it must make a series of contractual, periodic, tax-deductible payments.

• The lessee is the receiver of the services of the assets under a lease contract.

• The lessor is the owner of the assets that are being leased.

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A lease is an agreement whereby the lessor conveys to the lessee in return for payment or a series of payments the right to use an asset for an agreed period of time

© 2011 IFRS

Foundation

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TYPES OF LEASES

Operating leaseFinancial leaseSale and lease backDirect leaseLeveraged leaseDomestic lease International lease


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• Situations that individually or in combination normally indicate a finance lease:– lease transfers ownership of the asset to

lessee– lease term is for the major part of asset’s

economic life– specialised asset (only lessee can use

without major modifications)


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Leasing: Operating Leases

An operating lease is a cancelable contractual arrangement whereby the lessee agrees to make periodic payments to the lessor, often for 5 or fewer years, to obtain an assets services.

Generally, the total payments over the term of the lease are less than the lessor’s initial cost of the leased asset.

If the operating lease is held to maturity, the lessee returns the leased asset over to the lessor, who may lease it again or sell the asset.

Eg :Mines ,Trucks ,Automobiles


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Leasing: Financial (or Capital) Leases

A financial (or capital) lease is a longer-term lease than an operating lease.

Financial leases are non-cancelable and obligate the lessee to make payments for the use of an asset over a predefined period of time.

The total payments over the term of the lease are greater than the lessor’s initial cost of the leased asset.

Eg : Financial leases are commonly used for leasing land, buildings, and large pieces of equipment.


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Sale-leaseback arrangement is a lease under which the lessee sells an back the same asset for a cash to a prospective lessor and then leases The assets are not physically exchanged but it all happens in records only This is nothing but paper transactionIt is not suitable for the assets which are not subjected to depreciation but appreciation

Leasing: Leasing Arrangements

• A direct lease is a lease under which a lessor owns or acquires the assets that are leased to a given lessee

• The direct lessor includes manufacturers finance companies, independent lease companies


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A leveraged lease is a lease under which the lessor acts as an equity participant, supplying about 20 percent of the cost of the asset with a lender supplying the balance.Here the third party is involved other than lessee and lessor

• Domestic Lease : when all the parties of the lease arrangement reside in the same country it is called domestic lease

• International lease are of two types

• Import and Cross Border Lease

• When lessee and lesorr reside in the same country and equipment supplier stays in different country the lease arrangement is called import lease


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Cross Border Lease

• When the lessor and lessee are residing in two different countries and no matter where the equipment supplier stays the lease is called cross border lease


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Leasing Arrangements

• Operating leases normally require maintenance clauses requiring the lessor to maintain the assets and to make insurance and tax payments.

• Renewal options are provisions that grant the lessee the option to re-lease assets at the expiration of the lease.

• Finally, purchase options are provisions frequently included in both operating and financial leases that allow the lessee to purchase the asset at maturity—usually at a pre-specified price.


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Leasing: Advantages of Leasing

• The firm may avoid the cost of obsolescence if the lessor fails to accurately anticipate the obsolescence of assets and sets the lease payment too low.

• A lessee avoids many of the restrictive covenants that are normally included as part of a long-term loan.

• Leasing—especially operating leases—may provide the firm with needed financial flexibility.

• Sale-leaseback arrangements may permit the firm to increase its liquidity by converting an existing asset into cash, which may then be used as working capital.


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Leasing: Advantages of Leasing (cont.)

• Leasing allows the lessee, in effect, to depreciate land, which is prohibited if the land were purchased.

• Because it results in the receipt of service from an asset possibly without increasing the assets or liabilities on the firm’s balance sheet, leasing may result in misleading financial ratios.

• Leasing provides 100 percent financing.

• When the firm becomes bankrupt or is reorganized, the maximum claim of lessors against the corporation is 3 years of lease payments, and the lessor gets the asset back.


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Leasing: Disadvantages of Leasing

• A lease does not have a stated interest cost.

• At the end of the term of the lease agreement, the salvage value of an asset, if any, is realized by the lessor.

• Under a lease, the lessee is generally prohibited from making improvements on the leased property or asset without approval of the lessor.

• If a lessee leases an asset that subsequently becomes obsolete, it must still make lease payments over the remaining term of the lease.


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Capital market refers to a type of financial market, where individuals and institutions are trading in financial securities. Public and private institutions or organisations usually list their securities for selling among investors and for raising their funds. In this market, long term maturity instruments are listed, which have a period of more than one year. Capital market has various instruments for investment : Equity shares, preference shares, debentures, bond. As we know, before starting a business, a company needs a certain amount called capital, and capital is raised through issue of shares. Share capital of a company consists of individual shares of fixed denomination. A share is a share in the share capital of a company. The share capital is spilt into large number of units of same value. Each such unit is called Share and the value of each share is called face value. Shares which a company issue are of two kinds : Equity shares and Preference shares


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1.Equity shares

• Equity shares are those shares which are ordinary in the course of the company’s business. They are called ordinary shares. The shareholders do not enjoy the preferential rights in the respect of payment of dividend and repayment of capital. Equity shareholders are paid dividend out of the profits of made by the company. Higher the profits higher the dividend and lower the profits lower will be the dividend. They are also called the real risks takers and care takers of the company and they enjoy the right of voting.

• Features of equity shares

• Owned capital: equity share capital is owned capital because it is the money of the shareholders who are actually the owners of the company.

• Fixed value or nominal value: every share has fixed value or nominal value. For instance, a company issued 10,000 shares of Rs 10 each. The price which is indicated here is the fixed or nominal value


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.

•Distinctive number: Every share is given a distinct number just like roll number for the purpose of identification.•Attached rights: a share gives to its owner the right to receive dividend, the right to vote, the right to attend meetings, the right to inspect the books of accounts.•Return on shares: every share holder is entitled to a return on shares which is known as Dividend.•Transfer of shares: equity shares are easily transferable that if a person buys shares of a particular company and he does not want them, he can sell them to anyone, thereby transferring the shares in name of the name of that person.

Contd..

• Benefit of right issue: when a company makes fresh issue of shares, the equity shareholders are given certain rights in the company. The company has to offer the new shares first to equity shareholders in the proportion to their existing share holding. In case they do not take up the shares offered to them, the same can be issue to others.


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Contd…

• Benefits of bonus shares: joint stock companies which make huge profits, issue bonus shares to their ordinary shareholders out of accumulated profits.

• Irredeemable: equity shares are always irredeemable that means equity capital is not returnable during the life time of the company.


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4th Chapter Financial maketing & services

Education