Financial Management

Definition: Capital structure refers to the
mix of debt and equity used by a company to finance its overall operations and growth.
Components of Capital Structure:

Equity Capital: Funds raised through ownership shares such as equity shares and retained earnings.
Debt Capital: Borrowed funds like debentures, loans, and bonds.
Preference Capital: Hybrid form of financing with features of both equity and debt.

Importance: - A well-balanced capital structure minimizes the cost of capital. - It provides financial stability and maximizes shareholders’ wealth.

Definition: Fixed capital refers to the
long-term funds required by a business to acquire fixed assets such as land, buildings, machinery, and equipment.
Features of Fixed Capital:

It is invested in non-current assets that are used for several years.
It cannot be recovered easily in the short term.
It provides the base for carrying out production and operations.

Examples: Purchase of factory land, installation of heavy machinery, or construction of office buildings.
Conclusion: Fixed capital is essential for setting up and running the long-term infrastructure of any organization.

Step 1: Understanding SEBI.
The Securities and Exchange Board of India (SEBI) is the regulatory body for the securities market in India. It was initially set up in 1988 as a non-statutory body.

Step 2: Legal establishment.
SEBI was given statutory powers through the SEBI Act, 1992, passed by the Indian Parliament. This marked its legal establishment as an autonomous regulator.

Step 3: Analysis of options.
- (A) 1988: SEBI was set up, but only as a non-statutory body.
- (B) 1990: Incorrect, SEBI was not legally established in this year.
- (C) 1992: Correct, SEBI was legally established by the SEBI Act, 1992.
- (D) 1994: Incorrect, SEBI had already become statutory by then.

Step 4: Conclusion.
The correct answer is (C) 1992, when SEBI was legally established.

Step 1: Understanding capital structure.
Capital structure refers to the mix of long-term sources of finance used by a company. It shows the proportion of debt and equity in the company’s total capital.

Step 2: Components of capital structure.
Capital structure typically includes: - Equity share capital
- Preference share capital
- Debentures and long-term loans
Public deposits are considered a short-term source of finance and are therefore not included in capital structure.

Step 3: Analysis of options.
- (A) Share capital: Part of capital structure.
- (B) Deposits from public: Not part of capital structure (short-term).
- (C) Preference share: Included in capital structure.
- (D) Debenture: Included in capital structure.

Step 4: Conclusion.
The correct answers are (A) Share capital, (C) Preference share, and (D) Debenture.