Question

Read Chapter 19 and Bonus Chapter D (Managing Personal Finances).

The fundamental purpose of a business is to generate profit for its ownership by providing a good or service. Often, businesses retain earnings or pay owners distributions, but several common problems arise in either retaining too much cash or paying owners significant sums:

A) What low risk alternatives to cash are available to businesses?

b) As business owners' net worth is often heavily tied into their businesses, what alternative places can distributions or retained earnings be placed to diversify their assets?

Explain your reasoning.

Answer 1

ANS a) Though Cash is Readily available and acceptable,it amounts to pliferage and Mis-handling. So, Various Business can opt or go for the low risk alternatives, they are:-

1. Bank Saving
2. Deposit Certificate
3. Money market fund
4. Bonds/Debentures
5. Treasury Bills etc.

ANS b) Major activities are involved in efficient portfolio management or diversification of assets

• Identification of Assets and Securities,Allocation of Investment
• Deciding about major weights or porportion of different assets
• Securities selection within the assets

The alternatives places where distributions or retained earning be placed to diversify asset or portfolio are:

1. Mutual fund
2. Real estate
3. Infrastructure debt fund
4. Hedge funds etc