a finance assignment help

a finance assignment help

The Role of Finance in Business: Key Concepts and Practical Applications

1. Introduction to Finance

Finance is the science of managing money and other assets. Some of the key activities of finance include, among others: funds procurement in financial markets and through financing arrangements; allocation of these funds within the organization, or what is known as investing; preparing financial reports for making decisions, chief among them are those of providing information for management control and decision making; overall moderation and optimization of organization’s activities in its financial environment.

Corporate finance can be broadly defined as the set of activities that befall within organization which are geared toward achievement of a single, or, more realistically, a set of internal or private goals. Not all business organizations, however, have reliance on the amount of money that corporations do. Some are created as sole proprietorships in which the business owner is the business; others are partnerships, limited or professional, in which the two or more owners seek to divide the profits and risks in some manner.

2. Financial Statements and Analysis

The four basic financial statements are the income statement, the statement of retained earnings, the balance sheet, and the statement of cash flows. They serve the following purposes for stakeholders:

Managers use the income statement and statement of cash flows to evaluate performance, to measure income created, and to understand the reality of cash flows.

Investors and creditors use the income statement and balance sheet to assist their decisions.

Employees might use these statements to evaluate the income and cash flows of the firm. This drives their potential future consideration and ability to purchase goods, such as houses and cars.

Communities use the statements to evaluate tax revenue expectations.

Regulatory bodies use the statements for various reporting requirements.

At a minimum, one attempts to evaluate and compromise the values presented on these four financial statements in order to use the information presented on them for any of these purposes. The general process of judging the quality of this data, arrived at by generally accepted accounting principles (GAAP) to guide judgments, is called accounting analysis. The real skill of accounting analysts is to understand the reality that a business creates cash, but if we have to compromise values from the default presentation, we can use rules of thumb or general rules to regenerate these values. Rapid improvement in data manipulation tools has created a large demand for high-quality data.

3. Capital Budgeting and Investment Decisions

Projects require funds that are allocated according to long-term decisions. There is widespread consensus that a fundamental objective of the financial management of a company is to generate optimal profitability with capital resources, and so capital decisions should be given priority attention. When the financing and investment decisions are made together, creating an effective asset and capital structure is essential if financial performance will be optimized. In responding to investment opportunities available, a business must decide both the scale and the composition of the firm’s assets.

Because companies own the input factors for production processes – goods and materials, plant and equipment – the quality and size of these assets provides competitive advantage and superior financial returns. This is the essence of sound financial management, resulting in the employment of capital that gives rewards exceeding its cost. Failure to achieve such results means the business lines up with those that fail or perform at substandard levels, thus strengthening a competitive position that comes from superior performance is important to a firm’s success. It is important also for the health of the broader industry which, in turn, sustains economies on local, national, and across-border dimensions. A skeleton stock of tools and equipment used repeatedly and without maintenance becomes less effective over time. Similarly, companies require development resources to ensure healthy asset growth and replacement of their capital stock, and this requires continual investment of a significant portion of annual profits, that is, asset replacement and expansion is a concern of all industries and corporate forms.

4. Risk Management and Financial Markets

Financial markets are, by definition, highly uncertain. Risk management is therefore vital to ensure that the company can withstand the financial fallout of adverse economic and market conditions, as well as to preserve its value. Managing a company’s risks includes reducing the possibility that the company will fail to meet its financial commitments under any circumstances while ensuring that all leaders and stakeholders have the same view of the company’s risk management is therefore an extension of the company’s overall goals and objectives. The key ingredients of a successful company risk management framework follow.

Appointing an executive with responsibility for the risk management policy and approving the policy with stated time requirements should take place at the board level. Measuring and aligning the risks that a company faces require management accounting and financial analysts working together to understand and define various financial risks. A company may then choose to bear a given risk by buying the necessary financial instruments in the market, or it can reduce its exposure to that risk by employing various corporate and financial strategies. The specific mix of corporate and financial strategies mainly depends on all the major decision factors, such as corporate structure, investor characteristics, dividend policy, and the relationship between the company’s credit costs and its risk organization.

5. Conclusion and Future Trends

In this module, we have outlined the main issues justifying the existence of financial theory, as well as its relationship with economics, operations research, accounting, and decision making in general. For each of these main issues, we have partially or totally defined theoretical results, as well as techniques so some of them could be empirically tested. In fact, finance is a fertile area for the concourse of at least four types of study. Economics helps us to determine the behavior of individuals within the organization, and the behavior of the organization as a whole. Mathematics and operations research give us the models to formulate, in mathematical terms, such behaviors. Accounting tells us not only how to account for the means (money or goods) flowing in the organization, but also how to measure such behavior in a number of different ways. Finally, the organizational sciences study the causes of the observed behavior, i.e. the process of decision making.

In an empirical framework, financial theory has found good and substantial evidence. The fact that most associations found are consistent with the basic concepts of the model makes us competition the model with anti-model theories. Some anomalies and breakthroughs already found tell us that the proposed initial models are partially or totally failing in explaining the observed phenomena. These same breakthroughs can be used to improve the developed models, and to implement companies’ management and investment proposals. In the next module, we will outline some empirical studies which could help in these tasks, enriching the finance curriculum.