The Five Principles Of Finance As Applied By E & A Credit Union

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Introduction Credit unions are unique as unlike most financial institutions, credit unions do not issue stock and do not pay dividends to outside stockholders. Credit Unions are not-for-profit institutions. Earnings are returned to members in the form of lower loan rates and higher returns on members’ deposits (Goddard, McKillop, & Wilson, 2008). Many times credit unions performance is measured in terms of asset growth and membership growth. Many other key ratios are reviewed to paint the picture of how the organization is performing. E & A Credit Union’s financial statements and key ratios will be analyzed and we will determine if sound financial practices applying the five principles of finance have been used efficiently.
Literature Review The purpose of this research is to review the application of the five principles of finance as applied by E & A Credit Union. The five principles of finance are outlined as: Principle 1- Money Has a Time Value Principle 2 – There is a Risk-Return Tradeoff Principle 3 – Cash Flows Are the Source of Value Principle 4 – Market Prices Reflect Information Principle 5 – Individuals Respond to Incentives (Titman, Keown, & Martin, 2014, p. 11-13). Credit unions make decisions regularly based on all five principles. Credit unions primary business is making loans to their members. The key components of a credit union’s income statement in terms of income are loan income, investment income and other income. Other income
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