The Importance Of Financial Investments

This step involves short and long term debt equity analysis. The proportion of equity capital depends on the possessing and additional funds will be raised. The choice of the source of funds the company has are the issue of shares and debentures, loans to be taken from banks and financial institutions and public deposits to be drawn in form of bonds. The choice will depend on relative merits and demerits of each source and period of financing. The management of the investment funds is key in allocating that the funds are going in the correct place. The profits that are made can be down in two ways dividend declaration which includes identifying the rate of dividends and retained profits in which the volume has to be decided which will depend upon expansion and diversification of the company. The management of cash is another important function. Cash is needed for all different aspects of the company such as payment of salaries, overhead and bills. All of these are important in a company and how successful the financial aspect is going to be.The financial management practices include capital structure decision, investment appraisal techniques, dividend policy, working capital management and financial performance assessment. A company needs to have well financial in order to be successful. “A company that sells well but has poor financial management can fail.” (Johnston)

Last but not least, we look at the balance sheet. We have to show our current ratio and our debt ratio. The debt ratio says it all, it shows just how much our Corporation is currently in debt, and can also show this companies long term solvency. “The current ratio is an excellent diagnostic tool as it measures whether or not your business has enough resources to pay its bills over the next 12 months” (Ward, n.d.). If we don’t have enough money to pay our bills, then what is the point in these companies investing and financing with us? They would get nothing out of it.

FM 's must use many of the financial theories discussed above to reach an appropriate balance between financing long-term projects with outside debt. In the US, only 25% of this financing comes form new debt or new equity (Ross, 2005, p. 400). As previously discussed, short term assets, namely cash, finance the day-to-day operation of the business. Since long-term financing is cheaper than short term financing, some FM 's may choose to keep enough cash in hand funded form long-term sources, so they never need to use more expensive short-term borrowing. However, long-term funds are typically obtained in large blocks and this could be inefficient (Kerr, 1997).

Finances can be described in many ways. Throughout life we all use finances in some type of way. Whether it’s loaning money to a friend or borrowing money from the bank. Without financing we would not be able to complete most of the things that we need to do in our day to day life. It plays a very important role. There are many different ways to financing your own business. Whether you use the stock market, an investment banker or any of the numerous other organizations that are made available to you. What are the risks involved with using an investment banker? What is the stock market? What is financial

This paper also brings new evidence to bear on an important outstanding issue in the financing constraint literature. The literature has wrestled with the problem of sorting out the reasons why cash flow is positively correlated with firm investment. While many researchers have argued that the correlation is due to financing constraints, an alternative interpretation is that cash flow is a proxy for investment opportunities. The methodological approach used in our study helps to address this problem. By examining the growth of the whole

There is no universal theory of the debt-equity choice, and no reason to expect one. In this essay I will critically assess the Pecking Order Theory of capital structure with reference and comparison of publicly listed companies. The pecking order theory says that the firm will borrow, rather than issuing equity, when internal cash flow is not sufficient to fund capital expenditures. This theory explains why firms prefer internal rather than external financing which is due to adverse selection, asymmetry of information, and agency costs (Frank & Goyal, 2003). The trade-off theory comes from the pecking order theory it is an unintentional outcome of companies following the pecking-order theory. This explains that firms strive to achieve an

The way the business is funded for its operation and business plans is a crucial factor for the long-term performance of the business. Two most fundamental financing methods include debt and equity financing which will be discussed and evaluated. Equity financing is a method of raising fund from investors with the promise of a share in business ownership. Debt financing is obtaining a loan from external party separate from the business for example the bank and usually involves incurring an interest payment. Advantages of debt financing include protection of ownership and tax reduction. Lenders have no claim on business ownership and debt financing ensure retained ownership. Another benefit includes tax reduction, the repayment of debt is considered as an expense for the business leading to a reduction in tax. Disadvantages include the repayment and lender claim on business asset. For debt financing there is a fixed repayment date, while equity financing does not require repayment. Even when the company is making a loss, the business needs to make debt repayment regularly for example in a monthly basis to lender such as bank. Usually when business default its debt, the lender can claim its assets as collateral. Interest rate is an integral part of debt financing. Due to inflation, the value of the same amount of money diminish overtime as a result, there is an interest rate for all loan. Long-term loan is comparatively more costly than

The company is financed both by equity and debt, there is no perfect combination of the debt and equity, and still finance managers believe that every firm has an optimized value of creation of funds through both the sources which capitalize on shareholders fund as well as the financial value added by the firm.

While analyzing the type of different sources of finance, it is important for the people to ensure that the costs related to the various sources of finance are analyzed as the success of the company depends on these sources. The costs of external sources of finance are quite high as compared to the internal sources of finance.

In this essay we will be looking at different sources of finance available for different type of business. Also will be looking at the definitions of different type of sources of finance, the advantages, disadvantages and also giving reasons to why different sources of finance was chosen for the given case studies.

Investing in StockTrak was a very interesting process. This is the first time I have ever invested in the market. I had a total of 93 trades this semester, a lot of which were made up of equity trades. I traded mostly the big name equities like Apple and Google at first and slowly started to do more research and start to trade other equities and instruments. Other instruments that I used to trade were mutual funds, bonds, options, futures, and future options.

The relationship between capital structure and firm value has been discussed frequently in the literature by different researcher accordingly, in both theoretical and empirical studies. It has also been discussed that whether the firm has any optimal capital structure that has been adopted by an individual firm, or whether the proportions of debt usage is completely irrelevant to the individual firm value.

When a firm grows, it needs capital, and that capital can come from debt or equity. Debt has two important advantages. First, interest paid on Debt is tax deductible to the corporation. This effectively reduces the debt’s effective cost. Second, debt holders get a fixed return so stockholders do not have to share their profits if the business is extremely successful. Debt has disadvantages as well, the higher the debt ratio, the riskier the company, hence higher the cost of debt as well as equity. If the company suffers financial hardships and the operating income is not sufficient to cover interest charges, its stockholders will have to make up for the shortfall and if they cannot, bankruptcy will result. Debt can be an obstacle that

The financial decisions of any type of an organisation can be divided into two categories. The first of these is concerned with spending – what spending decisions should be made in order to suffice a particular organisation’s future goals, which might be expressed in terms of profits, success in competition, new product development, growth and so forth. However, in order to realise these visions, each company necessarily needs to make decisions falling into the second category which is concerned with raising money for its spending. Spending financing represents an important issue in each company’s existence as the decisions within this category can have a wide variety of influences on the present and future of each organisation. A

Harris and Reviv (1990) gave one more reason of using debt in capital structure. They say that management will hide information from shareholders about the liquidation of the firm even if the liquidation will be in the best interest of shareholders because managers want the perpetuation of their service. Similarly, Amihud and Lev (1981) suggest that mangers have incentives to pursue strategies that reduce their employment risk. This conflict can be solved by increasing the use of debt financing since bondholders will take control of the firm in case of default as they are powered to do so by the debt indentures. Stulz (1990) said when shareholders cannot observe either the investing decisions of management or the cash flow position in the firm, they will use debt financing. Managers, to maintain credibility, will over-invest if it has extra cash and under-invest if it has limited cash. Stulz (1990) argued that to reduce the cost of underinvestment and overinvestment, the amount of free cash flow should be reduced to