1. Describe the goal of financial management
Financial management is identified as a process that enables a business to direct, plan, monitor, organize and control its future and current financial events and resources. Hence the primary goals of financial management is to dwell on both long term and short-term activities that focus on maximizing the value creation from the scarce financial performance. Notably, the main goal of financial management is to maximize the current value per every share of the existing stock (Dong,2015).
2. Identify the three main areas of concern in corporate finance.
Corporate finance is one of the significant functional areas of business and within a firm. identified to be having three mains reason of concern, which include the capital structure, which focuses on where will the firm get along term financing so as to pay its general investments. Additionally, the capital budgeting focuses on some of the long-term investments that a firm is supposed to take and finally, working capital management which focuses on how the firm manages its everyday financial activities.
3. Explain the advantages and disadvantages of conducting business as a corporation.
One of the major advantages of conducting business as a corporation is that the owners have limited liability where the owner's assets enjoy the protection from the liabilities and the debt of the corporation. This makes the shareholders not be held liable for losses incurred in the business. Additionally, it is very easy to raise capital since a corporation is capable of having an unlimited number of investors. On the other hand, one major disadvantage of managing a business as a corporation is that there exists double taxation of corporate profits where the corporation pays state and federal taxes on its profits when dividends are offered to the shareholder. On the other hand, for most corporations, tac fillings have become more complicated and corporations are supposed to designate a board of directors so as to hold annual meetings.
4. Explain the importance of the balance sheet and income statement in financial decision making.
Balance sheet being a statement of financial position, interested stock investors and creditors use balance sheet in determining the financial standing of a company. Since the balance sheet provides a summarized information on a company' s asset, a company can quickly understand their assets and liabilities in general. On the other hand, the company income statement which is also recognized as a profit and loss statement provide a general snapshot of the profitability of a company for a given period of time. One greater purpose behind financial documents is that it provides an opportunity for the major decision makers in providing an evaluation of the company current situation and offer changes as needed. Additionally, creditors make use of these statements in making decisions on matters to do with loans.
5. Describe the difference between average and marginal tax rates.
The average tax rate is considered as the total amount of tax divided by the overall income, it, therefore, incorporates all tax brackets and all the deductions in general. However, the marginal tax rate is the general incremental tax which is paid on the total incremental income, they form part of the extra taxes one will pay if they are earning one more dollar. It is also important to understand that average rate measure the sacrifice that the taxpayers make while the marginal tax rate is in place to measure how much the tax system is in place to discourage individuals from work.
6. Identify the sources and uses of cash represented on the statement of cash flows.
Basically, the sources and uses of cash statement are also recognized as the cash flow statement, it brings out the disclosure about details in regards to cash inflow and outflow of a business over a given period of time (Baaquie,2018). Technically, the sources and the uses of cash statement provide an analysis of cash flows from financing which include borrowing and loan repayments; operating activities and investing activities which involve additional capital that has been injected into the business and dividends paid.
7. Understand how short-term liquidity and long-term solvency measures are calculated and used.
Solvency and liquidity ratios are some of the tools that investors make use of so as to make investment decisions. liquidity ratio is calculated so as to measure the company's ability to convert its assets into cash (Miranda & Fackler,2004). Comparatively, solvency ratios measure the company ability to measure its financial obligation. The current ratio is the most popular liquidity ratio is calculated by dividing total current assets by to total current liability. On the other hand, solvency ratio is calculated by
Solvency Ratio = Net income+ Depreciation/ Short- Term Liabilities + Long-term Liabilities
8. Describe how profitability measures are used to determine how efficiently the company manages its operations.
Profitability ratios are in most cases used in determining the company's bottom line and the general return that it is offering to its investors. It is significant for the company owners and managers at the same time since it shows the efficiency and general performance of a company. The ratios also provide the returns and the firm's ability to measure the overall efficiency in generating returns.
Baaquie, B. E. (2018). Quantum Field Theory for Economics and Finance. Cambridge University Press.
Dong, G. N. (2015). Performing well in financial management and quality of care: evidence from hospital process measures for treatment of cardiovascular disease. BMC health services research, 15(1), 45.
Miranda, M. J., & Fackler, P. L. (2004). Applied computational economics and finance. MIT press.
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