Download this document contains wide information about finance topic and more Essays (high school) English in PDF only on Docsity! About business finance Business finance, the raising and managing of funds by business organizations. Planning, analysis, and control operations are responsibilities of the financial manager, who is usually close to the top of the organizational structure of a firm. In very large firms, major financial decisions are often made by a finance committee. In small firms, the owner-manager usually conducts the financial operations. Much of the day-to- day work of business finance is conducted by lower-level staff; their work includes handling cash receipts and disbursements, borrowing from commercial banks on a regular and continuing basis, and formulating cash budgets.Financial decisions affect both the profitability and the risk of a firm’s operations. An increase in cash holdings, for instance, reduces risk; but, because cash is not an earning asset, converting other types of assets to cash reduces the firm’s profitability. Similarly, the use of additional debt can raise the profitability of a firm (because it is expanding its business with borowed Money), but more debt means more risk. Striking a balance-between risk and profitability-that will maintain the long- term value of a firm’s securities is the task of finance. A firm’s balance sheet contains many items that, taken by themselves, have no clear meaning. Financial ratio analysis is away of appraising their relative importance. The ratio of current assets to current liabilities, for example, gives the analyst an idea of the extent to which the firm can meet its current obligations. This is known as liquidity ratio. Financial leverge ratios ( such as the debt-asset ratio and debt as a budget system encompasses all aspects of the firm’s operations over the planning period. It may even allow for changes in plans as required by factors outside the firm’s control . Budgeting is a part of the total planning activity of the firm, so it must begin with a statement of the firm’s long-range sales forecast, which requires a determination of the number and types of products to be manufactured in the years encompassed by the long-range plan. Short-term budgets are formulated within the framework of the long-range plan. Normally, there is budget for every individual product and for every significant activity of the firm. Establishing budgetary controls requires a realistic understanding of the firm’s activities. For example, a small firm purchases more parts and uses more labour and less machinery; a larger firm will buy raw materials and use machinery to manufacture end items. In consequance, the smaller firm should budget higher parts and labour cost ratios, while the larger firm should budget higher overhead cost ratios and larger investments in fixed assets. If standards are unrealistically high, frustrations and resentment will develop. If standards are unduly lax, costs will be out of control, profits will suffer, and employee morale will drop. Article by: Fatimetou/MohamedKonate
