ipl-logo

The Importance Of Corporate Finance

1403 Words6 Pages

Actually, the primary goal of corporate finance is maximizing the shareholders wealth, and the corporate finance can be divided into three key areas including, capital structure and dividend policy, capital budgeting and working capital management (WCM) (e.g., Hillier et al., 2010; Moles et al., 2011), although the working capital is the most critical factor for survival, maintaining liquidity, solvency and profitability of business (Mukhopadhyay, 2004) , It does not have that profile in the literature like the first two areas of corporate finance. However, the importance of WCM should not be undervalued because the efficiency in managing working capital is very significant to create value for the shareholders (Shin, Soenen 1998), Furthermore, …show more content…

Body:
The term working capital denotes to the fund needed to keep day-to-day expenses of the operating activities of the firms. It is essentially vital to run the wheels of the business (Mandal and Goswami, 2010) Working capital, in a financial setting, imply the difference between current assets and current liabilities, while the working capital ratio, calculated as current assets divided by current liabilities, it reflect a crucial indicator of a firm's essential financial health specially it shows the business's capability to effectively meet its short-term financial requirements if the working capital ratio below 1.0 this mean that firm facing defect meeting short-term obligations, typically because of inadequate cash flow. Working capital ratios of 1.1 to 2.0 are deemed desired, on the other hand a ratio higher than 2.0 may indicate a firm is not making the most effective usage of its assets to increase profits, so the working capital management is considered a dilemma between the profitability and liquidity, the efficiency in the management of working capital is actual vital for a corporate existence …show more content…

Moreover, each decision regarding the investment is established on risk and return connection (Richard, Stewart & Franklin, 2008), the link between WCM and this theory is that the decisions in working capital management is the trade-off between profitability and liquidity. If the company selects to be profit this would be at the expense of the liquid and vice-versa. Somewhat of these two conflicting decisions might cause either shortage or excess of the components of working capital and the current assets of a business, cash shortage result in trouble in liquidity while excess cash decreases

Show More
Related

  • Financial Ratios For Dollar Tree

    703 Words  | 3 Pages

    Cash Ratio 866.4/2105.9=0.41 The cash ratio is the cash equivalent divided by the current liabilities. Without having a good cash ration then the company would not have ample amount of cash to run a business sufficiently. You must have cash because it is the lifeline center of a business. You have got to be able to pay your bills, employees, and other unknown debt.

    Read More

  • Pier One Executive Summary

    365 Words  | 2 Pages

    Three publicly traded companies have been analyzed: Pier One Imports (PIR), Bed Bath and Beyond (BBBY) and Overstock.com (OSTK). These companies have been investigated through probing the Annual Report, Balance Sheet and Management;s Discussion and Analysis. The working capital has been computed, as well as, current and quick ratios. Pier One Imports (PIR) is operating with a working capital of $621M.

    Read More

  • Comparative Analysis Of J. C. Penney's Corporation

    781 Words  | 4 Pages

    Current ratio enables us to examine the liquidity of the business by equating the amount of current assets to current liabilities. Although current ratio fluctuates from industry to industry, is preferred to have at least one dollar of current assets for every dollar of current liabilities. Kohl's has the advantage over J.C Penney, as Kohl's current ratio is 1.87 in comparison to J.C. Penney?s ratio of 1.67. Kohl?s Corporation can pay all of its current liability and still have a positive working capital better than J.C.

    Read More

  • Advantages Of Cash Flow In Healthcare

    1152 Words  | 5 Pages

    By creating a cash budget, a company can predict when there could be a cash deficit and the magnitude of this deficit. In return, the budget shows that the difference between budget and actual value may need to be compensated by borrowing. Short-term financing may require purchasing inventory, promoting products or paying monthly fees. By forecasting cash demand, companies can assess future business opportunities based on the likely financing needs and cost components of the

    Read More

  • Finance Case Study: The Wilkerson Company

    895 Words  | 4 Pages

    Abstract The Wilkerson Company started facing declination in profits due to the price cutting on their pumps. On the contrary, while the price pumps were decreasing to record numbers, the flow controllers, which controlled the rate and direction flow of chemicals, could increase its prices without significant loss or any competitive response. Wilkerson, his controller, and manufacturing manager developed an activity-based cost model (ABC) to better comprehend the various demands that each product line makes on the organization 's indirect and support resources. Exhibit 1 showed us our operating results, Exhibit 2 showed us our product profitability analysis, Exhibit 3 displayed our product data, and Exhibit 4 was a compilation of the monthly

    Read More

  • The Importance Of Healthcare Financing

    220 Words  | 1 Pages

    Healthcare financing in its broad sense means paying for health insurance premiums. Providers rely on patient’s insurance status to get reimbursed for the services they provided and there are various methods to determine how providers are paid. Financing has the impact of determining who has access to healthcare and who does not, even though many uninsured have access to charity care it still plays a role for those who remain uninsured. The demand of healthcare is impacted by financing of services, health insurance increases demand for covered services. The demand for healthcare services would be less if services were to be paid out of pocket.

    Read More

  • A Raisin In The Sun Financial Failure Essay

    1208 Words  | 5 Pages

    In today's world many people can get caught up with viewing failure as a negative when it can actually create a learning experience. In the play A Raisin in the Sun by Lorraine Hansberry, Walter's learning experience that accompanies his financial failure helps him change from insecure and selfish to him slowly becoming confident and selfless teaching him the values that allow him to become the leader of his family by the end of the story. At the start of the play, Walter is insecure and selfish because of his financial failure. He shows how insecure he is when talking to his wife, Ruth about their current living situation.

    Read More

  • Best Buy Financial Summary

    368 Words  | 2 Pages

    Current Ratio: The higher the current ratio, the more capable the company is of paying back its obligations. Meaning the more asset value relative to the value of its liabilities. As a company you don’t want to be less than 1, because that would suggest that you are unable to pay off its loans and debt. You also don’t want to be over 3, that just show’s you are not using your resources to maximizing your working capital.

    Read More

  • Ryanair Financial Ratio Analysis

    2985 Words  | 12 Pages

    The following example will provide further explanation: some entities, for instance a supermarket, may have a lot of cash trade. Due to this reason, it is a possibility that their current assets ratio of less than 2 : 1. This is not likely to be an issue for them because sufficient amounts of cash is probably collected daily through the checkouts. On the other hand, the airline industry, a low current ratio may not necessarily mean that a company is in peril. Reason being is that a large portion of the high current liabilities may relate to the pre-purchased tickets, which the airline can honour for a relatively low marginal cost.

    Read More

  • Newmont Case

    977 Words  | 4 Pages

    Cash Ratio measures the cash available to the company in order to satisfy its short-term liabilities. Cash ratio of at least .5 is better because there are very few companies that actually have enough cash to cover their current liabilities. The cash ratio is the most conservative look at a company’s liquidity since it only looks at the cash. This ratio is an indication of a company’s creditworthiness and is used to decide how much credit should be extended to the company. In the case of Newmont it has a ratio of 1.96 which is a good indication that the company would be worthy of a loan from creditors.

    Read More

  • WACC Case Study

    811 Words  | 4 Pages

    The purpose of this study is to differentiate what WACC stands for, what it represents and how it influences management to make decisions. The study seeks answer the research question, Are WACC and ENPV are conected and if so explain everything connected to their interdependence? The goal is to use current knowledge and new discoveries in the field to proove if there is interconnection between these two and to explain how companies can use WACC and ENPV to be more profitable. The WACC stands for Weighted Average Cost of Capital. It is the measure of the average cost of capital a firm is paying for it's debt.

    Read More

  • Driver Metrics: The GQAM Model

    1732 Words  | 7 Pages

    Business owners always seek for saving costs in a ways that promise with the efficiency of the work. Costs could be represented in different forms, e.g.: money, time, labor and so on. It was realized to us that the most effective metrics that give a good insight about critical functions are Quick Ratio, Budget deviation, Service Level Management and Reporting time. Quick ratio metric specialized in measuring how the organization can cope with financial requirements specially the short- term ones.

    Read More

  • The Creation Of Ethically Intelligent Finance

    1015 Words  | 5 Pages

    In a world where resources are finite, financial manager are increasingly under pressure to deliver the optimal results concerning business finance. Without funds, a business cannot operate so it is vital that funds are being monitored to identify any problem areas. To do this, many of them will utilize the income statement, cash flow, and balance sheet. These are major tools that allow the finance managers to assess the financial health of their business and arm themselves with relevant information that will dictate what growth strategies will take place to stay in business. Despite its importance, the mismanagement of money is all too common in businesses.

    Read More

  • The Importance Of Accounting In Personal Finance

    748 Words  | 3 Pages

    Introduction Keeping record of activities and expenditures is crucial in personal finance planning and could really help in managing personal finances. This paper identify what is accounting and how does it help to manage personal finance, describes products of accounting and bookkeeping procedures that are useful in personal financial planning and how personal financial software could assist in personal financial decisions. What is accounting and how does it help you manage your personal finances?

    Read More

  • Swot Analysis Of Grace Kennedy

    904 Words  | 4 Pages

    Exposure to credit risk is managed in part by obtaining collateral and corporate and personal guarantees. Counterparty limits are established by the use of a credit classification system, which assigns each counterparty a risk rating. Risk ratings are subject to regular revision. Liquidity Risk Liquidity risk is the risk that the company is unable to meet its payment obligations associated with its financial liabilities when they hall due and to replace funds when they are withdrawn. GK’s liquidity management process, as carried out within the Group through the ALCOs and treasury departments includes: o Monitoring future cash flows and liquidity on a daily basis o Maintaining a portfolio of highly marketable and diverse assets that can easily be liquidated as protection against any unforeseen interruption to cash flow o Maintaining committed lines of credit Currency Risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

    Read More

More about The Importance Of Corporate Finance

Open Document