Financial Management

In financial management, we study topics such as investment management, financial strategy, financial statement analysis and learn how to review the global

  • Factors determining the credit policy of a firm

    Factors determining the credit policy of a firm

    Credit Policy The credit policy of a firm is an important determinant in the success or failure of its business. A firm’s credit policy is usually based on the firm’s view of the risk it may face, which is usually termed as credit risk. A firm will normally want to know the risks associated with extending credit before deciding the terms and conditions of credit. This is because an increase in credit costs would lead to the cost of financing becoming higher and consequently to the firm’s profitability being reduced. This leads us to the question, “Is the firm willing to be more risky by extending credit?” A firm which is reluctant to accept credit risks will normally want to know the potential risks involved and the terms and conditions to be put in place before deciding to extend credit.…

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  • the best business valuation software

    Features of the Best Business Valuation Software

    Businesses planning to close, merge or acquire another company need to undergo the process of business valuation. An accurate and up-to-date valuation is critical for any business. The present-day also demands the business to be speedy. Cumbersome spreadsheets and hardbound journals have become old-fashioned, and software has instead taken their place. A person who has a good knowledge of the process can use this software. It takes away the burden of knowing various valuation theories and lets an individual do away with complicated mathematics to analyse the position of the business in the market. Most of the software is available on the Internet. It is considered to be time-efficient, value-adding and economical. As it is available on the Internet, it can also be accessed globally. Some of the available software on the market includes BIZpricer, BizPricer’s business valuation model, Ball…

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  • relevant costing meaning

    What is a Hedge Fund in Simple Terms

    In Europe and the United States, hedge funds are private investment organizations. These are typically structured as limited liability partnerships, with the general partner serving as a portfolio manager and making investment decisions and the other partners serving as investors. The investor partners are super-rich institutions, professionals and wealthy individuals (the minimum investment amount ranges from $250,000 to $1m). Investment in hedge funds is generally for a lock-in period of one year and so. The funds offered by all partners, including all general partners, are pooled and then invested into different financial assets, including derivatives. The investment strategy employed by these funds is usually dynamic and flexible. The funds will take any steps legal, for instance, leverage and short, long swaps, futures, swaps derivatives and other options on the international and domestic markets to earn high returns on the investments…

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  • American depository receipts

    What are American Depositary Receipts (ADR)?

    American Depositary Receipts represents U.S. investor ownership of non- U.S. company shares. ADR’s are issued by U.S. depository banks and deposited with a custodian or agent of the depository bank in the country of issuance. An ADR represents the right for an investor to obtain the non-U.S. shares held by the bank. Practically the investors never receive the shares. ADRs are priced in U.S. dollars and pay dividends in US dollars. However, convenient for investors, it results in currency risk embedded in the security. Individual shares of a non-U.S. company represented by an American Depository Receipt are called American Depositary Shares (ADSs). ADR investors can obtain ADRs by either purchasing them on a U.S. stock exchange or by purchasing the non-U.S. shares in their original market of issuance and then a. depositing them with a bank in exchange for a…

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  • Factors determining the dividend policy of a company

    Factors determining dividend policy of a company

    Dividend Policy Dividend policy is one of the most significant aspects that attract investors to a firm. It is the choice regarding, out of available earnings how much to retain and how much to compensate the shareholders for their investments and risk they incur. Dividends are usually wanted by shareholders but it is not prudent to distribute all possible earnings considering the unpredictable future and market volatilities. Different companies pay dividend following own policies and some companies do not pay the dividend at all. For example Microsoft (MSFT). This article discusses some of the very common dividend policies companies take into account before declaring or paying dividends. Factors determining the dividend policy There are several factors that could be applicable in individuality or in a combination of two or more factors that decide the dividend policy of a company. Let’s…

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  • fundamentals of accounting

    Accounting Rate of Return: Investment Appraisal Technique

    What is accounting rate of return? The accounting rate of return, or ARR, is another method of investment appraisal. It is found by calculating the average accounting profit as a percentage of the average investment. To find the average investment, just divide the initial outlay by 2. If the asset depreciates and you’re using the straight-line method of depreciation, use this formula to calculate the average investment: (Initial investment + Scrap value)/2 Let’s take an example. Say you know the following details about a particular project: Number of years that the project is going to be used for: 5Average annual profit over the 5 years: $50,000Initial investment: $100,000Scrap value: $30,000Average investment: $65,000 The accounting rate of return of an investment in this asset is 77%. Advantages of ARR There are two main advantages of using this method of investment appraisal.…

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