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Reviewer 6

Business finance involves managing money, investments, and financial resources to ensure a company's profitability and stability. It includes key components such as financial management, capital structure, and working capital management, as well as various sources of financing and financial statements. Challenges in business finance include cash flow issues, rising interest rates, and market uncertainty.

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4 views3 pages

Reviewer 6

Business finance involves managing money, investments, and financial resources to ensure a company's profitability and stability. It includes key components such as financial management, capital structure, and working capital management, as well as various sources of financing and financial statements. Challenges in business finance include cash flow issues, rising interest rates, and market uncertainty.

Uploaded by

Nihad Rusdemli
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Business Finance Reviewer

1. What is Business Finance?


Business finance refers to the management of money, investments, and financial resources
within a business. It involves budgeting, financial planning, investment decisions, and risk
management to ensure a company's profitability and stability.

2. Importance of Business Finance


✅ Helps businesses manage cash flow effectively.
✅ Supports strategic decision-making for investments and growth.
✅ Ensures financial stability and profitability.
✅ Provides funding for operations, expansion, and emergencies.
✅ Helps in risk management and financial forecasting.

3. Key Components of Business Finance


A. Financial Management
● Planning, organizing, controlling, and monitoring financial resources.
● Ensures efficient use of funds and maximizes returns.

B. Capital Structure
● The mix of debt (loans, bonds) and equity (shareholder investments) used to finance
business operations.
● Debt Financing: Borrowing funds that must be repaid with interest.
● Equity Financing: Raising funds by selling shares of ownership in the business.

C. Financial Planning & Budgeting


● Financial Planning: Setting financial goals and creating strategies to achieve them.
● Budgeting: Allocating financial resources for expenses, investments, and savings.

D. Working Capital Management


● Managing short-term assets and liabilities to maintain smooth operations.
● Includes cash management, inventory control, and accounts
receivable/payable.

E. Investment & Financing Decisions


● Businesses must decide where to invest their money for maximum returns.
● Examples: Expanding operations, purchasing new equipment, or launching a new
product.

4. Sources of Business Finance


A. Short-Term Financing (For day-to-day operations)
1. Trade Credit – Buying goods on credit and paying later.
2. Bank Overdraft – Withdrawing more money than available in an account.
3. Short-Term Loans – Loans that must be repaid within a year.

B. Long-Term Financing (For expansion & growth)


1. Equity Financing – Selling company shares to raise funds.
2. Debt Financing – Taking long-term bank loans or issuing bonds.
3. Venture Capital – Investment from venture capitalists for startups.

5. Financial Statements Used in Business Finance


📄 Balance Sheet – Shows a company’s financial position (assets, liabilities, equity).
📄 Income Statement – Displays revenues, expenses, and profits over time.
📄 Cash Flow Statement – Tracks cash inflows and outflows to ensure liquidity.

6. Key Financial Ratios for Business Analysis


📊 Liquidity Ratios – Measures a company’s ability to pay short-term debts.

● Current Ratio = Current Assets / Current Liabilities

📊 Profitability Ratios – Shows how well a company generates profit.

● Return on Investment (ROI) = (Net Profit / Investment) × 100

📊 Debt Ratios – Assesses a company’s reliance on debt.

● Debt-to-Equity Ratio = Total Debt / Total Equity

7. Role of a Business Finance Manager


Manages cash flow and investment decisions.
📊 Analyzes financial statements and risks.
💰 Plans for business growth and funding.
⚖️Ensures financial stability and regulatory compliance.

8. Challenges in Business Finance


⚠️Cash Flow Issues – Not having enough cash to cover expenses.
⚠️Rising Interest Rates – Increases the cost of borrowing money.
⚠️Market Uncertainty – Economic downturns can impact business revenue.
⚠️Financial Fraud & Mismanagement – Poor financial decisions can lead to losses.

9. Real-World Business Finance Examples


📌 Apple Inc. – Uses billions in retained earnings to finance R&D and expansion.
📌 Amazon – Uses debt financing to invest in infrastructure and global expansion.
📌 Tesla – Raises capital through stock sales to fund innovation and growth.

Would you like me to add more details or focus on a specific topic? 😊

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