Business Financing & Capital Structure

Business Financing & Capital Structure

Introduction

Finance is the backbone of a business, and therefore financial decisions holds immense importance for companies. The financing decision as well as the capital structure is two of the most significant areas that the finance department of businesses need to focus and manage efficiently. Business financing involve the decision of best way to raise finance i.e. either by equity or debt, where, capital structure is refer to the way company has financed its assets through debt or equity. This report focuses on various aspects associated with business finance and capital structure.

Discussion

Process of Financial Planning Used To Estimate Asset Investment Requirements for A Corporation

Financial planning involves one of the major aspects “asset investment requirement', where, the reliance on investments for increasing company's wealth and assist businesses in accomplishing financial objectives. Financial planning for asset investment requirements involves logical and systematic process for successful implementation. There are variety of steps involved in the process including budgeting; cash-flows; & capital needs, determining right asset allocation, choosing financial instruments, and others. At first, it is essential to determine the capital required for investing while keeping in mind the budget limitations. Secondly, it is essential to decide the amount of capital required for investing into various areas (assets), and moving further, it is required to select the right financial instrument for the investment (Kuhne, 2009). Thus, various steps are involved in financial planning for asset investment requirements for a company.

Working Capital Management

Working capital management holds an immense importance in the financial management of a business. Basically, the working capital of a business is represented by its short-term assets, which comprises of leading segment of investment, specifically in manufacturing businesses. The management of working capital deals with each of the company's short-term assets' management in a way that it can result in maximizing the firm's value. This management plays a vital role in efficient business performance, since the lack of funds in working capital and the uncontrolled over-expansion can lead towards the failure of a business or stunned growth. Particularly, in small sized businesses, the management of working capital can be the factor behind its success or failure, while in large sized companies, the management of working capital may considerable impacts on the business risk, reward, as well as stock price (Jain, 2004).

Financial Instruments Used As Marketable Securities to Park Excess Cash

Financial instruments that can be used as marketable securities in order to park excess cash include government treasury bonds, notes and bonds, bonds issued by federal government; state; or local agencies, and banking institution instruments such as acceptance; repos; negotiable CDs. It also include financial market instruments like commercial papers, variable rate preferred shares, Euronotes, as well as the money market mutual funds. All of these instruments share the characteristic of relatively low risk and high marketability as well as liquidity. Thus, the businesses use these marketable securities for parking the excess cash in order to earn higher yield as ...