Financial Analysis

Financial Analysis

Imagine you are a small business owner. Determine the financial ratios that are important to a manager of a larger corporation

The ratios that would be of my interest, considering my own small business would be the basic working capital ratio, quick ratio and current ratio along with return on investment. These ratios will help me determine the overall position of my business and will ensure that whether I am financially sustainable or not. However, on the other hand if we talk about the larger businesses, then they would also be interest in the above mentioned ratios, however they would also be more interest in Return on Equity, Earning per share and Return on Assets as well.

Explain the advantages and disadvantages of debt financing and why an organization would choose to issue stocks rather than bonds to generate funds

The debt financing is a mode of finance which is used by the companies in order to get hold of the capital they need to start and operate an existing business. The debt financing is when a person, company, bank or other entity that provides capital for a business and the company has the obligation to pay the loan capital plus the interest rate agreed. Many companies believe that debt financing is advantageous, since the same time providing the necessary capital to existing owners to maintain ownership and control of the company. Companies participating in the debt financing may also be eligible for substantial tax deductions. However, companies need to be able to repay their loans according to the agreed payment schedule in order to avoid negative consequences.

Issuing bond would be a better option as this would allow me to enjoy the debt tax shield where as by issuing equity, I cannot gain the debt tax shield and this will increase my overall tax expense

Discuss how financial returns are related to risk

By investing, you should take into account the risk of default, the risk that the financial institution or creditor with whom one has invested not has the ability to pay timely its assets. Cash investments are at low risk of default and are safe liquid investments that help achieve short-term financial goals. Another factor to consider is the return on investment. Although low-risk cash investments produce lower yields in the long term compared with other financing options, because they are not adjusted for inflation, that is, the rise in prices of goods and services. As a result, cash investments limit their purchasing power over a long period. Historically, certain items such as the cost of university education and certain medical expenses increase at a faster rate than the average rate of inflation. In developing a financial plan, one should take into account your financial goals in the short and long term.

Activity in the stock market always involves certain risks. An investor is the one who invests their money in securities, taking one or another part of the risk. At the heart of the decision to invest is the comparison of risk and ...