Question

Introduction of business finance

Assume that you recently graduated and have just reported to work as an investment advisor at the brokerage firm of Edmund PVT Ltd. One of the firm’s clients is Michelle Torre, a professional swimmer who has just come to the Australia from Canada. Michelle is a highly ranked swimmer who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amount of money. Michelle is very bright, and, therefore, she would like to understand in general terms what will happen to her money. Your manager has developed the following set of questions that you might ask and answer to explain the Australian business finance set up to Michelle.

Required

1. Explain three main areas of concern in business finance. ​​​

2. The financial manager has one particular goal in mind. ​​​​

a) What is this goal and why adopt it as the focal point for financial management?

b) What are some of the difficulties in achieving this goal?

3. What is time value of money? Explain.​​​​​​

4. How can firms improve their competitive position and so make projects potentially more attractive?​​​​​​​​​

Answer 1

1. Finance is the lifeblood of any business. The three main areas of concern in business finance are:

Raising Capital: For any business to flourish they need to invest in themselves. The level and type of investment will depend on the business. It can be Propreitor Capital and Share Capital in case of Corporation.

Working Capital: Working capital is simply the money that is used on a day to day basis. You need to be able to purchase supplies, pay staff, and deal with other daily expenses. These should all be funded by the sale of your goods and services.

Capital Budget: Capital budget is simply the process of understanding what the business is likely to need in the future.You can use capital budgeting to assess the direction the firm is moving in and what expenditure is likely, this is a theoretical exercise which should cover all the different possibilities.

3.  Time value of money is the idea that money that is available at the present time is worth more than the same amount in the future, due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received. One of the most fundamental concepts in finance is that money has a time value attached to it. In simpler terms, it would be safe to say that a dollar was worth more yesterday than today and a dollar today is worth more than a dollar tomorrow.

It Includes Present Value of Money and Future Value of Money.

4. Most companies trace the origins of a formal planning system to the annual budgeting process where everything is reduced to a financial problem.

While many businesses think of slashing their prices to stand out, there’s value in going the other direction. Consider the adage: “You don’t buy a Rolex to tell time.”

Speaking at conferences, meetings and other events has a similar impact on expanding your company’s perceived authority.

Businesses are often encouraged to use data points and statistics in the marketing content they create, as doing so gives the appearance of authority and credibility.