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A Finance Manager is a professional who manages the financial functions of an organization. As such, the financial manager is a top-ranking official in the business and he or she plays a vital role in making the business become successful. In the past, financial managers were not considered for the top-ranking or decision-making roles, but with time, the perceptions have changed.A modern financial manager is a top boss who knows much about the company's financial procedures. He or she is considered a vital employee of the organization and he plays a key role in managing the finances of the company. ... Read More
There is more than one definition of capital recovery in finance. When someone makes an investment on a company or an asset, he or she gets a negative return until the whole amount is returned. The RIO (Return on Initial Investment) made in such cases is called capital recovery.There can be other definitions too. For example, capital recovery occurs when a company sells its machinery and recollects the money invested in them. In broad terms, capital recovery is the money that is the investment or money gained back from a project. Capital recovery is applicable to the asset's life span ... Read More
Many businesses in the corporate world tie too much of their value in assets which are inventory, real estate and equipment of the firm. Although, having assets is an important part of organizations, having too low cash in hand could be catastrophic for all businesses. This, short term cash held for sudden and smaller necessities is known as liquidity of a firm.As is obvious, managing liquidity is a separate process or financial function organizations have to deal with on a day to day basis. And though it seems like a child's play, in reality managing liquidity is one of the ... Read More
Net Present Value (NPV) is the value of a fund that would mature in the future. The NPV method is used for financial analysis and to determine the feasibility of a project. It is the value of future cash inflows and outflows in relation to initial investments made by an individual or a firm.What is NPV?An organization needs to take very conscious and wise decisions about growth and expansion. In many cases, huge amounts of funds are involved. So, the organizations need to do capital budgeting. NPV is a good option to calculate the capital budgets to find the most ... Read More
Agency costs are costs incurred to handle agency problems. These problems occur due to conflicts between the shareholders (principal) and managers (agents). The agency costs are used to mitigate the conflicts. Usually, there should be no conflicts between principals and agents in a company setting but if shareholders think that managers are utilizing too many funds for their self-interest agency problems may arise.Types of Agency CostsThere are two broad categories of agency costs. The first arises when the managers use the company's resources for self-benefits and the second when shareholders spend money to discipline the managers.There are two sub-types of ... Read More
Firms raise funds for a variety of reasons, such as growth, expansion and research, and development. Some firms also raise funds to pay the debts back to the creditors and to fend off competition. Seeking lenders and investors to invest in the company is far more favorable than using the profits from ongoing operations. Companies may require funds to carry on with the operations too.Public companies raise money by sharing their shares in an Initial Public Offering (IPO). The IPO lists the company's shares in the stock market and it is traded in the exchange. Companies may also raise debt ... Read More
What is Profit Maximization?As the term suggests, Profit Maximization is a philosophy to maximize the profits from a business concern. In the free economy, there is always profitability if the goods and/or services are good. So, firms selling good products and services increase the prices of goods to generate more revenues and profits. After the market competition for such service providers, however, a point is reached where the maximum profit halts.This is the point of profit maximization.Note − To maximize profits, one must produce quality goods or services.The underlying cause of profit maximization is efficiency. This helps the companies to ... Read More
A financial manager plays a pivotal role in keeping the businesses intact and on track. By applying his or her knowledge, he or she builds the businesses should accept for profit maximization. He or she must also be a team player in order to coordinate the communication from the financial department to other business departments of the company.Note − No organization can succeed nowadays without good financial managers.As a dynamic member of the organization, he or she must play the following rolesDecision MakerIn the recent past, financial managers were not considered vital members of the organization. So they were excluded ... Read More
A Sinking Fund is a special fund that is created by depositing fixed payments each period to gain an estimated and fixed amount after a specific period. In other words, a sinking fund is an account that earns compound interest into which a fixed payment is made periodically for a specific period of time.A sinking fund is generally created to accumulate a fixed sum of money after a specific period. One can use the sinking fund to pay off a loan as a lump sum after a certain period. In the meantime, until the lump-sum period is reached, one can ... Read More
The interest rates paid annually by financial organizations on an annual basis are known as Nominal Interest Rates. In such an arrangement, the interest is paid at the end of each year. If compounding is done, that will also be covered under this arrangement in one shot.However, there are arrangements in which financial organizations pay interests on funds semi-annually or quarterly. For example, in the case of loans, the charges or interests may be levied semi-annually. Such an arrangement of paying the interest several times within a selected period is known as Effective Interest Rates.Nominal Interest Rate Vs Effective Interest ... Read More