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Understanding the Implications of Finance as a Resource Within a Business - Assignment Example

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The formal record of the activities related to finance of a business or other entity is regarded as financial statement. Businesses are often involved in publishing the financial statements such as balance sheet, income statement as well as the statement of cash flows. …
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Understanding the Implications of Finance as a Resource Within a Business
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The banks and the individuals willing to start the start will move in a contract where the individuals agree to pay installments on monthly basis. The bank will also charge interests for the loan amount. The source of finance with the usual payment period of more than 15 years is regarded as the long term loan. This kind of loan is generally required for the expansion processes or buying a fixed asset. This kind of loan can be achieved from financial intermediaries. A fixed interest rate generally higher than the interest rate on bank loan is accrued in this type of loan. It is required to pay monthly instalments as well as the fixed interest rate. Another source of finance is the short term loan. This type of loan comprises of loan for short periods usually within 5 years. The financial intermediaries have the ability to provide such kind of loans and the contract requires the one taking the loan to pay the principle along with the agreed interest within the specific time period. Banks provides overdrafts and charge for its services (Hennessy and Whited, 2007, p. 1). The bank of England sets the rate of interest at which it provides loan to the financial institutions. The interest rate has the potential to affect the interest rates of the commercial banks, the prices of the financial assets and the rate of exchange which can affect the consumer as well as the business demand. Another mode of raising finance is retained earnings. The retained earnings can be increased by generating increased sales which will shed its impact on the profit level and can also be reinvested into the operations of the business (Food and Agriculture organization of the United Nations, n.d.). Explanation of the importance of financial planning Financial planning can be studied from both, individual point of view or from the point of view of a company. From the point of view of the individual, financial planning can be thought of as an integrated approach to ensure the well being of the individual under consideration (Diatax, n.d.). The importance of financial planning lies in the success of a business. For a company, financial plan refers to primarily to three financial statements i.e. balance sheet, income statement as well as the cash flow statement. The financial plan is created with the plan of the business and it can also refer to the projected income or expenditure for a division of a company or the company itself. The decision regarding the processes of cash flow and the estimation of total cash requirements is also taken into account in the financial plan. Financial planning acts as the backbone of a business and if any company operates without any financial planning it is likely to end up in financial distress or financial grip. If the company runs of the roadmap of solid financial foundation it is assumed that the organization will be able to provide a good act in the realm of payable accounts. The financial planning is helpful for the financial analysts to withstand the harder times and take advantage of the good times. A good and proper financial planning paves the way for the company when to deal with the outstanding debt as well as the rise in the operating costs. Every company should have a planned financial plan in order to anticipate the conditions of the future. The financial pla ...Download file to see next pagesRead More
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