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Financial Costs - Research Paper Example

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Running head: Research Paper Research Paper Introduction One of the most challenging tasks for any business is to maintain steady growth while satisfying the need for reduction of costs. Every company seeks to grow in size through increased profits…
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Financial Costs
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Download file to see previous pages He aims at reducing the liabilities to the firm while being cautious not to paralyze the production level. Financial cost reduction plans have to place the input and output factors of at equilibrium in order to maximize efficiency. This paper discuses the significance of financial cost to a firm, various cost reduction methods and the aspect of financial restructuring. Significance of Financial costs Financial costs are the expenses that a company incurs in all its activities in commodity production and delivery. These are all the costs that the company pays for in all its activities. They include the cost of raw materials, processing in the production level, transportation, administration expenses like rent, loans payment, salaries tax payments and insurance payments among many other liabilities. Keeping clear accounting records on the financial costs is very important for any given company since the costs are used to determine the profit margins. This is done through a series of accounting calculations that indicate the overall profit margins by subtracting the cost of the liabilities from the total production value (Codjia, 2012). Financial costs are also very important to a company because they can be referred to when determining the growth rate of a given company. This is done through a professional analysis of the relationship between the input cost and the subsequent output. A company may be investing huge amounts of capital and receiving low profits that influence a slow growth rate. Business analysts can help a business to rectify such an issue through financial restructuring plans. The plans aim at reducing the financial costs while increasing the profit margins. Such strategies strongly rely on the accounting records for the financial costs to pinpoint the loopholes in the company and the areas of insignificant competences that need to be eliminated (Codjia, 2012). During management accounting, the financial costs records are very important in drafting a cost effective strategy for a company. Most companies boost their capital with borrowings from banks and other financial agencies. These money borrowing agencies normally request for financial cost audits of the companies that seek loans from them in order to determine whether the companies are qualified for their loans. The relationship between management accounting and financial costs in a firm enable the analysts in the company to draw a feasible periodic business plan (Codjia, 2012). Financial costs are significant to a company in the process of budget making. Allocation of funds during the preparation of the annual budget of a company requires an analysis of the financial costs so that the right amounts are injected to the various processes in the company (Codjia, 2012). The financial costs also enable the planners to detect the deficits in the financial plan before they take loans. It gives an analysis of the total capital input. Financial costs also help in detecting the areas in the firm where the liabilities are accumulated. This may be helpful in the process of reducing production costs. The competitiveness of a company lies in its profitability level. Financial costs are used in the preparation of overall balance sheets and cash flow statements that are used to attract investors in companies. The investors compare the financial cos ...Download file to see next pagesRead More
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