Financial Management Basics
Basic financial management includes activities such as managing the day-to-day operations of a business, such as paying suppliers, cost of capital, and budgeting. It also includes making long-term investments in plant and equipment and obtaining the money or financing for your operations.
What is Leverage?
Business and financial risk refer to the amount of leverage a business firm employs. Operating leverage is the use of fixed assets to increase returns. Financial leverage is the use of debt financing to increase returns. Combined leverage is the total risk to the firm of these two types of leverage.
Why Do Companies Merge? Mergers and Acquisitions Explained
Many reasons are given for companies to merge and acquire other companies. Some of those reasons are financial and some are non-financial. Here are some of the most common financial reasons for companies to merge with other companies.
What Are Horizontal and Vertical Mergers?
Horizontal and vertical mergers are two types of mergers that are considered to be non-financial mergers. These mergers occur along business and industry lines. In the case of horizontal mergers, two firms in the same business merge. With regard to vertical mergers, two firms along the same supply chain merge. Both lead to possible anti-trust...
Conglomerate and Cogeneric Mergers
There are two types of mergers that involve basically unrelated types of business firms. Those are congeneric mergers and conglomerate mergers. Here is a discussion of each.
What is Shareholder Wealth Maximization and Should Firms Pursue it?
Shareholder wealth maximization or maximizing the value of a business firm's stock price should be the goal of businesses in capitalist societies. Shareholders own the firm and money accrues to them through the increased value of their stock. Social responsibility can co-exist with shareholder wealth maximization.
What is the Agency Cost for Business?
Agency cost is the operating expense caused in a business firm when managers and shareholders disagree about firm decisions. This disagreement leads to the agency problem, which is the conflict in businesses between shareholders and management due to this desire on the part of management for self-interested behavior and the goal of the firm...
Cash Flow Analysis
Here is a series of articles on how to prepare and analyze both the cash budget and statement of cash flows. There is also an article on calculating free cash flow and on calculating and interpreting the cash flow ratios for your company.
Use Asset Management Ratios in Financial Ratio Analysis
Asset management ratios are the key to analyzing how effectively and efficiency your small business is managing its assets. These ratios, also called turnover or efficiency ratios, indicate to the business owner how efficiently the asset base of the business is generating sales.