Finance is the process of allocating resources to meet economic needs and desires. This involves managing, creating, and studying money, investments, and other financial assets. Finance is critical to any business or individual’s ability to make sound decisions regarding resource allocation.
It is essential for individuals to understand finance in order to make informed decisions about personal finances and investment choices. There are many topics students may consider when writing a finance essay. Some of these include budgeting, learning about different types of investments, and the role of finance in the economy. Additionally, students may also want to explore how to improve their own financial literacy.
The Solow Growth Model is a prominent example of the exogenous model of economic growth. Obviously quite different from endogenous growth models; still, the Solow Growth Model is not inherently opposed to them. The main difference between the exogenous model and endogenous model lies in different approaches to the achievement...
A national economy is an extremely important factor shaping the country’s profile, its power, the level of the population’s welfare, and the state’s role in the international arena: “A national economy is the organized process of developing markets for natural resources, industrial production, agricultural output, and technological innovations. All nation-states...
The commonly occurring economic changes determine the changes in the interest rates. In the current scenario, lenders are more interested in risk-based pricing in the process of consumer lending. It is “ranging from credit cards to car loans to even your home mortgage.” The core concept in risk-based pricing is...
In 2008–2009 most of the industries in the world have entered into a deep recession as a result of the financial crisis that had its origins in impulsive lending practices and distribution of mortgage debt in the United States. Sub-prime loans losses in 2007 exposed other risky loans and over-inflated...
Interest rate refers to the amount which is received in relation to the amount loaned and which is expressed as ratios of dollars that is received per on-lent per hundred dollars. There are many factors that influence the interest rate in the current US economy. It is very difficult to...
The capital allocation decisions are closely related to the issues of money movement, and the general allocation of the financial reserves, aimed at overcoming the consequences of the financial crash. Thus, as it is emphasized by Birger: “Alternative assets, as well as small-cap stocks and foreign issues all, soared while...
According to Howell, the expense is considered deductible if it meets certain requirements. They include the following: Be purely for business reasons Not be a lavish but ordinary and necessary business expense Be Incurred during business activity Be sufficiently accounted for in records Expenses incurred for business purposes are deducted...
It is normally found that investors are more concerned about their portfolio of total investments rather than the valuation of individual investments. Therefore, it is quite possible that one or two individual investments in the basket may be high risk and thus contribute to overall high risk. The Capital Asset...
A recession is defined as a slowdown in economic activity. Recessions in the economy customarily come about because of a reduction of the GDP growth rate of the same nation. They are, in most cases, characterized by a decline in business investments, a fall in sales, and a decline in...
Communism economic type assumes strict regulation of production and consumption following the capabilities of the economy, the interests of society, and then the interests and status of individual citizens. The presence of a market for goods and services under capitalism and the absence of such a market almost or completely...
The investment of choice will be in the financial market through non-equity securities, especially bonds, due to the limited capital. Under the recession, the output was reduced significantly. This resulted in business and individual preferences to save on their money, as Keynes stipulated. This implies that savings were more than...
Interest rates are the equilibrium price in a financial market through which borrowing and lending of money occur. A country’s central bank is responsible for implementing the state’s monetary policy. The monetary policy provides the central bank with the necessary tool to manipulate the interest rates. The integrity of a...
Table 1 shows that historical trend starting from the year 1950 to 2010. Based on the historical data, it can be concluded that a direct correlation exists between the international tourism arrivals (Y) and the international tourism receipts (X). A linear regression model can be used to forecast the trend...
Economic recession is a serious challenges faced by all of the world economy players. The major causes that leads to recession was falling prices in the property market, rising unemployment, increasing bankruptcy situations among the individuals as well as corporate organizations, down ward trend in the stock prices and decreasing...
The selection of the depreciation method is the most important decision. Like straight-line method would be used when the amount of asset’s service is used up is approximately the same every period. An accelerated method is used when an asset is more productive in the earlier years of its estimated...
The purpose of the creation of allowance for doubtful debts accounts is to keep separate some portion of the income to meet the actual bad debts occurring during the coming accounting. That shows that the creation of such an allowance actually reduces the amount of income by that amount. That...
Companies are generally liable to pay corporation tax on their profits after certain adjustments, and more taxable profits mean more corporation tax. This impacts the cash flows of the company—an increase in the tax payments increases the cash flows out of the company. A company usually has up to nine...
As countries mature economically, the channel structure seems to approximate that of China. Retailers become larger and more efficient and introduce self-service. But these channels must be altered to suit the environment. A supermarket in Japan or Italy is not the equivalent of one in China. Wholesalers often serve as...
City bonds are usually called municipal bonds (or munis) and they are issued when a city government needs to finance new projects for public purposes such as schools, highways, or hospitals. Explanation: Before answering the question of why a city would issue bonds, it is necessary to answer the question...
If an employer at the job does not provide a retirement plan, it forces employees to search for other options to save for retirement. Luckily, an individual has various choices, such as setting a solo 401k plan or choosing one of the types of IRA programs, that are beneficial in...
Variable costing income statement is an income statement, where contribution margin is represented separately. It is done by deducting fixed expenses and removing from the revenue with variable expenses appearing with corresponding contribution margins. Explanation: When withdrawing marginal profit, expenses are divided into fixed and variable categories. Variable expenses are...
Credit unions are not-for-profit organizations that are owned by account holders, members, with the funds invested in the institutions being invested back or paid out to members as dividends. Such unions do not pay federal or state taxes, which allows them to charge lower rates on interests compared to banks...
Financial ratios help businesses to identify various issues, which affect their operations and clarify various financial matters through statements. By evaluating an organization’s financial ratios, a firm can identify its strengths and weaknesses, which impact its performance. The strengths and weaknesses are revealed by analyzing a company’s debt position, profitability,...
The five main issues regarding the interpretation of financial data by MMB Plc include legislative framework, historical data, type of profit, costing technique, and industry performance. To know the type of profit highlighted in the financial statement, it is important for the company to provide its profit and loss statement...
A firm’s credit rating is an important determinant of how it will relate to its creditors, lenders, and other third parties that support the business. BWL plc has received a credit rating upgrade meaning that it can leverage this position to improve its overall relationship with its partners. One significant...
The highly competitive nature of the insurance business has forced companies to look for new ways of maintaining their profitability. Developing an accurate pricing strategy is one challenge that could affect the future profitability of RRB plc’s profitability. Particularly, the company’s revenues could be affected if it has difficulties developing...
Many people often find it difficult to use financial information documented in a company’s income statement unless they understand how to interpret the data on it. Relative to this statement, three negative features may emerge from the interpretation of JN plc’s income statement, and the first one is that the...
A lack of change in JN plc’s income can be addressed by reallocating the firm’s resources to its marketing and sales divisions to expand the outreach that the business has on the market. Doing so will increase income revenue streams for the business by expanding the volume of sales made...
There are several reasons that depict that the cash flow statement is highly important for the investors and company, as it is “a crucial factor that enhances its operations.” In the first place, it offers detailed information about cash inflows and outflows. For example, the section on operating activities reflects...
The ideas that Harris and Mongiello are trying to get across in their article are rather adequate and provide a lot of food for thought. Indeed, in the realm of the global economy, it is essential to take a variety of factors apart from the financial ones into account when...
Financial risk is the existence of a probability of losing money by shareholders who invest in a corporation that does not have adequate cash flows to finance all its obligations. In a case in which a corporation relies on debt financing when the company becomes insolvent, the creditors will be...
An interest rate, usually expressed as a percentage, is an amount charged to the borrower on the principal by the lender for the usage of the lender’s assets. The rates are usually computed annually, bringing the term annual percentage rate (APR). The assets could be large assets like a building,...
Financial statements are built on ten key elements. They form the classes that exist in the financial statements. They are used in measuring the performance of an organization and reporting its financial position. The components include comprehensive income, loss, gain, expenditure, revenue, proprietors’ distribution, proprietor’s investment, equity, liability, and asset....
Arbitrage is the process of increasing income without having to increase the levels of risk involved in making the investment. It is a process of making a riskless gain. An arbitrage opportunity arises when a project is capable of giving returns that are more than or equal to the risk-free...
The Weighted Average Cost of Capital (WACC) is important because it shows us the minimum after-tax return that our company must earn in order to maintain shareholder value. This average is the required return on our assets. Of course, it is based on the market’s perception of risk on those...
Compound returns are formed when the amount of interest at the end of the investment period is added to the principal amount. The investor should invest funds in accordance with such investment conditions that the amount of interest by the end of the period is added to the principal amount...
There are situations in companies where dividend payments cannot be made at the moment, and then it is called dividends in arrears. In such situations, they speak of dividends in arrears, which are dividends overdue by the date of payment. Explanation: When a firm has dividends in arrears, it means...
If a large part of the population is uninsured, the impacts of this situation on the healthcare system can be significant because the higher number of uninsured patients creates conditions for increasing healthcare costs. It is important to state that the healthcare system is directly connected with the insurance system...
The stock option has numerous benefits over and above the other compensations, and many such companies can succeed by adopting such a plan. The following are the key benefits of using the employee stock option plan. The management is able to appreciate their responsibility as part of the company shareholders,...
Learning the intricacies and details of the manufacturing process is one of the key requirements for conducting an accurate financial assessment of a company’s performance and making further forecasts. In turn, manufacturing may be quite difficult to embrace for the uninitiated, which calls for a brief yet effective tool for...
The present value concept captures the time value of money by adjusting through compounding and discounting cash flows to reflect the increased value of money when invested. The present value of a cash flow reflects in today’s terms the value of future cash flows adjusted to the cost of capital....
The diagnostic related groups (DRG) system of providing payments is characterized by such an advantage as the provision of the full reimbursement for healthcare specialists depending on the group of patients with whom they work. One more advantage is the effective and developed budget allocation in hospitals. However, this system...
Riahi says the U.S. GAAPS are rule-based, but the IFRS is principle-based. This can be seen due to the differences seen in the treatment of some transactions. In the U.S, the areas of discussions can be interpreted or clarified by the board, but the IFRS can only give guidance and...
The incidence where the company assigns the cost of direct labor to the calculation of total cost poses no challenge. Initially, the company would assign the labor costs to the product cost through direct tracing. The difficulty arises when a direct actual observable labor input and output relationship does not...
The flow of standards can be slowed if producers focus less on quarterly earnings per share and tax benefits and more on quality products. Furthermore, accountants and lawyers should rely less on rules and laws through the adoption of judgment and conduct. This means that the reliability of companies’ reports...
Fraudulent financial reporting (FFR) is the intentional omission of amounts or intentional withholding of vital information during the preparation of financial statements. Perpetrators manipulate records purposely to deceive people who benefit from such information. FFR ensues through forgery, manipulation, alteration, misrepresenting, and omitting transactions during the reporting. It is a...
Annuity due and ordinary annuity are the two basic types of annuities. While ordinary annuity is an annuity for which one makes payment at the end of each interest period, annuity due is one for which someone makes payment at the beginning of each interest period. This section highlights the...
Both the International Monetary Fund (IMF) and the World Bank perform important functions in the global economy. The IMF is charged with the responsibility of fostering global economic growth and stability. Also, the IMF provides financing and policy advice to members faced with economic difficulties. Also, the IMF collaborates with...
An execution-only transaction is a transaction carried out by a financial advisor or broker according to the will of the client. Under this arrangement, the client already understands what they want and requires no advice from the financial advisor concerning the transaction is required. The only task for the financial...
Top-down and bottom-up budgets are two distinct ways of estimating the costs for a project. Firstly, the characteristics of the top-down cost estimations imply that the top management of the company assesses the projections and judges the estimated costs. Here, the experience of the top management and their advanced skills...
The motivation of investors for investing in stocks, bonds, preferred shares, and convertibles is mainly due to returns. The main purpose or incentive for an investor to invest in various securities is the return and risk associated with each security. Apart from the returns and risk, there is a tax...
Interest rate is a very powerful economic variable in macroeconomic theories. According to Robert Johnson and Patricia Kuby, interest rates play very fundamental roles in determining preferences for liquidity and investment decision. There are different types of interest rates including variable rates, fixed rates, partially fixed rates, and introductory notes....
Managing finances is an important concept that each individual needs to take seriously to avoid unnecessary debt and make future financial plans and investments. If one is not cautious, he or she may focus on the management of their cash flows and financial needs but end up accomplishing little. Simply...
Devaluation takes place when a state lowers the value of its currency compared to other currencies. A country’s currency can be devalued due to the prevailing rate of inflation. When maintaining the fixed exchange rate of a state becomes difficult, the country has to buy its home currency back using...
Households are homeowners who borrow house loans in the form of mortgages. They pay a given percentage of the total cost as a down payment and later make monthly contributions from their incomes. Mortgage brokers are intermediaries that are contracted by financial institutions. They convince households to borrow house loans...
Tax issues that concern both ordinary citizens and the richest people in the country have always been a controversial topic. However, the belief of many that reducing payments to the state can improve the standard of living is wrong. Leopold argues that today, the American tax system is characterized by...
Insurance is the most worrying issue concerning insurance due to the significant number of uninsured or underinsured Americans. Without comprehensive insurance, individuals face major financial risks if they should become seriously ill or injured. Some services cannot be provided by hospitals unless someone has a comprehensive insurance cover. This has...
An execution-only transaction is a transaction carried out by a financial advisor or broker according to the will of the client. Under this arrangement, the client already understands what they want and requires no advice from the financial advisor concerning the transaction is required. The only task for the financial...
Tax exemption is the exemption from all or some of the taxes as stipulated in the laws of that country or state. The exemption reduces the tax obligation due from an individual or organization and the tax is foregone. The exemption process will vary in each particular country or state....
The discounted cash flow method overcomes the central weakness of the payback and ARR methods by focusing on cash flows and adjusting them to reflect the time value of money. To evaluate investment alternatives effectively, the cash outflows and inflows relevant to each proposal must be determined. As cash is...
The cost of capital is a dynamic concept affected by different economic and firm-specific conditions. That is why the company accepting any project has a risk even if the WMCC schedule demonstrates the benefits of this project. There are business and financial risks for the firm. As for the business...
The currency is one of the most fundamentals of human invention. The currency is the basic quality of general acceptability, it acts as the medium of exchange, a measure of value. Standard of deferred payments and the store of value. The most vital characteristic feature distinguishing the currency from the...
An organization may require cash for various motives. It might require working cash flow to pay providers, wages, or bill reserves for a specific venture or exchange or an emergency. Most organizations raise funds through a mix of value and debt financing. Debt funding comprises raising cash by acquiring from...
Global interest rates will remain low in developed countries this year. There is a high chance that the global interest rates will remain low due to a savings superfluity. The logic behind this supposition is that developing nations such as China are saving more money than they require. Consequently, the...
Monetary globalization is comprehended as the mix of a nation’s fiscal framework with worldwide money-related markets and organizations. This combination regularly requires that legislatures change the local budgetary segment and the capitalist record. Multinational mergers happen when changed economies encounter an expansion in cross-country capital development, including a dynamic investment...
The main reason why subsidiaries translate their financial statements is to enable the parent company to prepare consolidated financial statements. Accounting standards stipulate that all listed companies must prepare their consolidated financial statements, including those of their subsidiaries. The method used to translate financial statements ought to reflect the relationship...
The travel expenses of the director from Sydney to Armidale meet the criteria set by AASB for an expense to be capitalized. Moreover, according to International Accounting Standards, research and development costs can be capitalized if they add direct benefits to the value of the asset. The director’s trip to...
Stock refers to the equity share of an organization owned by shareholders. Organizations offer these equities to shareholders through the issue of shares in order to raise capital. Stock owners are entitled to an ownership interest or equity. They are normally offered by legal corporations. Moreover, they are entitled to...
The pecking order theory is a capital structure theory that states that the choice of equity or debt by companies depends upon the existence of asymmetric information. The theory was first introduced by Donaldson in 1961, which was later amended in 1984 by Myers and Majluf. There are three sources...
A convertible bond, which is also referred to as convertible securities, issued by a company permits holders of a debt instrument to receive its common shares upon conversion at a later date. A callable bond is a debt instrument that permits the issuing company to redeem it before the maturity...
Investors venture into any business with the objective of making optimum returns from their equities and other portfolios. In school, especially in the field of finance, I have learned the application of finance theories in the business world. The acquired knowledge has helped to shape my ideas today in terms...
The primary goal for taxation is ensuring that there is the transfer of resources from one group to another while considering existing economic goals. In addition, taxation shifts purchase power among economic classes in a region; it may shift purchasing power from the private sector to the public sector. In...
The tax mix obtained by Abijanville city does not show any form of tax equity. As compared to Comparator, it has a high taxation rate on personal income. It imposes a very low-income rate on corporate investors. However, the movie is favorable to corporate investments as the city fails to...
Stockholders’ equity is an account on a company’s balance sheet comprised of retained earnings and contributed capital. It is a number of assets that remained in the business after the settlement of all obligations. In other words, it means a net worth of a company. Explanation: The common shareholders’ equity...
Diversification is important since it helps investors to spread risks across diverse investment options. Explanation: It is easy to understand the importance of diversification by examining the basic definition of this strategy. Diversification is a strategy based on balancing between a large number of investments instead of concentrating all capital...
A market can be described as efficient when the prices of securities being traded in the market reflect all available information at a given time. The information reflected in the market must be relevant to the security in question meaning that all information that comes to the market will be...
One of the key indicators of a company’s financial health is the status of its balance sheet. This gives a summary of how cash is being utilized in the firm by illustrating how much the firm actually has, how much the company owes other parties and how much cash the...
Derivatives are contract agreements enforceable at a specified future date and whose value wholly depends on the value of the underlying asset. This means that a derivative cannot have an independent value from one of the underlying assets. The underlying asset may be bonds, stocks, cash, intellectual property, or receivables....
Derivative markets are believed to have been the cause of the last world financial crises. This is so because derivative markets come up with an inflated value of market capitalization which is very high compared to the same value when calculated by other means. Derivatives have also been criticized for...
Many taxpayers consider the current federal income tax system highly complicated and would hope to deal with a much simpler system to facilitate effectiveness in the administration of taxes. However, the complexity in the current system is understandable and justifiable because one of the objectives of an ideal system of...
The concept of arm’s length transaction states that the people who are involved in the transaction should bargain in order to benefit themselves as individuals but not members of the group. In addition, transactions not made at arm’s length involve an element of related party provisions or relationships such as...
The following are Specific rules when determining the deductibility of the business expenses and their necessities. A taxpayer should know the fundamental principles of tax deductions. Among the basic principles is that no one is allowed to deduct all the expenses one incurs from the income he or she earns...
Visa’s partnership with the Olympic Games brand began in 1986, and it has grown tremendously over the years. The company used the first installment of the Games to introduce its brand to the global market and create more brand awareness in the market. Afterwards, Visa’s strategy morphed into a strategy...
Auctions are used not only for physical items, but also in finance, e-commerce, and e-games since all these services and goods are points of sale. In the financial sector, whole companies are put up for auction, as well as shares and securities issued by companies or the government. In the...
Financial ratios serve as a quick method of analysing the financial performance of a business entity and thus they are regularly used by managers in decision-making. There is a number of different stakeholders, such as the management, employees, creditors and potential lenders, who use financial ratios to identify the strengths...
The chief financial officers and the chief executive officers are some of the two most important positions that determine the success of any corporate. The duty of the CFO is to ensure that the finances of the corporate are better used in positive income-generating activities while adhering to the accounting...
There are two types of risk associated with an investment in securities, which include systematic risk and unsystematic risk. The systematic risk is intrinsic to the market and it cannot be avoided through the diversification of the portfolio. The reason is that this type of risk is related to the...
Return on equity (ROE) refers to the fraction of net income over equity and return on assets (ROA) refers to the fraction of net income over average assets. ROA, therefore, indicates that a public health organization is comparing its earning advantages to its base of assets. The latter method works...
The percent sales method of forecasting is approach of forecasting used by financial institutions and companies to predict their growth in sales. This method based of percentage of sales is primarily used to estimate and allocate the amount of resources needed in case the company grows in the coming year....
All the three-taxation system recognize the need to have an effective taxation system, but their point of contention is on how to achieve this goal. The current system of taxation taxes individuals according to their level of income. It has a graduated taxation system that ensures that those earning higher...
Generally, the credit card issuer indicates the monthly payment due date on which the cardholder is supposed to make the payment. The payment should include both the principal and interest on the debt, and the payment should be made in full. In the event of non-payment or late payment, the...
Service recovery is crucial for service business excellence. In his speech on quality service, Ron Kaufman presents a prominent example of a bank making a mistake in a monthly credit card statement. The charges from the last month are copied to the next month. The customer is furious. He thinks...
In accounting, a statement of cash flows shows the history of the company’s ingoing and outgoing money operations during a definite time period. This statement shows how changes in accounts and a company’s balance affect cash equivalents, which is essential to determine a company’s creditability. There are two different ways...
Understanding the relationships among world currencies is very important to triumphant operations in a global economy. There is money to be made by managers who can efficiently manage currency exchange rates in the route of their business dealings. There is money to be lost by managers who fail to identify...
There exist a number of yield curve theories: expectation theory, horizon premium theory, inflation premium theory, and market segmentation theory. Market segmentation theory assumes that investors limit their investments to certain segments of the market or segments of the yield curve. It assumes that it is costly for the investor...
Explaining the aforementioned, we might go to the opposite, where it can be said that the falling price of the US currency might be caused by increased spending and decreased saving. In that regard, this situation means that the government is borrowing money, and thus the supply increases while the...
The financial statement of the company can be considered an important document that can be used to demonstrate the current state of the company, its results, and the effectiveness of the strategy that is employed at the moment. For this reason, its analysis can help to acquire an improved understanding...
The paper “How Do CFOs Make Capital Budgeting and Capital Structure Decisions?” by Graham and Harvey 2002 explored the current activities of corporate finances with specific emphasis on capital budgeting and capital structure areas. The investigators used surveys to conduct their study to recognize corporate finance aspects consistent with the...
The cash flow profile of business investment decisions typically involves the outlay of a substantial cash sum now (time zero) followed by a series of cash inflows occurring over some defined future period. The problem is that the initial outlay is being spent now in the present time, whereas the...
Withdrawal of cash from the checking account will reduce the bank’s deposit and will also affect the supply of money by the deposit multiplier, which is the ratio of “the change in checking deposit to the change in reserves of the bank.” The withdrawal from the checking account will affect...
Financial analysts decided to measure success using ratios instead of whole numbers due to the development of a spreadsheet and the desire to compare the performance and profitability of companies from different industries. There was no way to contrast organizations that had different business models with whole numbers because they...
Income inequality in the United States has become more and more considerable. The richest 20% of Americans receive about 50% of all income in the U.S., whereas the poorest 20% of Americans receive about 4%. While the incomes of an average family decrease due to recession, the wealth of the...
