Finance For Business Report

Running head: FINANCE FOR BUSINESS
Finance for Business
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FINANCE FOR BUSINESS1
Table of Contents
Five basic principles of finance..................................................................................................2
1. Cash flow is what matters..................................................................................................2
2. Money has a time value......................................................................................................2
3. Risk requires a reward........................................................................................................3
4. Market prices are generally right.......................................................................................3
5. Conflicts of interest cause agency problems......................................................................3
Reference....................................................................................................................................5

FINANCE FOR BUSINESS2
Five basic principles of finance
1. Cash flow is what matters
Cash flows determine the value of the business, as cash flows are different from
financial profit. For a business, it is possible to generate profits however, it is not necessary
that cash flow always come to be positive for a business. While making financial decision a
firm should always try to determine its incremental cash flows as for making any type of
investment cash is an essential requirement. Cash flow is one of the financial statement that
shows the cash transaction of the business by dividing the transactions into operating,
investing and financing activities. Stakeholders require the cash flow statement to know the
net change in cash of the business and to know what is the amount of cash and cash
equivalence is there with the business at the end of the financial year. As per the article
mentioned in ABC Australian news, Westpac an Australian finance company says that
despite of laundering risk the company is in good shape (ABC News, 2020).
2. Money has a time value
The value of money received today will be much more the value of money received in
future. It is one of the core principle of finance as money can earn interest and the purchasing
power of money differs with the passage of time. For any financing decision and for any
investment decision the idea of time value of money is critically analyzed. Even for capital
budgeting decision time value of money is taken into consideration. Most financial decisions
involve costs and benefits that are spread out over time. By keeping this concept in mind,
business can compare cash flows from different periods. According to the article “The Battle
of the Savings Accounts” there are banks that provides 20X the interest of most others. It is
known that savings account interest rates are low. UFB Direct has their APY higher
(Bankrate.com - Compare mortgage, refinance, insurance, CD rates, 2020).