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Money makes the world to go round. The main reason for starting any business is to make a profit at the end of the day. A business that is not profitable will definitely collapse. In the world of business and commerce, finance is important. It is just as important as or even more important than the marketing function. At the heart of finance, there is the issue of financial analysis and investments. This is a very important activity that will facilitate the making of sound decisions in an organization. This work will be performed by a number of professionals.
At the core of financial analysis is the issue of profitability. It has to be determined if an organization has been profitable over the last few years. Profit is the amount of money that remains after the expenses have been subtracted from the incomes. The profit figure will be indicated on the profit and loss statement. This is a very important statement in an organization.
Accounting analysis will also establish the issue of solvency. A solvent business is able to pay all its creditors. On the other hand, an insolvent enterprise cannot pay debts. An entity has an obligation to pay all its debts. If that is not the case, it will be declared bankrupt and will subsequently be liquidated so that to pay the debts.
Another issue that needs to be analyzed is liquidity. As a matter of fact, liquidity is one of the most important issues in the world of business and commerce. Most businesses fail before the fifth year due to liquidity problems. A business should be as liquid as possible. That means having readily available cash in the bank account.
Finally, business stability will be determined. Most of the other issues deal with the short term perspective. On the other hand, business stability deals with the long term picture. It determines whether a business has a future. If there are no future prospects, the situation will be bleak and hard decisions might have to be made at the end of the day.
At the end of the analysis, decisions will have to be taken. It can be decided to completely shut down a business because it is no longer viable. In such a case, all the assets will have to be sold. Subsequently, the debts should be settled. As a matter of fact, there are debts that will have a higher priority than others.
The decision at the end of the day can be to invest more money to the company because of its high level of stability. If that is the case, capital will have to be raised. That can be raised from private contributions. Alternatively, a firm can be listed on the stock exchange so that to be able to raise capital.
Making decisions is a reality of life. Indecisiveness is one of the worst things in the world. Failing to make a decision is making a decision in itself. Decisions have consequences. On one hand, there are positive consequences. On the other hand, negative consequences. To make the best business decisions, high quality information is required. That will be provided by financial analysis.
At the core of financial analysis is the issue of profitability. It has to be determined if an organization has been profitable over the last few years. Profit is the amount of money that remains after the expenses have been subtracted from the incomes. The profit figure will be indicated on the profit and loss statement. This is a very important statement in an organization.
Accounting analysis will also establish the issue of solvency. A solvent business is able to pay all its creditors. On the other hand, an insolvent enterprise cannot pay debts. An entity has an obligation to pay all its debts. If that is not the case, it will be declared bankrupt and will subsequently be liquidated so that to pay the debts.
Another issue that needs to be analyzed is liquidity. As a matter of fact, liquidity is one of the most important issues in the world of business and commerce. Most businesses fail before the fifth year due to liquidity problems. A business should be as liquid as possible. That means having readily available cash in the bank account.
Finally, business stability will be determined. Most of the other issues deal with the short term perspective. On the other hand, business stability deals with the long term picture. It determines whether a business has a future. If there are no future prospects, the situation will be bleak and hard decisions might have to be made at the end of the day.
At the end of the analysis, decisions will have to be taken. It can be decided to completely shut down a business because it is no longer viable. In such a case, all the assets will have to be sold. Subsequently, the debts should be settled. As a matter of fact, there are debts that will have a higher priority than others.
The decision at the end of the day can be to invest more money to the company because of its high level of stability. If that is the case, capital will have to be raised. That can be raised from private contributions. Alternatively, a firm can be listed on the stock exchange so that to be able to raise capital.
Making decisions is a reality of life. Indecisiveness is one of the worst things in the world. Failing to make a decision is making a decision in itself. Decisions have consequences. On one hand, there are positive consequences. On the other hand, negative consequences. To make the best business decisions, high quality information is required. That will be provided by financial analysis.
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