Understanding the concepts Essay Example | Topics and Well Written Essays - 1000 words

Understanding the concepts - Essay showcaseThe ideal dimension is 21. Inventory turnover ratio = cost of goods sold/ fair inventory. It will be compared between firms to check the efficiency in inventory management. High inventory turnover ratio demos sound inventory management. Return on great(p) employed = (profit before interest and tax/average capital employed)*100. It will be compared to check how much yield the firms are piddleing in respect of the raw resources been deployed in the firm (Bull, 2007). 2. Explain the advantages and damages of debt financing and why an organization would choose to issue stocks rather than bonds to interpret currency. Ans. The primary advantage of debt financing is its allowing the founders to retain control and ownership of company. In contrast to equity financing, it enables the entrepreneurs to excite key strategic decisions and to reinvest and keep more company profits. It also provides small business owners the greater horizontal surface of financial freedom than equity financing. Debt obligations are limited to the period of loan re give birthment after which no further claim can be made by the lender on the business. The main disadvantage of debt financing is its requiring the small business to make monthly payments of interest and principal regularly. Most lenders provide repellant penalties for missed or late payments including charging of late fees, calling early the due loans and collateral possession. Failure to pay on loan can affect adversely the credit rating of small business and its expertness of obtaining future financing. Also it will be difficult to obtain loans for unproven businesses since lenders seek security for their funds (Creamer, et al., 1960). An advantage of stock over bond are-One of the major advantage of stock is its unlimited potential. There is no ceiling on investment in buying stocks. The stock price can double, triple or may get multiplied. Stocks tend to assimilate bet ter performance over bonds in case of commodious term investment. Money may be lost in some years for wide pas seul in stock market but it will give better return to investors in great term. Trading with stocks facilitate transaction. 3. Discuss how financial returns are related to risk. Ans. Gain or loss from investment is derived from the relation between financial risk and return. If an investor invests in securities having low risk then it will have a small return. If the risk factor associated with security is high then investor could have the potential to earn high returns. The balance between highest possible return and lowest possible risk is given by the risk/return trade-off. A standard deviation indicates higher risk with higher possible return. 4. render the concept of beta and how it is used. Ans. of import can be defined as the measure of volatility or systematic risk of portfolio or security as compared to market as a whole. It is the tendency of return on a secu rity in respond to market swings. Beta is used in capital asset pricing model (CAPM) which calculates expected return of an asset on the basis of its beta take to be and expected market returns using regression analysis. Beta is otherwise known as beta coefficient. Beta equals to one indicates movement of securitys price with market movement. Beta less than one indicate security will be less volatile