'The overall financial health of a business is determined by the quality of its financial management'. In light of the above statement, discuss some of the aspects which affect the financial health of a business.
'The overall financial health of a business is determined by the quality of its financial management'. In light of the above statement, discuss some of the aspects which affect the financial health of a business.
Some of the factors which affect the financial health of a business are as follows:
(i) Size and composition of fixed assets: For instance, if a decision is taken to invest Rs. 200 crore in establishing plant and machinery, then this decision would raise the size of fixed assets blocked by this amount.
(ii) Size and composition of current assets: A decision to increase the term of credit to customers would increase the number of debtors and current assets.
(iii) The amount of long-term and short-term funds to be raised: Financial management involves decisions related to the proportion of long-term and short-term funds. For example, if an organisation wishes to have more liquid assets, it would raise relatively more amount on a long-term basis. Such cases create the problem of choosing liquidity or profitability.
Some of the factors which affect the financial health of a business are as follows:
(i) Size and composition of fixed assets: For instance, if a decision is taken to invest Rs. 200 crore in establishing plant and machinery, then this decision would raise the size of fixed assets blocked by this amount.
(ii) Size and composition of current assets: A decision to increase the term of credit to customers would increase the number of debtors and current assets.
(iii) The amount of long-term and short-term funds to be raised: Financial management involves decisions related to the proportion of long-term and short-term funds. For example, if an organisation wishes to have more liquid assets, it would raise relatively more amount on a long-term basis. Such cases create the problem of choosing liquidity or profitability.
