Course Title: Financial Management

1. How does expertise in finance help a company become successful?

In order for a company to become successful and achieve its bottom-line goals,
it needs to expertise on its finances. With this, it can contribute to the attainment of
short-term goals by cashflows and also to the long-term goals of the company likewise
reducing payments of interest and finance chargers. Understanding financing involves
making decision whether to borrow capital, defer the purchases or to prioritize business
expenses.
To delve on the reasons why expertise in finance could help us improve the
financial health of our organization, here are several reasons why. First, it helps us to
secure the cash we need to fuel the business in order to generate income. Cashflow is
very important that needs to be prioritize in the business entity. Second, being
knowledgeable on business finance will enable us to make wise choices with regards to
minimization of interest rates. And lastly, it would enable the business to explore on
various repayments, the strategies it needs to implement in order to maximize the cost
benefit. In this light, if the business keep tracked of all these important factors to
expertise finance, success is no far from reach.

2. What are the key differences between proprietorships, partnerships, and corporations?
Each type of business entity varies from each other that is most significant by
who are the owners or the key persons. In sole proprietorship, there is only one owner
and it the easiest form of business. The owner himself is not a separate entity to the
business as he would have unlimited liability for the business’ claims and losses. In
partnership, it is owned by two or more person that pool their resources with the
intention of dividing profits among themselves. In here, the partnership is a separate
legal entity, but the partners may hold personally liable up to the extent of the single
peso. And in corporation, which a much more complex form, the owners are called
shareholders. The corporation itself is separate legal entity that is separate and apart
from its owners. As for that, the corporation may sue and be sued apart from its owners.
It is created and under the supervision of the law with limited life subject to renewal.
3. Free cash flow depends on what three factors?
Free cash flows depend on three factors which are the organization’s sales
revenue, operating cost and taxes, and the required new investment in operating capital.
A business free cash flow is said to be the net income less the required new investment
in capital. It is free for distribution to the investor, creditors and shareholders, then why
would these three factors affect the free cash flow.

First the entity shall prioritize the sales revenue by increasing the sales or the
prices. The entity needs to know what are the trends, the customers wants and demand.
In addition, to maximize the profit, entity shall minimize the cost and expenses. The
 entity shall invest on the top-of-the-line machineries, manpower, and low-cost
materials.

4. How is a firm’s fundamental value related to its free cash flows and its cost of capital?
The firm’s fundamental value is determined by its ability to generate cashflows
and in the future. Managers can enhance the firm’s value by increasing the size of the
expected cash flows, by speeding up the receipt and reduction of risk. With that, they
shall utilize the firm’s financial asset, including the shares in order to generate cash
flows. The timing of the cash flow is taken unto consideration or it is very much
important to receive the cash as soon as possible. And the reduction of risk in the
generation of cash flows in order to pay the investors.

The firm’s value is related to the free cash flow and to its cost of capital because
of the above stated which are the organizations ability to generate cashflows and in the
future. Once the corporation managed it cashflows and the cost of running the business,
it would have free cash flows to support short or long-term goal of the company. The
management of the financing of the business affects the firm’s ability to generate
cashflows and improve its intrinsic value. The management of these things will all go
back and affect the firm’s fundamental value or intrinsic value.

5. Identify three ways that capital is transferred between savers and borrowers.
There are three ways for transfer of capital between the savers and the borrowers.
First is the direct transfer of money and securities. It occurs when the
organization share is publicly traded, the business provides securities, either debt or
equity securities, that in turn provide the firm with the money it needs. Second is the
indirect transfer. In this financing is through investment banking house. The investment
bank underwrites the firm’s securities to sell or issue it to the public. The company will
first sell its debt or equity securities to the investment banks, and the bank will sell it to
the savers. They are also called the middleman of the organization’s financing.
Third is through financial intermediary such as banks or mutual funds. The bank
obtains funds from savers in exchange for its own securities. In here, the intermediary
uses this money to purchase entities securities, in form of loans etc.