Imagine you are a small business owner Essay Example | Topics and Well Written Essays - 1000 words

Imagine you are a small business owner - Essay ExampleNet margin can be calculated dividing net income by total sales. The managers of small businesses must pay close attending to the advantageousness of the business as well as its cash flow position. The current balance is a good ratio to analyze small businesses because it measures the liquid of a company. It measures the ability of the company to pay off its short term debt. A current ratio is positive if is above 1.0. The inventory turnover ratio measures how many times a company sold its inventory during a year. The desired outcome is to have a high inventory turnover rate. ternion ratios that are suitable to evaluate the monetary performance of a large enterprise are return on assets (ROA), return on integrity (ROE), and debt to equity ratio. Return on asset measures how well assets were employed by management, while return on equity measures the extent to which financial leverage is working for or against common stockh olders (Garrison & Noreen, 2003). The debt to equity ratio is calculated dividing total liabilities by stockholders equity. B) Explain the advantages and disadvantages of debt financing and why an organization would choose to issue stocks earlier than bonds to generate funds. Debt financing has become an extremely popular financing tool in todays global economy. ... Another advantage of debt financing is that invade paid on debt reduces tax burden of the business (Kido, 2012). Despite the advantages of debt financing it also has cons. A drawback of debt financing is that in cases of business failure lenders have first option at the liquidating assets of a firm. A second drawback of using debt financing is the obligation to pay interest to the lenders. Sometimes interest expenses of debt instrument can be very high. A third con of debt financing is that if it is excessively used it can negatively impact the credit rating of the company (Simplyfinance, 2007). C) Discuss how financi al returns are related to risk. Financial returns and risk are two factors that are positively related. This means that to obtain higher rewards managers must assume greater risk. In the stock market companies that have higher risk have a greater chance of equity appreciation. Risk adverse people try to halt away from risk. Being risk conservative can help a company minimize the risk of financial loss. Financial risk is the loss luck arising from adverse price fluctuations in financial markets or business partner defaults (Codjia, 2012). When companies get too greedy they often make bad business decisions by incurring in too much risk. Firms that have higher risk tend to have higher cost of capital. When the cost of capital is high the profitability of the company is adversely affected. D) Describe the concept of beta and how it is used. The beta coefficient is a measure of an assets risk in relation to the market or to an alternative benchmark or factor (Thefreedictionary, 2012). The average beta coefficient of the stock market is 1.0. When the beta coefficient of a company is higher than 1.0 the stock has