FINANCIAL MANAGEMENT

Trade Credit=Trade credit is a business-to-business (B2B) agreement in which a customer

can purchase goods without paying cash up front, and paying the supplier at a later
scheduled date. Usually, businesses that operate with trade credits will give buyers 30, 60,  or
90 days to pay, with the transaction recorded through an invoice.Trade credit can be thought
of as a type of 0% financing, increasing a company’s assets while deferring payment for a
specified value of goods or services to some time in the future and requiring no interest to be
paid in relation to the repayment period.

Accrued Expense =An accrued expense, also known as accrued liabilities, is an accounting
term that refers to an expense that is recognized on the books before it has been paid. The
expense is recorded in the accounting period in which it is incurred.Accrued expenses are
recognized on the books when they are incurred, not when they are paidAccrual accounting
requires more journal entries than simple cash balance accounting.Accrual accounting
provides a more accurate financial picture than cash basis accounting.

Deferred income= (also known as deferred revenue, unearned revenue, or unearned income)

is, in accrual accounting, money received for goods or services which has not yet been
earned. According to the revenue recognition principle, it is recorded as a liability until
delivery is made, at which time it is converted into revenue.[1]For example, a company receives
an annual software license fee paid out by a customer upfront on January 1. However, the
company's fiscal year ends on May 31. So, the company using accrual accounting adds only
five months' worth (5/12) of the fee to its revenues in profit and loss for the fiscal year the fee
was received. The rest is added to deferred income (liability) on the balance sheet for that
year.

Sound financial management is a key of progress=The reliability of a company's financial

reporting is the key to its success. A company's success is reflected in its financial
position.Sound financial management involves the provision of funds for the business and
then how it is spent on the different activities of the business. It includes the recording of
numerical data to be analyzed to help assess the financial health and current financial
performance of a business.Financial decisions often impact the quantity of a company's
current resources. This is because the need for working capital often decreases as long-term
investments are expanded.Decisions on the structure of long-term investments are part of any
company's financial choices. Such decisions include determining whether to use bonds or
equity to collect long-term funds depending on the relationship between risk and return.
Financial management is one of the most important aspects in business. In order to start up or
even run a successful business, you will need excellent knowledge in financial management. So
what exactly is this form of management and why is it important? Read on to find out more.
Financial management refers to the strategic planning, organising, directing, and controlling of
financial undertakings in an organisation or an institute. It also includes applying management
principles to the financial assets of an organisation, while also playing an important part in
fiscal management. Take a look at the objectives involved:

NATURE =Business is related to production and distribution of goods and services for the fulfillment
and requirements of society. For effectively carrying out various activities, business requires finance
which is called business finance. Hence, business finance is called the lifeblood of any business a
business would get stranded unless there are sufficient funds available for utilization. The capital
invested by the entrepreneur to set up a business is not sufficient to meet the financial requirements
of a business
FINANCIAL LEVERAGE=This reading presents elementary topics in leverage. Leverage is the use
of fixed costs in a company’s cost structure. Fixed costs that are operating costs (such as
depreciationor rent) create operating leverage. Fixed costs that are financial costs (such as
interest expense) create financial leverage.Analysts refer to the use of fixed costs as leverage
because fixed costs act as a fulcrum for the company’s earnings. Leverage can magnify
earnings both up and down. The profits of highly leveraged companies might soar with small
upturns in revenue. But the reverse is also true: Small downturns in revenue may lead to
losses.Analysts need to understand a company’s use of leverage for three main reasons. First,
the degree of leverage is an important component in assessing a company’s risk and return
characteristics. Second, analysts may be able to discern information about a company’s
business and future prospects from management’s decisions about the use of operating and
financial leverage. Knowing how to interpret these signals also helps the analyst evaluate the
quality of management’s decisions. Third, the valuation of a company requires forecasting
future cash flows and assessing the risk associated with those cash flows. Understanding a
company’s use of leverage should help in forecasting cash flows and in selecting an
appropriate discount rate for finding their present value.

TYPES OF Inventory= is the accounting of items, component parts and raw materials that a
company either uses in production or sells. As a business leader, you practice inventory
management in order to ensure that you have enough stock on hand and to identify when
there’s a shortage.The verb “inventory” refers to the act of counting or listing items. As an
accounting term, inventory is a current asset and refers to all stock in the various production
stages. By keeping stock, both retailers and manufacturers can continue to sell or build items.
Inventory is a major asset on the balance sheet for most companies, however,  too much
inventory can become a practical liability.  raw materials/components, WIP, finished goods and
MRO

the Profitability Index =The profitability index (PI), alternatively referred to as value
investment ratio (VIR) or profit investment ratio (PIR), describes an index that represents the
relationship between the costs and benefits of a proposed project. It is calculated as the ratio
between the present value of future expected cash flows and the initial amount invested in
the project. A higher PI means that a project will be considered more attractive .