Role of Financial Intermediaries in Economic Development

Financial intermediation is defined as the process which had been carried out by the financial intermediaries as the middleman between the borrower (spender) and lender (saver) to smooth the flow of the fund. Financial intermediation called the process of using indirect finance in the financial system, which the primary route to transfer funds from lender to borrower. Those savers who have the surplus money will deposit their funds in the financial institution, which will lend those funds to borrowers such as business firms, households, government, or foreigners who shortage of funds. Financial intermediaries are that financial institutions such as commercial banks, finance companies, or merchant banks.… Read the rest

Impact of Financial Management Practices on Organizational Performance

Financial Management is the deliberate management of planning and organizing of financial activities. It applies the basic management principle to control the flow of funds and properly utilizes financial resources. It sets the financial goals by properly analyzing the available data. The common methods to carry out financial activities like accounting and budgeting are considered to be the financial management practice. Financial management practices is the discipline dealing with the financial decisions for long and short-term goals to ensure the return on capital exceeds the cost without taking an excessive financial risk. It clarifies the efficient financial management practices and is used in the business to respond to another business environment.… Read the rest

Revenue Management – Meaning, Benefits, Scope and Future

The phenomena of revenue management gained importance in recent years due to variable and discriminatory pricing schemes offered by various companies to their customers. Revenue management applies the orderly analytics that predict the behavior of the consumer at micro level and augment the prices and availability of products to the customers thus enhancing the overall revenue for the company. The aim of devising revenue management techniques is to deliver the fine product or service to the appropriate customer at the precise price. Revenue management system is based on analyzing the customer’s perception of the value that the product would provide and make straight the availability, placement and price according to that perception.… Read the rest

Audit Theories – Theories of Demand for Audit

Audit refers to an examination of the financial reports of a firm by an independent entity. The separation of business ownership and management in modern society has created a need for accountability; causing the role of audit to change as the needs of stakeholders’ change. Audit, in itself, caters to the relationship of accountability; independent from other parts of the firm to provide a true and fair view of the financial reports of an organisation. Whereas, the ‘value relevance’ refers to the auditors’ ability and responsibility to provide reasonable assurance that financial statements are free of material misstatement, either due to fraud or error; or both.… Read the rest

Cash Conversion Cycle (CCC)

Cash Conversion Cycle (CCC) measures ongoing liquidity from the firm’s operation is defined as a more comprehensive measure of working capital and as a supplement to current ratio and quick ratio. CCC shows the time lag between expenditure for the purchases of raw materials and the collection of sales of finished goods. CCC is a measure of the efficiency of Working Capital Management as it indicates how quickly the current assets are converting into cash. CCC comprises three components of days inventory outstanding (DIO), days sales outstanding (DSO), and days payables outstanding (DPO);

Cash Conversion Cycle (CCC) = Days Inventory Outstanding (DIO) + [Days Sales Outstanding (DSO) -Days Payables Outstanding (DPO)]

  • Days Inventory Outstanding (DIO) is a key figure that measures the average amount of time that a firm holds its inventory.
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Ways of Resolving Agency Problems and Costs

Agency problems are defined as problems happening due to conflicts of interests between a principal and an agent. An agent is hired by a principal and is supposed to perform on behalf of the principal with the aim of maximizing the principal’s benefits. However, the agent also has his own interests, and, during the time working for the principal, he may diverge from the ultimate purpose of working for the principal and may perform for his own benefit. In the financial field, there are two primary types of agency problems: between shareholders and managers, and between equityholders and debtholders.

First one is the agency problem between shareholders and managers.… Read the rest