Nature, need and significance of business finance - class-XI

Where there is an increase in the tax on corporate profit, the debt becomes relatively cheaper. This is because interest rate is to be paid to the debtors is deducted from the total income before calculating the value of tax. Thus, as the valueof tax increases, the debt becomes relatively cheaper.

The most widely accepted objective of the firm is to maximize the value of the firm for its owners, that is, to maximize shareholder wealth. Shareholder wealth is represented by the market price of a firm’s common stock.

External users are those outside the organization who use financial statements to make decisions. Creditors use these statements to assess the creditworthiness of the business, unlike managers, CEOs, or controllers who are internal.

Operating leverage and financial leverage are interdependent because they both affect the total risk and return of the firm. They interact to determine the overall financial structure and earnings per share volatility.

Finance is regarded as the lifeblood of a business enterprise. It is the basic foundation of all kinds of economic activities. Finance is the master key that provides access to all the sources for being employed in manufacturing and merchandising activities. The success of an organization largely depends on efficient management of its finances.

Business finance refers to money and credit employed in business. It involves procurement and utilization of funds so that business firms may be able to carry out their operations effectively and efficiently.

Interest paid by non-financial enterprises is classified as a financing activity in the cash flow statement because it relates to the cost of obtaining financial resources. Operating activities typically involve the core revenue-generating activities of the business.