Small business owners should consider numerous business ratios. The measures of liquidity enable the business to live within the day-to-day expenses. These short-term obligations must be fulfilled by the business. Measures of liquidity are obtained through the two main features in the current ratio and net working capital. The ratio between the current assets and current liabilities should be considered by the business. Activity ratios are another business ratio that must be used by the small business. The business will be able to gauge and know how it is using its assets towards productivity. The amounts of accounts received together with the total assets and inventories are indispensable while determining the benefits of productivity within the organization. The other ratio that is of benefit is the measures of profitability ratio. With this ratio, the business will be able to know the level of its returns in accordance to the sales, equity, and assets within the business. As compared to a larger corporation, these ratios are within the periphery of performance of a small business. A larger corporation can use these ratios, but they suit a small business (Puxty et, al, 1988).
Debt financing is a useful strategy, especially for businesses with equitable revenues, good credits, and a high level of earnings. It allows a business to have a firm grip of the destiny. In such a case, it does not make sense to have investors and other partners answerable to the progressive...
When a business operates under debt financing, it will manage to access tax-deducible interests in the loans paid back. The business income is shielded from taxes together with other liability taxes. Debt financing allows a business to apply for small business administration loans with more favorable terms as a small business. There are a number of disadvantages of debt financing. Failure to make loan payments to credit cards has the possibility to destroy the credit rating level. Within the family and friends, relationships get strained. Businesses run the risk of bankruptcy when they engage in debt financing. Moreover, commercial banks might require business or individual assets, which can be lost through this way.
It is essential for an organization to choose to issue stocks rather than bonds to generate funds. Stocks do not make up the cash part of the assets to a business. Bonds have a direct relationship between the market and the business. Use of bonds would risk future performance of the business.
Risks and returns have a common relationship. The study between expected returns and expected risks indicate that, within an increase in the level of risks, there is a subsequent increase in the level of returns. Moreover, when the level of risks drops the level of returns also drops. This is a positive relationship between risks and returns. Investment decisions are made with the use of risks…
