Investment and Financing: A Comprehensive Guide for Businesses
Economic Investment: Acquisition of productive assets (productive capital of the company) to produce other goods. Financial Investment: Purchase of securities (stocks, bonds, etc.) by an investor to obtain an income in the future. Operating Investments are made by the company to acquire the elements necessary for its production process (raw materials, components, goods, fuels, etc.). These investments are thus periodically renewed and recovered in the short term. Permanent or Structural Investments are made to purchase goods that will be used by the company for an extended period of time (buildings, machinery, transport fleet, etc.). Therefore, these investments are treated as permanent. Net Cash Flow is the net accumulation of liquid assets in a given period and, therefore, is an important indicator of a company’s liquidity. Amortization is the economic depreciation of an asset. Redeeming a good means to quantify the depreciation, i.e., the portion of a good’s total value consumed over a period of time. Recovery of Investments: Considering depreciation as a cost over each period, this is automatically incorporated into the cost price of the goods and recovered from their sale and collection from customers. Thus, the investment made by the company is slowly recovered. Company’s Financial Structure: This structure is important to maintain an adequate ratio between debt and equity, so as to ensure the financial stability of the company. It is recommended that debts do not exceed 50% of total resources, i.e., borrowed funds are not over equity. Capital Enlargement is to obtain new funds from new partners by issuing new shares, which can also be transferred from reserves. Capital enlargement should be formalized in writing, indicating all the details, and registered in the commercial register. Concept of Self-Financing: This consists of retained earnings that are retained in the company to finance the expansion or maintenance of activity. That is, these are funds that the company obtains on its own without having to resort to financial institutions (debt) or to solicit new contributions from its partners (capital increase). Self-Financing of Enrichment are retained earnings as reserves. These reserves may be (legal, statutory, voluntary). The reserves represent an increase in the company’s own funds and constitute new resources to fund its growth and expansion investments. Self-Financing of Enrichment: Includes allocations of funds that the company spends annually to compensate for wear and tear of its equipment or for cost forecasting purposes and future risks. Commercial Credit allows the company to not pay cash for commodity goods that its suppliers provide them with. The deferred amounts, in fact, represent obtaining a loan from the suppliers for the duration of the deferral. Suppliers thus obtain guarantees of the company’s solvency and the trust of its customers. Concept of Trade Discount The receivables can be converted into money before the date of payment. When companies need liquidity rather than wait for the expiration of a bill of exchange, they can take the opportunity offered by banks to advance money through discounting. Factoring It consists of a specialized company, a factoring partnership, taking charge of collecting the receivables from other companies. This way, a company that has drafts or bills receivable but needs cash can sell them before maturity to a factoring company for a fee. Leasing is a form of medium and long-term financing (usually lasting between 2 and 5 years) as it allows the use of property without the need for equity or resorting to a loan. There are two types: financial leasing and operational leasing. Borrowings Loan funding is a form reserved for large enterprises when they require large amounts of money. To arrange the loan, the total amount of money needed is divided into small amounts and securities equal to that value are issued. These titles are called bonds, promissory notes, etc. Average Period of Maturation is obtained by the sum of the four subperiods analyzed, namely: APM = AMP + FAQ + AMV + AMC. Life Cycle of a Product Model that provides that the sales of a product go through four stages since it was launched on the market until it disappears: introduction, growth, maturity, and decline. The model also establishes the relationship between sales and profits obtained and the response of competitors. Defining the Functions of Planning and Control Directives Planning is to determine in advance what you want to achieve in the future, how it will be accomplished, and what resources will be used to achieve it. Control is to compare actual results with planned results, identifying deviations if any, and setting the correct course of action. An Organizational Chart is a graphical representation of the company’s organizational structure, which shows different organizational units and the relationships between them, allowing to know at a glance and quickly the hierarchical relationships and dependencies between different departments and groups of business activities.s of business activities.