Business finance is concerned with the sources of funds available to enterprises of all sizes and the proper use of money or credit obtained from such sources. For achieving the goal, some principles of business finance should be followed:
Principles of business finance
1. Principles of risk and return: Higher the risk, the higher the return. So there should be a tradeoff between risk and return.
2. Principles of the time value of money: This principle states that a dollar in hand today is worth more than a dollar to be received in the future because the dollar in hand today can be invested to earn interest to yield more than a dollar in the future.
3. Principles of cash flow: A financial manager places importance on cash flows rather than on profit.
4. Principles of profitability and liquidity: This principle states that there should be a tradeoff between profitability and liquidity.
5. Hedging principle: This principle states that current assets should be met up by current liabilities and long-term assists should be met up by long-term liabilities.
6. Principles of diversity: This principle states that all the money should not be invested in a project, rather investment should be diversified.
7. Principles of the business cycle: According to this principle, all financial decisions should consider the business cycle.
We mention 7 business finance principles. Hope this article clears your concept about the principles of business finance. If you have any confusion regarding the matter please feel free to comment below.
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