Business Finance and Investment Strategies

Posted on Jan 7, 2025 in Business Administration and Management (BAM)

Funding Sources for Your Business

Budget

A numeric plan to allocate resources to specific activities.

Loan

A contract by which one person or entity (borrower) receives money from another (lender) on the condition of returning it within a pre-established time and under specific conditions.

Leasing

A contract agreed upon between the company and a leasing company through which the leasing company acquires an asset in its name and rents it to the user company. This includes the value that the company will have the right to once the contract is completed. The residual value is known as the “Akester.”

Factoring

A type of contract where one company yields the debt collection of its clients to another company (the factor company).

Bill of Exchange

A debenture by which a buyer agrees to pay a specific amount within a certain time.

Discount

An operation where the deliverer can get the advanced amount by presenting it to financial institutions that discount the bill. The entity will provide a lower amount than that contained in the bill, charging a commission and interest that depends on the missing term to maturity.

Credit

An operation by which a bank agrees to give money to a customer, who may have it at once or through partial withdrawals, paying interest on deposits.

Profit and Loss Calculation

  • Cost of Sales: Consumption of materials and supplies, direct labor, depreciation, business expenses.
  • Gross Margin: Sales minus Cost of Sales.
  • Net Profit Before Interest and Taxes (EBIT): Gross Margin minus fixed costs (indirect labor, rent, fixed supplies, various taxes).
  • Profit Before Tax (PBT): EBIT minus financial expenses.
  • Net Income: Profit Before Tax minus taxes.

Investment Strategies for Business Growth

Investment is the application of funding for the purchase, renovation, or improvement of goods intended to maintain or improve the operational capability of the company.

Investment Types

Based on Objectives

  • Increase market share for the company that produces or sells products (expanded distribution network, improved product quality, implementation of marketing strategies).
  • Develop new products.
  • Reduce costs associated with production and marketing to maintain a wide profit margin.
  • Maintain or expand the productive capacity of the company (replacement of depreciated or obsolete equipment to maintain the company’s capacity, purchasing new equipment to increase the company’s productive capacity).

Based on Other Factors

  • Type of property acquired.
  • Term.
  • Structure of receipts and payments.

Investment Features

  • Risk
  • Comparison: Inflation (continuous and widespread growth of prices of goods and services in an economy).
  • Opportunity Cost

Financial Calculations

  • Future Value (FV): FV = PV * (1 + i)^n

    Calculation of the future value of a capital based on the knowledge of interest rates.

  • Present Value (PV): PV = FV / (1 + i)^n

    Calculation of the present value of a capital to be received in the future.

  • Payback Period: Time required to recover the initial investment.

    Payback Period = Initial Investment / Cash Inflow per Period

  • Net Present Value (NPV): The difference between the present value of cash inflows and the present value of cash outflows.

  • Internal Rate of Return (IRR): The discount rate that makes the NPV of an investment zero.

  • Other Formulas:

    • Sp = (Q * PVP)
    • Cash Flow = Sp – Expenses
    • CT = CF + CV
    • Nominal Revenue = Tax Inflation

  • Compound Interest: PV * (1 + i)^n

  • Simple Interest: PV * (1 + i * n)