Business Financing and the Capital Structure Term Paper

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Business Financing and the Capital Structure

Generally, businesses need to make several financial decisions that have significant direct effects on their operations and success in the increasingly competitive marketplace. However, there are numerous varying options that are available to businesses regardless of the types and sizes. The concept of business financing has emerged as an important aspect in the modern business environment because of the various financial decisions to be made by different firms. The main aim of this concept is to generate enough capital for the business to meet its existing needs in order to promote the growth of the business. In addition to generating capital for the growth of the business, business financing helps firms to meet the recurring financial obligations.

Use of Financial Planning in Estimating a Corporation's Asset Investment Requirements:

Financial planning can be considered as a process that is used to approximate the financial requirements of the business as part of making financial decisions in advance for future operations. During this process, the financial manager should determine various sources for generating capital and the effective use of these finances in advancing the business' operations. As a result, this process may involve the use of several elements including risk management, investing, and asset allocation.

With regards to estimating asset investment requirements for a corporation through the process of financial planning, the financial manager should attempt to lessen the investment in current assets due to the associated costs of financing them (Melicher & Norton, 2011, p.430). Through financial planning, this process incorporates the administration of cash and marketable securities, inventories, and accounts receivables. The financial manager should start with estimating capital requirements through examining the need for fixed assets, determining investment intangible assets, and costs of current assets. This is followed by determining the type of assets to be acquired, their proportion, required funds, and projecting the availability of finances for acquiring these assets.

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Therefore, estimating asset investment requirements for a corporation through financial planning requires a constant balancing of costs and benefits linked to investment in current and future assets.

Concept of Working Capital Management:

Working capital management is a concept that can be described as the planning and management of a company's level and combination of current assets and funding of these assets. Therefore, this concept can be regarded as a managerial accounting strategy that focuses on obtaining and sustaining efficient levels of current assets, working capital, and current liabilities. This implies that financial managers should determine the necessary quantities of cash, inventories, accounts receivables, and liquid assets to be held by a business at a specific time. This process helps to ensure that a business has enough cash flow to meet its short-term operating expenses and debt obligations.

Marketable Securities:

Debt and equity investments that generate high liquidity and return on investment are basically described as marketable securities. Investment of excess cash in financial instruments used as marketable securities is a procedure geared towards balancing safety need and liquidity for invested funds with the desire to obtain return on the investment. There are several financial instruments used to park excess cash though these instruments may subject a business to probable losses. Some of the most commonly used financial instruments for marketable securities of excess cash include Treasury bills, commercial paper, negotiable CDs, and Eurodollar deposits (Melicher & Norton, 2011, p.446).

Raising Business Capital:

Debt and equity financing are concepts that are commonly used in raising business capital without a proper review and consideration of their meanings. While debt financing is generating money though loans that are usually secured by….....

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