Financial Structure of the Firm Essay

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While all of this is well and good, the reality is that most businesses are not founded by accountants and most find a financial system that is beneficial for them. For instance, it may have been acceptable in school to take large risks on certain costs; however, if a business is struggling and incoming capital is lower, then no risks may be considered acceptable.

The final financial factor that businesses use on a regular basis is leveraging. When a company wants to grow and expand in exceedingly large ways, it does so by weighing the current assets and determining the amount the company as a whole is willing to borrow. The key where financial impacts come into play is the question of how much and for how long to borrow (Ghosh 1993).

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The primary technique used for this is known as forecasting. A financial analyst will take the companies past decade of financial trends and determine where the company is headed in regard to the overall amount earned. This projection is then used to determine the amount of debt that the company can safely take on without risking too much capital.

Responsible businesses do not part easily with money, nor do they invest where there is not a promise of return. Once a business owner reviews the financial data, they are then able to make a responsible decision for the company......

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