Personal Finance- Business Finance

The "finance" side of business involves a great amount of mathematical content. The financial health or situation of a business is evaluated mathematically. Crucial to this analysis is the basic equation Assets = Liabilities + Equity Put quite simply, this equation declares that the total value of assets (cash, equipment, inventory, real estate, etc.) of a business are the sum of the value owned by the business owners plus the amount borrowed from others, usually at a significant rate of interest. In any given period, profit = revenues (usually from sales) - expenses. We can then examine the financial well-being of the business based on any combination of ratios. Common ratios to consider are Return on Assets or Return/Assets, and Return on Equity or Return / Equity, both ratios usually measured over a period of 1 year. These ratios provide a benchmark measurement for investors, whose valuation of any particular company is largely based on these ratios. Financial analysts regard the value of a company, as with any investment, as equal to the expected present value of all future cash flows. Such cash flows can come from regular dividend payments and/or increase in market value (i.e. Stock price) in the company. The ratios which investors like to see will naturally vary by industry, as they are likely to demand lower return on equity of more conservative companies as compared to riskier, high-growth companies. Debt ratio = liabilities/assets is a measure of what proportion of a company's assets is financed through debt; the higher this ratio (and especially if this ratio is more than 1), the more leveraged the company is to be, and thus the riskier an investment the company becomes.