Most Important Principles of Finance

Yesterday, I was watching the above video of osmannal in which he explained 10 principles of finance, all are most important. Today, I am explaining these principles in my words.

Principle of Finance  1. The risk-return trade-off

As per this principle of finance, every businessman should aware that return will only increase in trade by taking more risk. If you are not capable to take risk, you will never get higher profit or return. This principle is taken from our simple saying no pain, no gain. Actually, pain is our tolerance of higher risk. As reward, we get gain. When we understand this principle of finance, we take the help of different advance techniques of finance for creating balance between risk and return.

Principle of Finance  2. The time value of money

I already explained the time value of money in past content. In this principle of finance, we try to make you understand that only money is in the world which have large number of uses. Due to this, today received money is more valuable than next day receivable money. If anybody do not do any work but has large money, he can enjoy his life by getting interest on that money. Same money is used by bank for providing loan to the big companies and big projects.

Principle of Finance  3. Cash—Not Profits—is King

In finance, cash is king because cash is only liquid asset which can be used for buying goods, paying the expenses. Other assets needs time for converting into cash. Our profit may be in credit form because some sales are on the basis of credit without getting cash. So, if our customer will not pay us the money in future, our hand will be tight to pay our creditors. So, we see net profit in cash. For this, we make the statement of cash flow which tells us the net cash flow from operating, financial and investment activities.

Principle of Finance  4. Incremental cash flows

As per this principle of finance, finance manager will always interested to know incremental cash flows. It means to change in the cash flow due to increasing more resources for output or sales. You know when we use new resources, we need big cash for this. So, if it increase our profitability, it will surely increase our cash inflows. So, this will be the positive incremental cash flows.

Principle of Finance  5. The curse of competitive markets

Competitive markets will always curse to the businessman because everyone can enter. So, after utilization of large financial resources, businessman will get only normal profit. So, finance manager should either leave this market or make his product different from competitors. With this, company can get super profit because no one can make same product due to trade mark rights.

Principle of Finance  6. Efficient Capital Markets

Every company wants to increase its wealth. Wealth can only be increased by increasing its shares value. Now, in finance, there is the existence of efficient capital market where every information relating to share prices will be available to each shareholder. With if company is growing, all the interested investor will buy the shares at higher price. If there is lack of information who will know which company is growing. So, efficient capital market knowledge is the backbone of financial sector.

Principle of Finance  7. The Agency Problem or Management of Company Problem 

As per this principle, managers should happy with company. Without this, it will be the problem for company. We know that company management is done by managers not shareholders. Managers' salary is the expense of business which reduces the shareholder's earning. But if company do not give good package, management will search new way to get money from company. Due to this, financial resources will not be utilized properly. So, company should pay good amount to managers. It is the only solution for company.

Principle of Finance  8. Taxes bias business decisions

It means, managers take decisions without seeing the effect of tax. It is biggest mistake of finance managers. Managers and govt. should do work with great co-operation. Every decision relating to investment should be done after seeing its tax effect. How much tax will be paid to govt. if any new project is taken in the hand.

Principle of Finance  9. All risk is not equal

Every finance manager should understand all risks are not equal. It means we do not invest all money in one project. We have to diversify all investment.With this, we can minimize our loss due to happening of risk.

Principle of Finance 10. Ethical Dilemmas Persist

Ethical dilemmas means the problems relating to finance. Why in finance, problems are everywhere. We have just doing right thing. What do you think? As per best judgement, you have to take decision. In finance, you have also to take best decision after analysis each and every aspect. 






access account accountant Accounting accounting definitions accounting ebook Accounting education accounting procedure accounting process outsourcing Accounting Software advance advertising africa Amalgamation amendments announcements Annuity assets audit auditing Australia B.Com. balance sheet bank Bank reconciliation banking basic accounting BBA benefits best bill black money blog bloggers book keeping bookkeeping Branch Accounting - full tutorial budget Budget variance business businessman CA calculator canada capital capital budgeting career cash cash book cash flow statement Chiense children china class coaching coins college commerce commerce students company computer computer accounting conference Contact vinod kumar Control Your Spending corporate accounting cost cost accounting cost center cost centre CPA credit credit card cs currency data Debit and credit debit cards debt debtor degree depletion depreciation Diwali Messages documents dollar domain Downloads Dubai e-accounting earning education Education Loans email employee EPF ERP euromoney examination excel excise duty expenses facebook factor of loan fans feature fifo FII fiji finacle finance Financial financial accounting fire insurance flickr flow forensic forex formula france fraud free fun function fund GAAP GDP gdr germany gold goodwill goodwill accounting google google apps Google Adsense google apps google base google buzz google calendar Google docs google finance google fusion tables google talk govt. GST guide health Hindi Hindi Language history holding company How to treat FBT in Tally 9 HRA ICAI ICAWI ICICI Bank IFRS income income statement Income Tax India indian railway Indonesia inflation inflation accounting infographics information inspiration insurance insurance accounting Intangible interest international Internet Introduction of Tally 9 inventory investment investment in Shares invoice IT Japan Job costing journal entries Journal Entries eBook Help Kalculate keyboard kindle kuwait laptop law LBT learning lease lecture ledger leducation Leverage Analysis liabilities lifo linkedin loan logical point loss loss of profit M.Com. m.phil malaysia management accounting manual accounting manufacturing account market marketing mastercard material MBA MCA media migration mobile money ms word ms. excel multi currency in tally 9 Multicurrency Accounting mutual fund national security new and sacrifice ratio new york times new zealand news NGO nonprofit-accounting North Georgia Mountains NPV NSE odbc office oman online application online accounting Online Accounting Course otcei pakistan parents Partnership pay pal pdf Personal Finance pie chart pie chart of income pnb podcast ppf presentation price privacy policy prize money prof. vinod kumar profit profit and loss account project management provision purchase puzzles quickbooks Quote quotes quotes of svtuition rating agency ratio analysis RBI readers real estate rectification of errors remote control reports reserves responsibility accounting retirement revenue Revenue reserves review risk rupees salary sale saudi arabia saving sbi scholarship school SEBI security service tax share share trading Shares shri lanka singapore sms social accounting society solution South Africa stock stock exchange structure student students study subsidiary company svtuition swiss bank tally tally 9 Tally 7.2 Tally 9 Tally.ERP 9 tanzania tax Tax Accounting TDS teacher teaching technology test testimonial testimonials thailand tips trading trading on equity transaction trend trial balance truthfulness tuition twitter UAE UGC - NET Commerce UK United Arab Emirates university usa valuation VAT Video Voucher and vouching Wealth wikipedia working capital youtube
Accounting Education: Most Important Principles of Finance
Most Important Principles of Finance
Accounting Education
Not found any lecture VIEW ALL Continue reading Reply Cancel reply Delete By Home PAGES Lectures View All RECOMMENDED FOR YOU Category ARCHIVE SEARCH ALL Lectures Not found any lecture match with your request, please help to write it and send it to our email at for making this website free accounting and finance encyclopedia. Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock