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Assignment: Understanding the Concepts

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Assignment: Understanding the Concepts
FIN 100 – Principles of Finance

Assignment: Understanding the Concepts
Ever dream of owning your own business? The life of a business owner can be a glorious one with many exciting benefits such as a big house, a nice car, and oodles of money. According to (Henderson, 2012), “The average income of small business owners varies widely depending upon their level of experience. For example, small business owners with less than one year of experience in running an organization earn an annual salary ranging from $34,392 to $75,076. Those with more than 10 years’ experience, on the other hand, earn upwards of $105,757 per year”. As seen here, experience literally pays off big and is all about making good decisions in business. Some of the first decisions a business can make is determining the financial strategy.
Financial Ratios Important to Large and Small Businesses Before a business can determine the best financial strategy, they must identify the strengths and weaknesses of their business. One way this is done is by computing ratios that compare values of key accounts listed on the financial statements. There are a lot of financial ratios that can be determined by business owners and managers through analyzing these financial statements. Depending on your size of business and the experience of the business people, will determine the best financial strategies for their firms.
According to Bankrate.com, “A financial ratio is a simple mathematical comparison of two or more entries from a company's financial statements. Business owners and managers use ratios to chart a company's progress, uncover trends and point to potential problem areas in a business. Bankers and investors look at a company's ratios when they are trying to decide if they want to lend you money or invest in your company”. A small

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