Integrated analysis of CA

The Time Value of Money

The time value of money facilitates cash flow prediction, making it possible to anticipate the quantity of cash flow at a certain point in the future. Finance supports the evaluation of the time worth of money, which allows for a comparison of current expenditures for future initiatives (Mphambela, 1). Knowledge of the time value of money improves an individual’s capacity to appraise the future of a current investment supplied the rate of return. Therefore, using the capital aimed at investing in the project it becomes possible to determine the value of the business in the future using the expected rate of return. Additionally, calculating the present value of the involved cash flow, the knowledge on finance facilitates the determination of the current worth of the future cash flow that is dependent on the provided rate of return. Finance facilitates comprehension of the real relation between the present and future value for given rate and time and hence promotes the capability of an individual to apply the equation to determine any of the components to the expected investment on the newspapers.

Cash Flow

Regarding the evaluation of the cash flows in the CA, finance facilitate comprehension of the various ways considered sufficient in the calculation of the future and present values in the presence of multiple cash flows. Therefore, if the CA is expected to have multiple cash flows, the determination of the projected values is possible through the application of the knowledge of finance. Furthermore, the knowledge of cash flows facilitates the capability to determine the annuities. The determination of the annuities facilitates the capacity of an individual to predict the period before which the loan utilized in financing the business is likely to be paid (İlgün, 284).

The knowledge of finance further facilitates the capability of an individual to determine the interest rates to their effectiveness and thus enabling an individual to make an appropriate decision to the CA. The accounting knowledge concerning the cash flows allows for the determination of the actual amortization schedules for the loans utilized in financing the business. The loan schedules can as well be adequately adjusted to ensure that the organization makes profits while paying the loans with ease. Additionally, the finance knowledge facilitates the interpretation of the amortization schedule to the amount of credit and interest rates associated with the loans.

Interest

The finance knowledge facilitates determination of the various features of a bond and the operation of the bond markets. The prices of the bonds tend to exhibit an excellent relation to the rates of interest. The knowledge further assists in understanding the amounts that the business is expected to pay to obtain financing through borrowing of funds. The finance knowledge coupled with the predicted cash flows of the organization enables one to understand the bond values if due to some reason they experience fluctuation in their values.

Bonds play a critical role in the provision of assistance to the financing of businesses. Understanding the ratings of the various bonds is vital in the knowledge regarding the risks associated with defaulting on the bonds. The default risks play a significant role in the decisions on the type of bond to utilize in financing the businesses. The organization, depending on its level of performance, may resort to issuing bonds as a way of raising money for its expansion or introduction of new products. The knowledge of finance, therefore, is vital in predicting the future of the business thus facilitating arrival at effective decisions regarding the appropriate ways of raising funds for the organization when necessary.

Equity

The knowledge on finance contributes to the comprehension of some of the basics of both the stocks and their valuations. The cash flows attributable to ownership of the dividends tend to arise from the dividends. Determination of the net present value of the dividends is usually possible through the application of the finance knowledge thus facilitating determination of the future value of the stock to the business.

The knowledge also assists in understanding the various rights of the shareholders of the firm hence ensuring compliance with the provisions of the law regarding the role of the shareholders in the election of officials. Understanding the concept of equity enables an individual to utilize the values in the CA towards developing the dividend growth model for the product. Valuation of the stock tends to present a significant challenge to people. The common stock, for instance, tends to be challenging hence the necessity for finance in its valuation. The problems associated with the valuation of common stock arise out of the lack of knowledge regarding the promised cash flows in advance and the fact that the life of the investment is usually indefinite. However, the knowledge of finance and the efficient utilization of the information present in the CA enable an individual to determine the current value of the future cash flows for the shares thus efficiently determine the values of stock of the organization.

Works cited

İlgün, Miraç Fatih. “Financial Development and Domestic Public Debt in Emerging Economies: A Panel Cointegration Analysis.” Journal of Applied Economics & Business Research, vol. 6, no. 4, Dec. 2016, pp. 284-296. EBSCOhost, search.ebscohost.com/login.aspx?direct=true&db=bth&AN=120451843&site=ehost-live.

Mphambela, C. NEWSDAY: Importance of cash flow management in business. Retrieved from: https://www.newsday.co.zw/2017/01/20/importance-cash-flow-management-business/ On [27 March 2017]