Finance is the art of channeling funds from investors and savers to entities which require it immediately. The concept of finance is widely understood in the United States and in many other countries around the world. Investors and savers have money in the bank that can be invested in stocks, bonds, mutual funds and other financial instruments. When put to effective use, these funds can make interest or dividends to the investor or the saver.
While writing a financial statement, whether as an individual or as the head or manager of a company, it is important to address the finance and cash flow aspects. In order to get an accurate picture of the financial condition of a company, one must consider both the income statement and the balance sheet – the two most important financial reports which reveal the finance and cash flow activities of the business. Here are some of the most common topics regarding finance and cash flow, which are important for any company to consider when preparing its annual report to the stockholders.
One of the most important areas of finance to understand is cash flow because it is intimately connected to the financial position of the company. Cash flow represents the future sales and purchases and is a key reflection of the organization’s ability to finance its operations and meet its obligations including debt and equity financing. Understanding the difference between day-to-day cash flow and capital financing and how to manage them effectively is necessary to ensure the long-term viability of the organization. Capital financing is needed to acquire new equipment or to continue operating the existing operations which form the basis of the core financial information.