FINАNСIАL, АССОUNTING, & ЕСОNОMIС TЕRMINОLОGY Essay Example

A Summary of Finаnсiаl, Ассоunting, & Есоnоmiс Tеrminоlоgy & Systems Relevant to Financial Strategy

A Summary of Finаnсiаl, Ассоunting, & Есоnоmiс Tеrminоlоgy & Systems Relevant to Financial Strategy

Introduction

Developing a financial strategy is the most effective way of planning for the financial future of the organization. Most firms manage their income through different finance sources, and also keep accounting records for the purposes of transparency and accountability. Businesses and professionals use financial, accounting and economic terminologies to describe different resources, items, networks, people and so on. It is necessary to understand the meaning of the terms in the context that they are used to further the financial objectives. Therefore, this paper will outline various terminologies and system relevant to the financial strategy of an organization as well as explain their precise meanings.

Financial Accounting Terminologies

Bonds are long-term debt instruments issued by corporations or governments to raise funds. A company issues bonds to the public and receives money. With the bonds a person lend money to the government or firm for a specified period of time at an agreed interest rate. The corporation pays the interest plus the principal amount at maturity. In Australia, corporate bonds are bought through the Australian Securities Exchange or through public offers whereby the company issues a prospectus and investors make a direct purchase (Black, Hashimzade & Myles, 2012). Bonds are essential in the financial strategy of a firm because they raise funds for large-scale projects and provide working capital.

Arbitrage

The process takes advantage of the price differences between markets to sell overvalued and undervalued assets without making a loss is called arbitraging. The company strikes a combination of matching deals that capitalize on market imbalances to make a profit. The possibility is a risk-free transaction with the profit coming from the market price difference. The practice is relevant to the financial strategy of a firm because it eliminates the risk of loss and the company can invest in different markets.

The terminology implies a transaction whereby a public company is taken private by a group of investors. The small private group of investors buys out the shares of the public company and removes it from the stock exchange. The practice is a type of private equity investment. Once the investors gain control of a company, they reorganize the corporate structure with the aim of making a substantial profitable return. The practice is common and essential in the financial strategy of a company because it is a less risky venture than starting up a new business.

Diversification

The term means having numerous strategies for the success of the business. The aim is to find new products and service that match the company’s objectives to grow and make profits. Therefore, the company must take the appropriate steps to diversify the firm’s fortune. Spreading the investments of the company is significant because the company will always be assured of some returns if not all. Therefore, diversification creates a financial balance and a stable growth (Sundararajan, 2004).

Financial Engineering

Firms have come up with a modernized way in which financial securities can be designed and packaged with creative elements. A financial engineer creates different types of derivative securities for specific purposes, most of which are aligned to the strategic growth of a company. The latter is the main objective is the main purpose of formulating a financial strategy for a firm.

Accounting Terminology

Annual Report

The term implies a statement report provided to the stockholders of a company and it includes the annual audited balance sheet, statement of earnings, shareholder’s equity and cash flow. The financial and business information contained in the report is meant to inform all the shareholders of the current financial position of the company in the industry and in the market (Black, Hashimzade & Myles, 2012). The annual report is relevant to the financial strategy of a company because directors and the overall management can assess the statements and implement new strategies.

Assembly of financial statements

There are different financial statements compiled by the company to provide management with book-keeping and data-processing information. An accountant assembles the statements for the purpose of internal use by the managers and directors. The advantage of this process is that the company has a reliable foundation to make internal decisions and consult with the specialists. The accountants can advise on the most appropriate financial strategies for the company given their financial position.

Accounting Ratios

These are also known as financial ratios and are part of the financial statement analysis. The ratios inter-relate different amounts in the statements. There are different forms of accounting ratios used to calculate liquidity, profitability leverage and turnover. Additionally, they can be used internally in a firm or externally to compare the position of the company in the respective industry. The use of the accounting ratios is significant because they outline the strengths and weaknesses of the company Bhattacharyya, 2011). Thus, the management is in a position to implement diversified financial strategies for the benefit of the company.

Economic Terminology

Absolute Advantage

This is the most common method of calculating economic performance. The company with the absolute advantage must have the capability to produce more products or services with the minimum amount of resources or effort. Comparative advantage complements absolute advantage and gives the company an edge hen competing in the international market (Sundararajan, 2004). Therefore, the advantage of absolute advantage is to enhance the productivity and efficiency of a company as well as providing funds to buy products or services that the firm does not produce.

Advertising

Advertising is a major marketing strategy used by all firms. Economists argue that the art of advertising is not a waste of economic resources but rather a form of creating awareness and enhancing customer loyalty. Organizations use different avenues to increase the flow of information in the market about their brand. Every firm has a target consumer and thus, the mode of advertising is dictated by the demographic and the message being put across. Therefore, advertising is a promotional method used to increase competition and create brand awareness.

Austrian Economics

In the late 19^th century a branch of neo-classical economists based in Vienna were strongly opposed to the use of economic theories and Marxism to justify the government intervention in the economy. The prominent members include Friedrich Hayek and Ludwig von Mises among others. The group defined economics as the science of learning human behavior as part of a relationship between ends and limited means with alternative utilizations ( Boettke & Coyne, 2015). The group of economist way of thinking attributed all the economic activities to the voluntary individual wishes and actions. The Austrian economics examined the choices of a consumer in terms of their opportunity cost and through the analysis of the effect of timing on decision-making. Friedrich Hayek’s predictions catapulted free market reforms in the USA and the UK. Therefore, the theory is essential because it advocates for consumer autonomy and the firms are obligated to put the needs of the consumer first so as to enhance their financial strategy.

Conclusion

There are many terms in the three parts that interconnects and can be used in all the areas. Most of the terminology is used to explain financial strategies that a firm can use to increase its competitive advantage in the market. Due to the globalization, the economic terms have increased and the financial and accounting standards widened to accommodate the needs of the international market. Therefore, the terms have been comprehensively defined to explain their relevance to corporate financial strategy. All the terms defined in the text relate to the financial strategy of a company and ho each action or term can enhance profitability.

References

Bhattacharyya, D. (2011). Management accounting. Delhi: Pearson.

Black, J., Hashimzade, N., & Myles, G. D. (2012). A dictionary of economics. Oxford: Oxford University Press.

Boettke, P. J., & Coyne, C. J. (2015). The Oxford handbook of Austrian economics. Oxford 

Sundararajan, S. (2004). Book of financial terms. New Delhi: Tata McGraw-Hill.