The Balance Sheet Model of the Firm:
1.In what long-lived assets should the firm invest? Left Side of BS
Capital budgeting to describe the process of making and managing expenditures on long-lived assets
2. How can the firm raise cash for required capital expenditures? Right side of BS
The answer to this question involves the firm's capital structure, which represents the proportions of the firm's financing from current and long-term debt and equity.
3. How should short-term operating cash flows be managed? Upper portion of the BS.
There is often a mismatch between the timing of cash inflows and cash outflows during operating activities. Furthermore, the amount and timing of operating cash flows are not known with certainty. Financial managers must attempt to manage the gaps in cash flow. From a balance sheet perspective, short-term management of cash flow is associated with a firm's net working capital. Net working capital is defined as current assets minus current liabilities. From a financial perspective, short-term cash flow problems come from the mismatching of cash inflows and outflows. This is the subject of short-term finance.
Basic Problem: How to raise Cash?
A sole proprietorship is a business owned by one person.
Some factors that are important in considering a sole proprietorship:
* The sole proprietorship is the cheapest business to form. No formal charter is required, and few government regulations must be satisfied for most industries.
* A sole proprietorship pays no corporate income taxes. All profits of the business are taxed as individual income.
* The sole proprietorship has unlimited liability for business debts and obligations. No distinction is made between personal and business assets.
* The life of the sole proprietorship is limited by the life of the sole proprietor.
* Because the only money invested in the firm is the proprietor's, the equity money that can be raised by the sole proprietor is limited...
