Identify a firm's short- and long-term financial needs.
Short-term financing is money that will be used for one year or less.
There are many short-term needs, but cash flow, speculative production, and inventory are three for which financing is often required.
Long-term financing is money that will be used for more than one year.
Such financing may be required for a business start-up, for a merger or an acquisition, for new product development, for long-term marketing activities, for replacement of equipment, or for expansion of facilities.
According to financial experts, business firms will find it more difficult to raise both short- and long-term financing in the future because of increased regulations and more cautious lenders.
Financial managers must also consider the risk-return ratio when making financial decisions. The risk-return ratio is based on the principle that a high-risk decision should generate higher financial returns for a business.
More conservative decisions generate lesser returns.
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