‘The overall financial health of a business is determined by the quality of its financial management’. In the light of above statement, discuss some of the aspects which affect the financial health of a business.
Some of the factors which affect the financial health of a business are as follows:
(i) Size and composition of fixed assets For instance, if; a decision is taken to invest Rs 200 crore in establishing plant and machinery, then this decision > would raise the size of fixed assets blocked by this amount.
(ii) Size and composition of current assets A decision to increase the term of credit to customers would increase the amount of debtors and current assets.
(iii) The amount of long-term and short-term funds ’ to be raised Financial management involves decision related to the proportion of long-term and short-term funds. e.g. if an organisation wishes to have more . liquid assets, it would raise relatively more amount on - a long-term basis. Such cases create problem in Choosing liquidity or profitability.