Principles of Financial Management. Business & Marketing Essay (Essay Sample)
DISCUSSION ON 10 PRINCIPLES OF FINANCIAL MANAGEMENTsource..
Principles of Financial Management
According to Van Horne & Wachowicz, (2005), financial management includes acquiring, financial assessments, and management of assets for a specific ultimate purpose in mind. The main aspect of financial management is finance. Finance is a vital theme of the business world therefore it is important to ensure better control of financial-related projects in a firm to avoid losses. There are core principles (better referred to as foundations of finance) that a financial manager must adhere to avoid financial losses. This paper will discuss and cover various principles of financial management.
Principles of financial management
Principle 1: The risk-return trade-off
This principle explains the risk between risks and returns. The concept of knowing returns on the financial investments is that the more you risk, the higher your return, and vice versa. For example, investing in bonds and stocks offer a higher level of return and also have a higher chance of losing money on investments. Investors often want to bring their capital into risky investments because they deliver higher projected returns over and above inflation. It is therefore important to note that risking money on poorly planned ventures is contradictory to the principle of risk-return trade-off.
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