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Economics of Development

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This paper illustrates that one of the frequent reasons for business failure is poor management and insufficient and poor management of financing comes second. For starting or relocating or expanding a business sufficient capital is required. Having good financing is not enough in attaining profits; proper knowledge and planning are required to manage it well. These help in strengthening the management of financing and avoid common mistakes like miscalculating or underestimating the cost. The Income Statement presents the summary of the income earned and the expenses incurred during a financial year.

Position statement presents the financial position of the business at the end of the year. By Financial Statements, we mean two statements –   (i) Profit and loss A/c or Income Statement, and (ii) Balance Sheet or Position Statements. These are prepared at the end of a given period of time.   They are indicators of profitability and financial soundness of the business concern.   Thus, analysis of Financial Statement means establishing the meaningful relationship between various items of the two financial statements, i.e. , income statement and position statement. Loan application should be well written so that the reader could get a clear picture of what your plans are.

The presentation should be of the best quality in the initial loan proposal and application. Only industry-specific details should be included so that reader can easily understand. The overall objective of a business is to earn a satisfactory return on the funds invested in it.   Financial analysis helps in ascertaining whether adequate profits are being earned on the capital invested in the business or not. It also helps in knowing the capacity to pay the interest and dividend.

Care should be taken that the financial statements are not older than 90 days and financial statements of all principal owners and guarantors should be included. A copy of last year’ s income tax return should also be included.

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