Robert Trosten the proper utilization of funds and also investment constitutes the process of financing. There are certain core principles to be followed in funding to ensure the maximization of profit. People who are in charge of managing the fund are known as the financial manager. It is the financial manager who takes investment, operating and also financing decisions. and investment. It is the financial manager who takes investment, operating, and financing decisions. Whether you are an individual or an entrepreneur of a multinational company, you should make a note of the principles of finance for your benefit.
The core principles of finance as explained by Robert Trosten
• Return and risk: as an investor, you have to be conscious of return-less risk. It is true that the higher the risk, the higher is the rate of return. You will have to compare the risk with return.
• Value of money: with time, the amount of money depreciates. The economy undergoes inflation over some time. Thus the inflation rate needs consideration for the calculation of the quality of return. One basic principle is that the required rate of return should always be more than the inflation rate.
• The flow of cash: the process of cash inflow and also the outflow is the principle of cash flow. The cash flow should be more at the initial stage of investment. It is a principle that takes into consideration the value of money also.
• Liquidity and profitability: from the investor’s point of view, the principle of liquidity and profitability is of prime importance. It is the investor who has to ensure liquidity and also profitability. According to Robert Trosten, liquidity refers to the smooth flow of cash resulting from selling the investment.
• Diversity: Diversity is of paramount importance in the field of finance. You should never put all the eggs in the same basket. In the field of finance as well, the investor should not invest the entire cash in one investment scheme.
• Hedging: it indicates the sources from which a person should take the funds. You may take the short term as well as long term funds from reliable sources.
As per the above discussion, you can conclude that an essential grip of the principles and also understanding of finances is critical for effectively making financial decisions.