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Should investors in equity markets be worried about the timing of their investment - Essay Example

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Should investors in equity markets be worried about the timing of their investment

The modern thinking in Financial Management today is that financial managers do not perform the role of goal keepers of financial data and information, and arranging funds, whenever directed to do so. Rather, financial managers occupy a key role in top management areas by solving complex management problems. Today, the financial managers are responsible for shaping the fortunes of the enterprise and are involved in the most vital management decision of allocation of capital. Finance managers are responsible for the procurement of funds and effective utilization of funds to achieve the business objectives.
Finance manager is required to make decision on investment, financing and dividend keeping in view the objectives of the company. While making investment, it is necessary to give stress for the time value of money. It means that the worth of money received today is different from that it should be received in future. There are number of reasons related with the time value of money, such as-
"Investment Analysis generates equivalent current year values allowing comparisons between different investments and identifies investment performance spikes or dips providing a tool to maximize overall return" (Investment Analysis Software. 2007).
In addition to this, time value of money is very important, because it helps in arriving the comparable value of the different amount arising at different points of time in to equivalent values of a particular point of time either in present or in future. The cash flows arising at different periods of time can be made comparable by using any of the two ways- i.e. by compounding the present money to a future date, (for finding out the value of the present money.); or by discounting the future money to present date, (for finding out the present value of future money.) Under techniques of compounding, future value of a single cash flow is-
FV= PV (1+r) ; Where,
FV= Future Value n years;
PV= Present value of cash flow today;
r = Rate of interest per year;
n = Number of years for which the compounding is done;
Similarly, under discounting techniques, the present value of a single cash flow is-
PV = FVn (1/1+r) ; Where,
FVn = Future value n years;
r = Rate of interest per year;
n = Number of years foe which the discounting is done;
Both investment and financing of funds are two crucial functions of finance manager. The investment of funds requires a number of decisions to be taken in a situation in which funds are invested and benefits are expected over a long period. Funds procured from different sources have to be invested in various kinds of assets. Long term funds are used in a project for various fixed assets and also for current assets. Investment of funds has to be made after careful assessment of the various projects through capital budgeting. Asset management policies are also laid down regarding various items of current assets. Investment in equity shares is a complex procedure; this is because unlike debt and preference shares ...Show more

Summary

Finance is the life blood of any business, because for undertaking any kind of activities, even major or minor, source of funds is playing a massive role. The proper utilization and allocation of funds should be under the control of finance manager or his associates…
Author : delores58
Should investors in equity markets be worried about the timing of their investment essay example
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