Financial theories offers specific financial guidance to individuals. There are several categories of financial theories. In this article, we focus more on financial management theories. These approaches address precise problems in the field of management and leadership. For example, the agency theory is extensively applied in corporate governance to provide insights about functions such as contracting, conflict resolution and performance management.
Theory of Financial Management Practice
Business and finance have a close connection to each other; for instance, companies are expected to make financial and investment decisions. Some of the key decisions in business environment focus on borrowing, labor and dividend. Therefore, individuals charged with managing institutions need to have a strong affiliation to financial theories. That way, they can be able to make decisions that will increase revenues, grow investment and promote healthy relationships with stakeholders. When theories are used in businesses, functions become easier since finance managers comprehend how they can approach matters such as acquisitions, expenditure and sales efficiently.
Financial Management Theories
As buildings blocks in the business world, financial theories help companies to grow in various dimensions. The nexus between business growth, effectiveness and financial theories is high in cases where individuals understand how to apply them. Below are examples of financial theories and models.
Investment Theory
Investment theory indicates that capital investment should grow over time. This theory is likened to the Hayekian approach which states that capital stock (K0), after the time (tn) changes to a predicted capital stock (K1). It tries to explain how individuals can grow capital or calculate investment flow. An investment flow calculation involves getting the difference between the capital at the end and start of the period. As a theory of financial management practice, this theory plays a vital role in differentiating investment and capital. The theory of investment has remained popular over time considering logicians are intensively trying to delve on how it influences investment decision and quality of leadership.
Agency Theory
This theory proposes that an entity can be looked at as a connection between resource owners. When agency theory is being taught in class, students are made to understand that a business is made up of external and internal customers. For instance, an entity may act as a principal; hence, appoint an agent to conduct business on its behalf. Such associations have implications to firm management and business ethics. This fact makes agency theory central in instances where firms want to maintain healthy relationships.
Expectation Theory
The expectation theory is the simplest interest rate approach, and it is used to manage investments. It suggests that the interest structure depends on investments pricing and maturity. At a cursory consideration, individuals may decide to purchase 10-years bond as opposed to two 5-years bonds. This theory indicates that the two investment options are the same because the risks involved may be the same. Expectation theory also deduces that projections of future interests rates may correspond with incoming rates attained in time. This approach helps individuals in making investment assumptions.
Financial theories provide a wide range of direction to companies and individuals who wish to become management gurus. Some of the top finance writers have flourished because of their deep understanding of financial theories and concepts. To build your knowledge in this field, you may need someone to help you with your assignments. If you need finance homework help online, you can visit sites that specialize in tutoring and assignment help. These sites allow you to build your understanding without much hassle.