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Articles on the Practical Application of Finance Theories

Date:  2021-05-24 18:36:45
2 pages  (456 words)
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There are different financial theories that attempt to explain the role of finance in various markets. The concepts of these theories rely heavily on having a better understanding of the different ways in which individuals and businesses raise money. One of the articles that show practical application of financial theories is Big Oils $45 Billion of New Projects Signal Spending Revival located at http://www.bloomberg.com/news/articles/2016-07-07/big-oil-s-45-billion-of-new-projects-signal-spending-revival. The article talks about how big oil companies are getting back to investing in big projects.

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Practical Application of Cash Flow Analysis in Business

Companies use cash flow analysis among other finance concepts before evaluating if a project is worth investing in (Maravas & Pantouvakis, 2012). The oil industry is among the industries that find these concepts useful since companies invest in many projects on a short period. Recently, big oil companies had a spending budget of $45 billion after the cost of equipment and services reduced, and crude oil prices rose in the market (Blas & Chilcote, 2016). The oil companies first painted a clear picture of their overall financial health by looking at the cash inflows and outflows when they invest in the projects before they made their decisions. Big oil companies such as Chevron and BP chose to expand existing projects so as to maximize existing infrastructure hence improve the cash flows (Blas & Chilcote, 2016). The cash flow statement includes the addition of cash from operations and cash flows from financing activities to the cash and cash equivalents before investment then subtracting the cash flows investing activities which give the cash and cash equivalents that the company will get from investing in a project.

Finance Class and the Understanding of Prospect Theory

The class made me have a better understanding of cash flow analysis and concepts such as capital costs, operating and maintenance expenses, operating benefits, depreciation, and income tax. As a result, I was able to understand the article more clearly on how companies use cash flow analysis to assess the impact of a project before making investment decisions.

How to Apply Prospect Theory in the Real World

In the real world, investors can apply the cash flow analysis concept in understanding if a company has enough resources to cater for future operating expenses. Rather than blindly investing in a project, companies need to weigh the cash inflows and cash outflows to determine if the project will meet the companys financial needs.

References

Blas, J. & Chilcote, R. (2016). Worlds Top Oil Trader Says Prices Wont Rise Much Further. Bloomberg.com. Retrieved 12 November 2016, from http://www.bloomberg.com/news/articles/2016-07-05/world-s-top-oil-trader-says-prices-won-t-rise-much-furtherMaravas, A., & Pantouvakis, J. P. (2012). Project cash flow analysis in the presence of uncertainty in activity duration and cost. International Journal of Project Management, 30(3), 374-384.

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