THE FINANCIAL BALANCE FROM THE POINT OF VIEW OF THE RISK-RETURN RELATIONSHIP
Supp/2008 , p622..634
Author(s):
Monica PETCU
Dumitru MIRON
Iulia DAVID-SOBOLEVSCHI
Keywords:
Financial equilibrium, arbitration, profitableness, risk, the cost of capital
Abstract:
The financial equilibrium refers to the relations which appear in the capital formation and allocation. The allocation of the resources for certain needs should consider the cost of the resources and the rate of efficiency of the utilisation, in the structure of the financial politics which has as an objective the necessity of arbitration between solvency and profitableness, between security and risk. The option of the financial investor to place his financial resources in a business, assumes the risk of converting the financed assets into liquidities, in order to restructure the capital and to assure a benefit. The risk is generated by the specificity of the activity, by the manner of organization and administration of the business, by the manner of financing. The financial management is about the allocation of the resources in the current activity, and in the investment of the activity also, always making the arbitration between short term and long term, considering the limited capital which just came in the business, and on the other hand, the necessity of assuring the financial equilibrium. Estimating the financial equilibrium based on the profitableness-risk relation is relied on the theory of the cost of capital and the appropriate financing structure, the investment decisions and the financing of the company are determined by the maximization the shareholder’s wealth objective based on the efficient utilization of the company’s resources.
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