Inflation

Inflation measure the percentage annual rise in the average price level. Inflation reduces the purchasing power of money in the economy. The impact of inflation on a firms finances are mixed. 

Advantages of inflation to a business

Real assets become worth more - The value of any property or stock that a business owns will become worth more if prices are going up. A firm with more valuable assets will look more attractive on the balance sheet. As a result of this a firm may be able to raise long-term finance from Banks and Shareholders becuase the business now looks more secure. 

The real value of money owed is eroded - Firms with large borrowings also…