What Is Finance Decision?


Author: Richelle
Published: 29 Aug 2022

The Decision of a Company to Make A Decision about its Financial Activities

The financing decision is a crucial decision made by the financial manager. It is concerned with the borrowing and allocation of funds. Since more use of equity will result in the dilution of ownership and since higher debt will result in higher risk, a company should make a decision about where to raise funds.

Dividends in a Large Company

Return on investment is a factor that affects investment decisions. Managers will invest in projects that have a higher return on investment and lower risk. Managers have to decide how much of the company's profit should be paid out in dividends and how much should be kept with them.

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There are decisions. Running an organization can involve taking thousands of decisions a day. Financing Decision is the decision that has to be taken with respect to the capital structure. Let us learn more about the financing decisions.

A Financial Management Approach to Make-up of Capital and Investments in Private Sector

Financial decisions are made by a finance manager alone or in conjunction with his other executive colleagues. The finance manager is responsible for all money matters. The finance manager is responsible for deciding the quantum of funds to be invested inventory since funds must be supplied to finance inventory.

The decision relating to acquisition of funds for financing business activities is a finance function. The finance manager has to take a decision without consulting other executives since the decision affects the ability of a firm to raise funds. Financial decisions are seen as cutting across functional and evenDisciplinary boundaries.

A finance manager works in an environment where total management is a part of the job. At a time when the economy is in a state of uncertainty and there is no hope of a recovery in the next few years, it would better for a finance manager to not take up new investment activities or to carry on with further investment activities. Changing economic conditions should be considered when determining the firm's dividends.

If the business is entering a period of depression, conservatism should be followed for it may need all of its cash resources to survive until its sales increase. Firms tend to offer higher dividends during boom period to raise funds. Business entrepreneurs will not have to deal with a lot of trouble in procuring security in stock market if the institutional structure of capital and money markets is well developed.

It also helps entrepreneurs to use the funds that are most readily available at a given time, and it also helps them to negotiate with a prospective supplier of funds. Entrepreneurs find it hard to get large amount of resources from the market in the absence of organised capital market. They have to raise capital from other circles.

Decisions on the Financing of Optimal Company

It is impossible for a business to survive over time unless minimum financial performance levels are achieved, and that is the reason for decision making. Capital budgeting decisions involve huge amounts of long term investments and are irreversible except at a huge cost. Working capital decisions affect day to day working of a business.

It includes the decisions about the levels of cash, inventory and receivables. 3. Investment criteria is involved.

Capital budgeting techniques are used to evaluate the investment proposals. calculation of investment amount, interest rate, cash flows, rate of return It is to be decided which technique to use.

5. Control considerations. If the shareholders want to retain complete control of the business, then finance can be raised through borrowed funds, but if they want to take over the business, then equity shares can be used.

The profit is divided into a part of it called the dividends. Keeping in mind the overall objective of maximizing shareholder's wealth, the decision regarding the dividend should be taken. 2.

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