Most Common Financial Management Decisions

One of the most important financial management decisions is capital budgeting. Capital budgeting refers to the process of investment and huge expense evaluations by a business to establish the most favorable return on investment. Therefore, some investment appraisals in capital budgeting involve machines and inventory, new products, new plants, or research and development products (Lumen Boundless Finance, n.d.a). Capital financing is also a common financial investment decision. Capital financing refers to methods a business applies to raise finances, such as equity financing or debt financing. Access to financing remains closely related to sustaining a constant capital inflow since operations cannot continue solely on savings and thus require additional liquidity. Common financial investment decisions also involve dividends. Dividend decision-making revolves around evaluating how much of the earnings obtained from the business will be shared amongst shareholders. For instance, financial managers may decide whether the profits will be divided among shareholders or reinvested into the business. Therefore, dividend policies exist in companies to determine how the earnings from the company will be utilized to avoid very high distributions and thus spare some earnings to improve or expand business operations.

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Common financial management decisions also include working capital decisions, which involve decisions on the activities a business performs to ensure sufficient resources to run its day-to-day operations. Therefore, working capital decisions are based on various criteria, such as cash flows or return on capital (Lumen Boundless Finance, n.d.b). In addition, financial management decisions involve asset management decisions. Financial managers have a responsibility to stipulate and assure proper management of the existing assets. Asset management decisions involve current assets that could become effective with time, such as inventories or accounts receivables. Moreover, asset management decisions may include fixed assets such as the company’s offices and vehicles.

References

Lumen Boundless Finance. (n.d.a). Introduction to capital budgeting | Boundless finance. Lumen Learning – Simple Book Production. https://courses.lumenlearning.com/boundless-finance/chapter/introduction-to-capital-budgeting/

Lumen Boundless Finance. (n.d.). Overview of the working capital financing decision | Boundless finance. Lumen Learning – Simple Book Production. https://courses.lumenlearning.com/boundless-finance/chapter/overview-of-the-working-capital-financing-decision/