Various types of decisions in financial management

Investment Decisions

As a financial manager, you’ll have to decide what kind of investments to make with the money you already have, taking into account both long- and short-term goals. Long-term investment decisions are also known as Capital Budgeting, and they primarily refer to the selection of investment proposal(s) and the balancing of many criteria in order to select the best one that matches the firm’s needs and future goals.

Short-term investment decisions, on the other hand, are focused with making judgments on finances in the short term, such as current assets.

Financing Decisions

A financial manager must select where or how to obtain appropriate finances to meet the firm’s demands in order to meet the firm’s needs. You must also calculate the appropriate ratio of equity to debt, and the combination of these two components, i.e. equity and debt, is referred to as the company’s capital structure.

As a financial manager, you must identify an optimal capital structure when making a financing decision, and an optimal capital structure is also one in which the market value of the company’s shares is maximised.

Liquidity Decisions

The investment in current assets impacts a company’s profitability and liquidity. As a financial manager, your primary responsibility is to guarantee that all existing assets are managed effectively to protect the company from illiquidity. This can be done by recognizing the most effective ways for present asset management and ensuring that funds are available when needed.

Dividend Decisions

Dividends are another critical option that falls under the purview of financial management; as a financial manager, you will have to decide whether to distribute earnings, keep them, or distribute a portion of them and return the rest.

Aside from the scope as mentioned above of Financial Management, the expanded range of Financial Management also includes:

Financial planning is the process of determining goals, objectives, and suggestions for improving a company’s performance.

Financial Supervision This refers to the supervision and collection of cash to keep the company’s work roles and duties in order.

Financial control refers to the most efficient use of investment and other resources such as the workforce.