![]() Cash management and inventory control are important parts of such decisions.īesides, an inefficient working capital decision severely affects a firm’s liquidity.įactors affecting working capital decisions: These decisions affect the firms’ earning capacity, profitability, liquidity and solvency. It involves investments in Inventory, Bills Receivables, Debtors and so on. It plays a vital role in the smooth functioning of the firms. These investments are made on the current assets, which is why they are termed Working Capital Decisions. These decisions are crucial because any wrong decision may endanger the firm’s existence.įactors affecting capital investment decisions are: This is because, it involves the investment in fixed or capital assets. These decisions are popularly known as Capital Budgeting Decisions or Capital Investment Decisions. The two types of investments are explained as under: This is because, returns generated differ in the short and long term. ![]() Investment decisions are categorized under two heads based on the duration of the investment. For example, the effects of the investment made on the firms working capital. It determines whether to accept or reject the investment alternative proposal.Īt last, the firms need to examine the investment performance and related events constantly. Some techniques are available for selecting a suitable investment, also known as Capital Budgeting Techniques. This eases the decision-making process and helps eliminate options with lower returns. The selected investment alternatives must be evaluated considering risk and expected cash flows. Note: The selection must purely be a strategic decision and not based on instincts. Here, the firms decide between short-term and long-term investments as per the requirement. The next step is to identify and select the investment objective. It will depict a clear picture of the current allocation of funds. The first step in investment decision-making is assessing the existing financial position. Step 1: Assessment of Current Financial Position The steps involved in the decision process are as follows: ![]() Besides, risk assessment and mitigation is the important part of the investing process. The decision-making process for investments is conceptually simple but complicated in practice. It affects the current and future cash flows as well as the profit earned by the firm. Investment decisions directly affect the profitability of the firm. Also, it ensures optimum investment to deliver value for companies’ shareholders. The ultimate goal behind investment decisions is to maximize returns and enhance the firm’s profit-earning capacity. Moreover, these sources can be from within and outside the business. Firms generate money for investments from short-term and long-term sources of finances.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |