What are some of eh most important financial management deci

What are some of eh most important financial management decisions? Can you provide some real life examples?

Solution

Financial management are broadly classified into two category - Investment decision and Financing decision

1. Investment decision - The investment decision is also known as capital budgeting decision. This decision relates to the appropriate selection of assets which will bring maximum benefits for the firm.

Example - Manufacturing units buy machinery to increase the capacity of output. This is real time investment because at some point the machinery is benefiting manufacturing firm in meeting demand.

2. Financing decision - This decision relates to source of finance. The firm can raise finance through various sources such as issues of shares, debentures and taking loans and advances.

Example - The owner or director buy shares or market equity as an investment to raise the compaany fund.