Financial decision-making is a reality for any business in any industry, and the consequences of a wrong choice can be detrimental. Ultimately, in order to operate successfully, businesses and organizations must rely on professionals with the ability to manage unplanned financial events strategically and sustainably.
When it comes to managing finances, there are three distinct aspects of decision-making or types of decisions that a company will take. These include an Investment Decision, Financing Decision, and Dividend Decision. Understanding how decisions can be made in each of these areas in order to further the goals and objectives of an organization will improve its financial performance and provide insulation against failure or collapse.
If you’re pursuing a career in the financial industry, earning a Professional MBA in Finance from WU Executive Academy will equip you with the expertise and conceptual and analytical framework necessary to make sound financial decisions. Below, learn more about the main types of financial decisions you can expect to make during your career.
Any financial decision that is made with regard to how a company’s capital is invested is known as an investment decision. An investment decision involves thinking critically about the where, when, why, how and amount of spending to do or debt to take on in order to yield a profit. While an investment decision always involves capital, capital might refer to assets, effort, or time rather than just money. As an MBA programgraduate, your ability to make an investment decision which yields a greater payoff than what was invested at the time will be an important determinant of a business's profitability.
There are two main types of investment decisions: short-term and long-term. A short-term decision, also known as a working capital decision, will ultimately affect a business’ everyday operations, impacting the amount of inventory and cash flow. A long-term investment decision (capital budgeting decision) involves a larger amount of capital over a long span of time, the damage from which can be irreparable.
After completing your MBA in finance, you’ll also be making financing decisions or decisions that deal with raising finance from different sources. These sources might include bank loans, equity shares, preference shares or other types of funds. These decisions come down to determining a company’s capital structure, with the ability to repay the capital on borrowed funds presenting as the main financial risk.
A number of different factors will influence a financing decision. These include the cost, or how much it costs for a company to raise finance from the various sources, flotation cost, the cost of issuing securities, the risk, the state of the market, the amount of cash flow a business has, and more. Responsive financing decisions can be instrumental to a company’s growth, but sources must be chosen strategically.
As a professional working in financial management, you’ll be responsible for helping large companies, or even your own, to make dividend decisions. Dividend decisions are those which determine how a company’s profits will be divided among its shareholders, and how much should be reserved for the future, otherwise known as retained earnings. In most companies, this decision will be made with the goal of accumulating shareholder wealth.
Dividend decisions will be impacted by the availability of cash, the priority of shareholders, how much the company is expecting to grow, and how high the earnings will be. Additionally, taxation regulations will affect decisions made around dividends. After completing your program at WU Executive Academy, your expertise and intuition will help you to make dividend decisions that allocate the appropriate portion of funds to shareholders.
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