A decision in financial management is basically concerned about how much are the funds to be raised and from which source. Name the type of decision and explain four vital factors to be kept in mind while taking such decisions.
The financial management concerned about how much funds to be raised and from which source. This type of decision is called a financial decision. The four vital factors that are to be kept in mind while taking such decisions are ns follows :
(i) Risks: Financing decisions are dependent upon the extent of risk a tympany is willing and able to take.
(ii) Fixed operating costs: Fixed operating costs include costs associated with building rent, salary payment, insurance premiums, Interest on debt or loans, etc. if the extent of fixed operating costs is low then debt financing is a better choice and vice versa.
(iii) Return on investment: Return on investments can be diverted to a certain source of financing that has low risks and is cost-effective.
(iv) Cash flow position of the company: A steady flow of cash allows the business to pay back to their borrowers or lenders which further influences ease in obtaining debt capital.