Financial Decision Making



Financial Decision Making

Introduction

The Decision making is a necessary and vital part of everyone's life. Finance decision is all about the financial strategy of a firm. There are particular rules and regulations that need to be followed to reduce or minimize the loss. The corporate decision making is the most critical for efficient management. The process of decision making relies on the expert's experience and knowledge. The financial decisions support the business to generate profit efficiently. If the decision is accurate and timely, this will lead to success. If the decision is poor, it will lead to failure. (Thompson, 2012).Every company has some goals and aims that create a roadmap for the growth and success. The goals and the objectives make up the vision and mission of the business. The primary purpose around every strategy is profitability that will help the company to make decisions regarding their profits and revenues. (Lopez Et al, 2012).

The financial decision making plays a vital role in the success and the growth of the business. There are goals and objectives in which the company make their strategies and take the financial decisions. The successful and intelligent decisions pave the way for success. The company is successful if it takes the right decisions at the right time. The purpose is to examine the resources and define a path. There are various approaches that when brought into action leads to achievement of the goals. The company's financial department plays a vital role in providing essential financial information needed for the decision making. The income statement provides the details whether the business is making an efficient use of its financial resources. The steady and updated information flow are vital for a business to make appropriate decision making regarding; the reduction of costs, increasing sales, raising profitability, purchasing new assets for investment and the best source of finance etc.(Thompson,2012)

Discussion

Techniques used in financial decision making

The significant element in the financial decision is Risk. It is an imperative factor in the investment decision and is the core of investments success. In simple words, Risk means the measure of the possibility of being 'surprised' (Lopez, 2012). The principal concern of the financial institutions and the investors is the problem of market risks. The understanding of the financial risk is critical for the assessing and monitoring of investments. The financial risk is the variability of the investor's return. Investors can reduce the risk by diversification.

The researches have shown that investment decisions do not reply on the size of the firm. The businesses mostly depend on the Capital Budgeting procedures for financial decision. Capital budgeting is the process of assessing, generating selecting and following up on capital expenditures (CIMA,2009). In short, Capital budgeting is a planning process used to evaluate the firms long term investment.

The company needs to decide on the investment opportunity and has to consider the risks involved. The financial manager makes decisions regarding the choice of the project; consideration given to the project with the ...