1.6 : Financial Management Decisions

Financial management is crucial for optimizing an organization's resources to meet its goals. It involves three main types of decisions: capital budgeting, financing, and working capital management.

Capital budgeting focuses on long-term investments. For instance, the costs, potential profits, and risks of developing a new app are evaluated by a software company to decide if it is a good investment.

Financing decisions determine how to raise the needed funds, such as through issuing shares, obtaining loans, or using savings. For example, when a telecom company issues new shares to finance network expansion, it must consider the costs and effects on shareholders.

Working capital management includes daily financial activities, like managing cash, inventory, and payments. A manufacturing firm must balance having enough raw materials for production without holding too much inventory, planning production, and managing supplier terms.

Effective financial management involves careful analysis and planning, ensuring decisions align with the company's goals. It maintains financial stability, supports growth, and improves efficiency, helping organizations navigate challenges and seize opportunities.