There are two basic types of financial decision that the team needs to make in business finance: investment and funding. Two decisions boil down to how to spend money and how to borrow money. Remember that the overall goal of the financial decision is to maximize shareholder value, so that any decision should be placed in that context.
Investment
A financial investment is an asset that you put money in the hope that it will grow or appreciate becoming a larger sum of money. The idea is that you later can sell itat a price higher or earn money when you have it. You may see something grow over the next year, such as saving for a car, or over 30 years into the future, such assaving for retirement.
- Money is made or the property is purchased for future income.
- Two main classes of investment is (1) fixed income investments such as fixed deposits, bonds, preferred stock, and (2) investment income variables such as businessownership (equity), or ownership of property. In economics, investment means the creation of capital or goods that are able to produce other goods or services.
Spending on education and health is recognized as a human capital investment, research and development and intellectual capital. Return on investment (ROI) is a key measure of the performance of the organization.
1. the buying in finance, financial products or other items of value in the hope of future profits. In General, investment means the use of money in the hope of making more money.
2. In business, the purchase by manufacturers of both physical, such as durable equipment or supplies, in hopes of boosting business in the future.
Investment decisions range from removing the top capital assets that will generatethe highest profit for the company during the time period you want. In other words, the decision about what to buy so that the company will gain added value.
To do this, companies need to find a balance between short term goals and long term. In the short term the company desperately needs the money to pay the Bills, but keeping all the cash means that it did not invest in things that will help it grow in the future. At the other end of the spectrum is a long-term view. A company thatinvested all the money that will maximize the long term growth prospects, but if not enough money, not be able to pay the Bills and will go out of business quickly. So companies need to find the right mix between long term and short term investments.
Investment decisions are also concerned what the purpose for making a particularinvestment. Because there are no guarantees of return for most of the investment,the Ministry of finance must determine the expected results. This is not guaranteed, but the average return on investment if the medmang were to be made over and over.
The investment must meet three main criteria:
- This should maximize the value of the company, after considering the amount of risk the company is comfortable with (risk aversion).
- It should be financed appropriately (we'll talk more about this shortly).
- If there are no investment opportunities that fill in (1) and (2), cash should be returned to shareholders in order to maximize shareholder value.
Financing
All the functions of a company to be paid for one way or another. It's up to the Treasury Department to figure out how to pay for them through the process of financing.
There are two ways to finance investment: use the money the company itself or by raising money from external funders. Each has advantages and disadvantages.
There are two ways to collect money from external funders: by taking on debt or selling equity. Take the debt is equal to taking loans. These loans must be paid back with interest, which is the cost of the loan. equity sell basically sell part of your company. When a company went public, for example, they decided to sell their company to the public rather than to private investors. Going public entails selling a stock that represents has a small portion of the company. The company is selling itself to the public in Exchange for money.
Each investment can be financed through the company's money or from external funders. This is the decision-making process that determines the optimal way of financing to finance the investment.
