Types of Financial Decisions in Financial Management | Bryan Patrice

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Everything you need to know about the types of financial decisions taken by a company. The key aspects of financial decision-making relate to financing, investment, dividends, and working capital management.


Decision making helps to utilize the available resources for achieving the objectives of the organization unless minimum financial performance levels are achieved, it is impossible for a business enterprise to survive over time. Therefore financial management basically provides a conceptual and analytical framework for financial decision making.


1. Investment Decision:

A financial decision that is concerned with how the firm’s funds are invested in different assets is known as an investment decision. An investment decision can be long-term or short-term.

A long term investment decision is called capital budgeting decisions which involve huge amounts of long term investments and are irreversible except at a huge cost. Short-term investment decisions are called working capital decisions, which affect day to day working of a business. It includes decisions about the levels of cash, inventory, and receivables.



2. Financing Decision:

A financial decision is concerned with the amount of finance to be raised from various long term sources of funds like equity shares, preference shares, debentures, bank loans, etc. Is called a financing decision. In other words, it is a decision on the ‘capital structure’ of the company.

Capital Structure Owner’s Fund + Borrowed Fund

3. Dividend Decision:

A financial decision that is concerned with deciding how much of the profit earned by the company should be distributed among shareholders (dividend) and how much should be retained for the future contingencies (retained earnings) is called dividend decision.

Dividend refers to that part of the profit which is distributed to shareholders. The decision regarding dividend should be taken keeping in view the overall objective of maximizing shareholder s wealth. 

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