Quick Answer: What Are Basic Financial Decisions?

Which is not a good financial decision?

Frequently spending more money than you earn is not a good financial decision.

By spending more money than you earn, you will not be able to save any money, and will probably be spending a lot of money on interest for credit cards and loans..

What is the main objective of financial management?

Profit maximization happens when marginal cost is equal to marginal revenue. This is the main objective of Financial Management. Maintaining proper cash flow is a short run objective of financial management.

What is the difference between capital budgeting and financing decisions?

The budgeting decision defines the amount of money and what it will do. The financing decision defines where the money comes from. … Retained earnings are held to use for capital expenses or emergency funds. Business executives need to balance the credit vs savings components in a financing decision.

What is the relationship between risk and return in financial decision making?

Generally, the higher the potential return of an investment, the higher the risk. There is no guarantee that you will actually get a higher return by accepting more risk. Diversification enables you to reduce the risk of your portfolio without sacrificing potential returns.

What are the 3 types of financial management decisions?

There are three decisions that financial managers have to take: Investment Decision. Financing Decision and. Dividend Decision.

Why is it important to make good financial decisions?

(1) Long-term Growth and Effect: These decisions are concerned with long-term assets. These assets are helpful in production. Profit is earned by selling the goods so produced. It can, therefore, be said the more correct these decisions are, the greater will be the growth of business in the long run.

What are the three broad areas of financial decision making?

FINANCIAL DECISIONS IN A FIRM A firm attempts to balance cash inflows and outflows while performing these decisions. There are three broad areas of financial decision making – capital budgeting, capital structure and working capital management.

What is meant by risk and return?

The risk-return tradeoff states that the potential return rises with an increase in risk. Using this principle, individuals associate low levels of uncertainty with low potential returns, and high levels of uncertainty or risk with high potential returns.

What are the financial decisions?

Financial decision is a process which is responsible for all the decisions related with liabilities and stockholder’s equity of the company as well as the issuance of bonds. … You should keep in mind that not always makes more money in less time is synonymous of a better financial plan.

What is a financing decision give an example?

Solution:Financing decisions determine how a firm will raise capital. Examples of financing decisions include securing a bank loan or the selling debt in the public capital markets.

What are the five principles of financial management?

The five principles are consistency, timeliness, justification, documentation, and certification.

What is the financial decision making process?

Financial decision making is the process of weighing the pros and cons of a decision as it relates to the use of money.

What is difference between risk and return?

Return are the money you expect to earn on your investment. Risk is the chance that your actual return will differ from your expected return, and by how much. You could also define risk as the amount of volatility involved in a given investment.

What are the basic financial decisions How do they involve risk/return trade off?

Risk –return trade off: The financial decisions are interrelated and affect the risk and return of the firm. They have a combined effect on its market value. if a financial decision increases the risk ,the market value will be adversely affected ,even though there may be chances of a higher return.

What are the financial tools for decision making?

This is where the three must-know tools come into play, to help justify the proposal from a financial and non-financial standpoint, to illustrate financial impact: Total cost of ownership (TCO) A cost/benefit analysis (CBA) Projected return on investment (ROI)