Question

Explain the basic areas of policy making. in management

Answer 1

1. Investment Decision:

It is the decision for creation of assets to earn income. Selec­tion of assets in which investment is to be made is the invest­ment decision. It has to be decided how the funds realized will be utilized on various investments.

 2. Financing Decisions

This decision relates to how, when and where funds are to be acquired to meet investment needs. It is related to the capital structure or financial leverage. This is debt-equity ratio. If more recourse is taken to debt capital, shareholders’ risk is lessened and the prospects of their dividend earning are reduced. So, in financing decision, the crucial point is the trade-off between returned risks.

3. Dividend Decision:

The profit of a company can be dealt with in two alternative ways — to distribute them as dividends to shareholders or to retain them in the business. If sufficient dividend is not paid, shareholders will not be satisfied, the market value of shares will come down and there may be financial crisis.