What do you call the capital needed for day to day operations? Explain any three factors affecting such capital needs
Answers
Explanation:
Financial Decisions
These are the decisions which are concerned with the selection of best financing alternative or best investment alternative. It is broadly concerned with three aspects, viz investment, financing and dividend.
2.Classification of Financial Decision
(i)Investment decision The investment decision relates to how the firm’s funds are invested in different assets. Investment decision may be long-term or short-term. Long-term investment decision is called capital budgeting decision and short-term investment decision is called working capital decision.
(a)Capital budgeting decisions or long-term investment decisions Factors affecting capital budgeting decisions are:
Rate of return
Cash flow of the projects
Investment criteria involved
(b)Working capital decisions or short-term investment decisions They are concerned with level of inventories, cash and debtors.
(ii)Financing decision It deals with quantum of finance to be raised from long-term sources, viz debt equity. In other words, it refers to the determination as how the total funds required by the business will be obtained from various long-term sources. Factors affecting financial decisions are:
(a)Cost (g)Return on investment
(b)Risk (h)Tax rate