n the context of corporate finance the main point of discussion is always financing decisions versus investment decisions. The ones who take the important decisions in a corporate entity have to choose between giving priority to either the financing decisions or the investment decisions.
The investment decisions are an important part of the various decisions taken by a corporate entity. The system of capital budgeting is an important part of the investment decisions of a company. This process requires the management of a company to properly distribute money for the various projects undertaken by the company.
Evaluation of projects and their flexibility
There are certain important decisions that have to be followed in the context of capital budgeting. One of them is a proper evaluation of all the projects the company has either undertaken or is a part of. The management needs to understand the worth of the various projects. It also needs to comprehend some other nuances of these projects like:
Certainty of cash flows in the future
The managements of the various companies have
to properly measure the flexibility of particular projects. This is extremely important for achieving success in the investments made by the company. The two most common implements used for this purpose are Real Options Analysis and Decision Tree Analysis.
In the corporate world accomplishing the monetary ambitions are crucial. Hence, the financing decisions are of utmost importance as proper financing decisions help the business entities to attain their monetary goals.
The key factor behind the selection of good financing decisions is to identify the plans that produce optimum results. The companies need to take financing decisions that help them to build and maintain a substantial economic value.
The investment decisions are important with regard to maintaining the economic credibility of the company as well. It is generally presumed that equity financing is a better option than debt financing. The main reason behind this is that debt financing normally increases the liabilities of a business organization.
The key to achieving success in the business world is to solve the issue of financing decisions versus investment decisions. The trick lies in finding the right balance between the two.
Last Updated on : 1st July 2013