While taking financing decisions the finance manager keeps in mind the following factors:
1. Cost:
The cost of raising finance from various sources is different and finance managers always prefer the source with minimum cost.
2. Risk:
More risk is associated with borrowed fund as compared to owner’s fund securities. Finance manager compares the risk with the cost involved and prefers securities with moderate risk factor.
3. Cash Flow Position:
The cash flow position of the company also helps in selecting the securities. With smooth and steady cash flow companies can easily afford borrowed fund securities but when companies have shortage of cash flow, then they must go for owner’s fund securities only.
4. Control Considerations:
If existing shareholders want to retain the complete control of business then they prefer borrowed fund securities to raise further fund. On the other hand if they do not mind to lose the control then they may go for owner’s fund securities.
5. Floatation Cost:
It refers to cost involved in issue of securities such as broker’s commission, underwriters fees, expenses on prospectus, etc. Firm prefers securities which involve least floatation cost.
Personal circ*mstances that influence financial thinking include family structure, health, career choice, and age. Family structure and health affect income needs and risk tolerance. Career choice affects income and wealth or asset accumulation.
Financing decision is concerned with raising funds from long-term sources, i.e., through shareholders funds or borrowed funds. Shareholders funds include share capital, reserves and surplus and retained earnings, whereas, borrowed funds include debentures, long-term loans and public deposits.
4 answersFinancial factors have a significant impact on the decision-making process of students. Factors such as financial literacy, financial attitude, financial behavior, and financial experience influence the decisions made by students regarding investments and financial management.
Economic conditions and market performance can affect the returns on investments and influence financial planning. Macroeconomic factors play a crucial role in the returns from different investment options which also contribute to choosing them to create a successful portfolio. Personal goals and values.
Ans. An excellent example of a financial decision is when a firm selects a funding method. This selection takes place after the firm assesses its financial status and sources. So, this firm may decide whether to issue equity shares or debentures based on its assessment.
Financing decisions refer to the decisions that companies need to take regarding what proportion of equity and debt capital to have in their capital structure. This plays a very important role vis-a-vis financing its assets, investment-related decisions, and shareholder value creation.
The financial decision must consider the optimal mix of debt and equity financing based on factors such as the cost of capital, risk profile, and financial flexibility. The company must also consider the impact of its capital structure on its credit rating and the potential for financial distress.
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