0A Financial Decision quite an impressive term. Many of us come across this term in day to day business presentations, leading newspapers and of course in business meetings.
Let me help you understand the exact meaning of this term-
A Financial Decision in Business is of two types:
1. Capital Budgeting Decision
A Capital Budgeting decision focuses on how the capital funds are utilised or allocated in a firm. The executors and managers of the business have to figureout and compare several investment options in the capital budgeting process. They first need to choose the areas of business that they want to enter and accordingly decide whether to invest in Bulidings, equipments, showrooms, godowns, etc. How much to spend on research and how much to spend on execution of the projects, is also a Capital Budgeting Decision.
2. Capital Structure Decision
A Capital Structure decison is all about soucing of Funds from several avenues like from owners (Shareholders), Banks, Creditors, etc. while balancing the Capital structure of the Business. This involves taking an appropriate decision wheher to raise finance from debt or equity component. These decisons should also be guided by cost considerations; i.e the cost of borrowing finance (Dividends and interest payments). The whole objective of a capital structure decision is to minimise the cost of Financing.
I hope this was useful for you. All the best.
