Organizations need financial management for a variety of activities. A few examples are approving loans and credit lines, hiring employees, developing a customer relationship, establishing a credit rating for the company, managing cash inflow and outflow activities, and risk management. So there are three types of financial management that are-
- Financing decisions
- Investment decisions
- Dividend decisions
Financing decisions
In a financial decision, the amount of long-term funding to be raised is determined through equity shares, preference shares, debentures, and bank loans. Hence the term financing decision. It is, in other words, a decision about the company’s capital structure.
Investment decisions
Investment decisions are the second most favored type of financial management. The goal of investing is to generate the greatest possible returns for investors by allocating their funds to various assets. An investment strategy involves analyzing a variety of potential investment opportunities and selecting the most beneficial ones. Investors may choose to invest in the long-haul or the short-haul.
Dividend decision
Financial decisions related to the distribution of a company’s earnings to its shareholders in the form of dividends are called dividend decisions. In order to maximize shareholder value, dividend choices should be made whenever attainable. As the name suggests, dividend choice involves deciding how much profit to distribute to shareholders as dividends and how much profit to keep in the firm for future growth.
By- Finance Veda Team
