Types of Financial Decisions

Types of Financial Decisions

The Management is required to make following types of financial decision.

1. Investment Decisions
2. Capital Structure Decisions
3. Dividend Decisions

Types of Investment Decisions
The investment decision is further classified into three areas which includes following.

1. New projects Decision
2. Working Capital Requirement Decisions
3. Short Term Investment of surplus fund

Important Factor for Project and short term Investment

The management must consider the following factor before investing in new projects or placing funds in short term investment.

1. Rate of Expected Return
2. Risk involved in particular project or investment

Types of Financial Decisions

The management has to make the following Financial decision

• How much finance Required
• Which project is to be financed
• How much dividend is to be paid
• How to arrange the finance
• For how long Finance required

Types of Dividend Decisions

The management has to decide that how much dividend to be distributed depends on following factor.

1. Source of funding
2. Cash flow requirement of the entity
3. Share holder expectation for Dividend
4. Companies ordinance requirement

The investment decision diffidently require the special consideration for the rate of return because the investment is made to earn profit but the return rate and risk associated are taken into account jointly. Because some investment offer you tremendous profit opportunity but involve very high risk. This is important to understand that investment decision must be rational both in terms of rate of return and risk associated with those decision.


The financial structure of the entity is also important decision is to be made. The different structure offer different advantages and disadvantages . some offer flexibility and other involve high cost. Therefore the management has to decide a mix which serve its purpose in best possible way.