Question

What sorts of decisions might unions, employees or potential employees use financial information about a firm to make? Identify at least three decisions.

Answer 1

Ans:- The three Financing decision or financial information which management or potential employees can use about a firm that can help them to analyze the company better and will help in further decision making can be:-

(1) Investment Decision:- Investment decisions are taken by the top management regarding the allocation of funds of the firm in a project or in different types of assets such as whether to invest in long or short term assets with respect to the vision and goal of the company. when the firm decides to invest in long-term project it is known as capital budgeting and when the decision is made to invest in short-term it is known as working capital management.

(2) Financial planning decision:- After an investment decision is made and how much of the fund is to be allocated then the company decides its financial planning and strategy to implement the project. The financial decision usually involves the alternatives of different sources for financing the project or the investment which the company has decided. Financial managers decide how much should be the proportion of debt-equity so that it minimizes the risk and maximizes the profit. The debt-equity ratio should not be mismatched because more debt raises the risk of bankruptcy and more equity gives the decision power to outsiders rather than management.

(3) Dividend decision:- Dividend is nothing but that amount which is given to the equity shareholders from the profit earned by the company from their capital. This is an important decision because the company decides how much share of the profit is to be given to the shareholders and how much needs to be retained for further financial purposes of the firm. It is important because if the company increases its dividends then the share price of the company also increases.