Financial decision making is a very important aspect within the company. Getting this type of decision right is primordial to achieve our objectives and minimize the dangers and risks in our investment.
In the business field, three types of financial decisions are distinguished:
- Investment or divestment decisions
- Financing decisions
- Compensation decisions
Investment decisions will be reflected in the assets of a company’s balance sheet; financing decisions in liabilities; and remuneration decisions in the appreciation that investors could have for our debt securities or equity securities, that is, the value of our shares in the market.
Investment decisions affect the type of assets we have and the implicit risks that each of them has. It is not the same to invest in assets than in productive assets. They will affect the risk of those elements during the exploration. Obviously, investing trough renting is not the same than investing by buying, therefore, financial investments will be different. These decisions will affect the degree of liquidation that each of these elements has and the expected profitability of exploration.
Investment decisions will influence the type of financing source to be used, its cost and the enforceability of each of them.
We must ensure that there is always harmony between:
- The financing cost and the expected return.
- The enforceability of the financing and the liquidity in our assets.
- The volume of funds that we can capture from the market and the investments that we have planned to make to exploit a certain business.
It will be of great importance to find the balance between the profitability that we can offer our investors and the expectations they have when they assume the risk by buying shares or debt of our company.