Financial decisions which add value can be expressed as a function of investment decisions; financing decisions; dividend decisions and liquidity decisions. Briefly describe each of these decisions.
1. Investment decisions: These refer to the choices made by a company regarding where to invest its capital in order to generate new income streams or increase the value of existing assets. This may include decisions such as investing in new projects or ventures, acquiring other companies, or expanding existing operations.
2. Financing decisions: These refer to the choices made by a company regarding how to fund its investment decisions. This could involve deciding whether to borrow money through loans or bonds, issue new shares of stock, or use internal sources of funds such as retained earnings. The goal is to choose the most cost-effective and efficient method of raising capital.
3. Dividend decisions: These refer to the choices made by a company regarding how to distribute profits to shareholders. Companies can choose to reinvest profits back into the business for growth, pay out dividends to shareholders, or a combination of both. The decision on dividends can have an impact on the company's stock price and overall shareholder value.
4. Liquidity decisions: These refer to the choices made by a company regarding how much cash and liquid assets to hold in order to meet short-term obligations and unexpected expenses. Maintaining an appropriate level of liquidity is important for financial stability and may involve balancing the need for cash reserves with the opportunity cost of holding idle funds.