To identify a company's key health metrics, we start with a value creation tree illustrating the connections between a company's intrinsic value and the generic categories of health metrics: the short-, medium-, and long-term factors that determine a company's long-term … In other words, it is a decision on the ‘capital structure’ of the company. A profitable company is in a position to declare dividends but it may have liquidity problems. These decisions involve huge amounts of investments and it is very difficult to reverse such decisions. What is Asset Disposal? The key aspects of financial decision-making relate to financing, investment, dividends and working capital management. Cash flow position of the business- In case the cash flow position of a company is good enough then it can easily use borrowed funds. 4. Assets and Liabilities which mature within the operating cycle of business or within one year are termed as current assets and current liabilities respectively. an example of "moderate risk -- moderate (potential) profitability" asset financing. 2. In which assets / projects funds should be invested? (2) In what proportion should the funds be raised from different short term sources? includes accounts payable. Therefore availability of cash also influences dividend decision. an example of "moderate risk -- moderate (potential) profitability" asset financing. (ii) Efficient decisions help to maintain sound working capital. Privacy Policy3. The following are key areas of working capital decisions: ii. Financial manager is concerned with makeup of the right hand side of the balance sheet. Equity Financing. 6. false The capital asset pricing model describes the relationship between the required return, or the cost of common stock equity capital, and the nonsystematic risk of a firm as measured by the beta coefficient. A finance manager has to decide what percentage of after tax profit is to be retained in the business to meet future investment requirements and what proportion has to be distributed as dividend among shareholders. Interest is a deductible expense, saves tax liability of the business making the source of finance cheaper. Long term finance is mainly for companies who need a large sum of money, which would be difficult to be paid back, this would be used to provide start-up capital to finance the business for its whole lifespan, finance the purchase of assets with a longer life, such as buildings and provide expansion capital for large projects, such as building a new factory or taking over another business. A firm needs working capital to manage the day-to-day affairs smoothly. Thus, finance department of an organization has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible. Within each state, each target constituent group has its own requirements. 6. The long term investment decisions are related to management of fixed capital. Risk and return move in tandem. The long term source of finance provides support for a small part of current assets requirements which is called the working capital margin. What Does Long Term Investments Mean? In comparison, current assets are usually liquid assets that are involved in many of the immediate … It may be defined as the firm’s decision to invest its current funds most efficiently in fixed assets with an expected flow of benefits over a series of years. The risk of default on payment of periodical interest and repayment of capital on ‘borrowed funds’ is called financial risk. 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