Final Project

2563 Words May 30th, 2016 11 Pages
As a financial manager three major decisions are to be made which are investment, financing, and dividend decisions (Pujari, S 2015). When decisions are made in investments financial managers carefully select fixed assets also known as capital budgeting decision or current assets in which funds will be invested by the company (Pujari, S 2015). There are factors that affect the investment and capital budgeting decisions such as cash flow of the project, return on investments, risks involved, and investment criteria. For the cash flow of the project the company invests a huge amount of funds in an investment proposal it is expected to sustain a regular amount of cash flow to meet the daily requirements (Pujari, S 2015). The amount of cash …show more content…
The payments of interest are a fixed liability of the company so the financial manager have to decide what profit is left over for the company (Pujari, S 2015). The surplus profit is distributed to equity shareholders as dividend or it is kept aside as retained earnings. Financial managers have to decide how much to distributed as dividend and how much is needed to keep aside as retained earnings. They take in consideration the growth plans and investment opportunities (Pujari, S 2015). There are also affecting factors for dividend decision which the financial manager needs to analyze the factors before dividing the net earnings between dividend and retained earnings. Earnings is an affecting factor because dividends are paid out of the current and previous year’s earning (Pujari, S 2015). When a company experiences more earnings than the company has a high rate of dividends whereas if the experience low earnings than the dividends are low as well. Stability of earnings is another affecting factor because when a company has stable earnings they will give a higher rate of dividends, but if a company has lower earnings the dividends will be lower as well (Pujari, S 2015). Dividend decisions also has cash flow position factors where companies will declare a high rate of dividends only when the company has surplus funds. In cases where the company has a cash shortage they will also have low dividends (Pujari, S

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