THE INVESTMENT DECISION, THE FINANCING DECISION AND THE DIVIDEND DECISION ARE SIDES OF THE FINANCIAL MANAGEMENT TRIANGLE WITH VISIBLE INTERFACE. EXAMINE THIS STATEMENT CRITICALLY
A SEMINAR PAPER PRESENTED IN PARTIAL FULFILMENT OF COURSE REQUIREMENT FOR MANAGERIAL FINANCE
EMUCHAY KENNETH AZUBUIKE
M.SC / FINANCE
MATRIC NO: LUC/PG/09/
LEAD CITY UNIVERSITY, IBADAN
LECTURER: PROF WOLE ADEWUMI
In illustrating the relationship between the investment, financing and dividend decision angles of financial management we would first need to have a clear understanding of the concept of financial management as it relates to economic organizations. Financial management can be loosely defined as the sum total of all the activities involved in the management of the monetary resources available to an organization. More concisely it involves the planning, directing, monitoring, organizing and controlling of the monetary resources of an organization. It involves all the processes by which an organization acquires, allocates and spends the finances available to it. The management of the finances of an organization involves several decisions to be made in both the routine and non habitual activities of the organization and these decisions can be loosely categorized into three classes. The investment decision, financing decision, dividend decision. These decisions are based on several managerial criteria as illustrated below:
- In order to maximize the shareholder wealth, the question is raised. Which investments should the firm undertake? The investment decision.
- When an investment project has been decided on, it must be appropriately financed and that raises the questions of how, where, when and how much finance should be raised? The financing decision.
- How the returns from the business operation would be shared? The dividend decision.
These three decisions, the investment decision, financing decision, dividend decision and how they interface with each other will be critically examined in this paperwork.
OBJECTIVE OF THE STUDY
To determine and examine the interrelationship or interface between the investment decision, the financing decision, and the dividend decision aspects of financial management as related to the profit oriented organization’
THEORETICAL FRAME WORK
To get a clearer understanding on the inter relationships of the three financial management decision angles and the way they affect organizational operations and financial management decision making, we have to understand what the individual decision angles mean.
THE INVESTMENT DECISION.
The investment decision involves the means and processes by which a decision is reached on the allocation of all the financial resources available to a firm, both those raised internally as well as those sourced from other avenues to an investment proposal that is expected to generate future gains to sustain the continued existence and profitability of the organization as well as to meet all investor expectations.
It can also involve a firm in deciding which project to disinvest in.
This decision can be affected internally or externally.
Internal decisions are concerned with current areas of the firm’s involvement and the external decision concerned with expansion or contraction of the firms by takeover, merger or disinvestment.
The fact that the future is uncertain, there is risk associated with investment proposal, therefore this decision is made by examining the completing projects
And invest in the project with expected high returns. And this selection could be achieved by using some valuation techniques such as PAY BACK PERIOD (PBP) AVERAGE RATE OF RETURNS (ARR), NET PRESENT VALUE (NPV) and INTERNAL RATE OF RETURNS (IRR).
After the project has been valued and decided upon, the firm is now...
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