Investment decisions involves choosing how a company allocates its resources to achieve the best possible return for its investors. These decisions can be divided into long-term and short-term investments.
Financial management focuses on managing the flow of funds within a company. This includes decisions on acquiring and utilizing funds in both long-term and short-term assets. It covers two main areas: obtaining funds and effectively using them. Key decisions in financial management include investment decisions, financial decisions, and dividend decisions. This article covers all details about Investment Decisions, an important topic for CA Exams .Also Check: Accounting for Investments
Cash Flows of the Project:
For any investment involving a substantial amount, the company anticipates generating cash flows over time. These cash flows typically consist of a series of cash receipts and payments throughout the life of the investment. Before making a capital budgeting decision, it is crucial to accurately measure and evaluate these cash flows to assess the project's financial viability.Rate of Return:
The rate of return is a critical factor in evaluating any project. It represents the profit the company expects to earn from the investment. Projects are assessed based on their anticipated returns, and the associated risks are also estimated. For example, if two projects, X and Y, have the same risk level but offer returns of 10% and 15%, respectively, the company would typically choose project Y because of its higher return, leading to greater profitability.Investment Criteria Involved:
Investment decisions are made by calculating and evaluating various elements, such as the amount of investment, interest rates, cash flows, and expected returns. These factors are analyzed using different capital budgeting techniques, which help in selecting the most suitable project. Each project is carefully evaluated through these techniques before a final decision is made. Elevate your CA journey with PW CA Courses! Expert guidance, comprehensive study materials, and personalized support to help you ace your exams. Enroll now and secure your success!Also Check | |
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