Factors affecting financial decisions

Groups with more money to spend and a more sophisticated knowledge of investment instruments have more access to capital than those from different socio-economic groups.

Problem of ascertaining optimum allocation of business earnings between retention and dividends because of the diverse investment goals, tax brackets and alternate investment opportunities of the current and potential investors may prompt management to rationalize the soundness of such other factors as influence dividend policy as risk avoidance or maintenance of market price.

This tendency is widely prevalent in India. For example, in India dividend tax 7. External factors refer to environmental factors within which a business enterprise has to operate. Where dispersion of outcomes is known and all projects are equal in risk, finance manager would naturally go for that investment proposal which leads to highest revenues in relation to cost.

Meanwhile, technological disruption is extending to labour markets, changing the income and employment prospects for a growing range of occupations.

If supply increases beyond current demand, prices will fall. Similarly, if one company offers you free shipping, you might discover other companies will, too.

It would, therefore, be in fitness of things to take the decisions in the light of external and internal factors.

Factors Affecting Financial Decisions

Very often the government in its bid to promote corporate savings levies special tax on those companies who declare dividend at a higher rate. A full report, the first in a series of reports for the Think Forward Initiativecan be downloaded here.

Tax holiday facility for five years has also been provided to those engaged in providing telecommunication services. Under such circumstances a finance manager has to consider the viability of only those projects which are permissible by the Government.

These factors are government, international transactions, speculation and expectation, and supply and demand. However, in larger concerns having large number of shareholders the management cannot always adopt a particular policy because wishes of the shareholders would not be common.

Basic Factors Influencing Financial Decisions. Total costs include both fixed costs and variable costs. If it lurks that the business is entering upon a period of depression, conservatism should be followed, for the business may need all of its cash resources to carry it safely through the period of decline until its sales soar.

Product Costs The costs of the product—its inputs—including the amount spent on product development, testing, and packaging required have to be taken into account when a pricing decision is made.

These factors are beyond the control and influence of the management. Work from laptops at our class desks, with expert faculty and fellow professionals learning alongside you. Learn how to calculate the breakeven point. By increasing and decreasing interest ratesthe U.

Because of difficult access to external sources of financing, smaller organisations have to depend on internal sources of financing and for that matter the management may pursue conservative dividend policy to retain larger proportion of business earnings.

It is generally found that firms engaged in production of staple goods will have stability in their level of earnings as demand of their products is very likely to be uniformly steady both in times of business depression and boom.

The finance manager must, therefore, make suitable adjustment in financing mix of the firm in such ways as to conform to the desired pattern.

When earnings of the firm fluctuated violently in the past and the future earnings cannot be predicted with reasonable certainty, it will incur risk in issuing debt.

It is, therefore, better to sacrifice a measure of control by some additional equity financing rather run the risk of all control to creditors by bringing in additional doses of debt. Management desiring to maintain control of the firm would like to raise additional funds needed by means of debentures and preferred stock which do not affect controlling position of the management in the firm.

Smaller firms because of their poor credit position have limited access to capital and money market in contrast to their larger counterparts. There are numerous methods of charging depreciation, important being Straight Line method, Straight Line method.

Financial Decisions: Concept and Factors Influencing It

An emerging trend is the application of advanced analytics on both personal and Big Data. Existing ventures, however, need not follow such policy.

This in turn has a tendency to push market prices higher.factors influencing financial decisions The nature of financial decisions varies from one firm to the other. It may also be different for the same firm over a period of time.

Financial decisions are rarely made based solely on an objective look at the numbers. People are social creatures, and therefore social factors influence actions when it comes to handling and. Understanding the factors that influence decision making process is important to understanding what decisions are made.

That is, the factors that influence the process may impact the outcomes. Heuristics serve as a framework in which satisfactory decisions are made quickly and with ease (Shah & Oppenheimer, ).

Factors Affecting Financial Decisions This module covers financing decisions and how they affect the value of a firm. This course replicates the content from lesson 5 of Corporate Finance - A Core NYIF Course. Basic Factors Influencing Financial Decisions: A finance manager has to exercise a great skill and prudence while taking financial decisions since they affect financial health of an enterprise over a long period of time.

These factors include the offering’s costs, the customers whose needs it is designed to meet, the external environment—such as the competition, the economy, and government regulations—and other aspects of the marketing mix, such as the nature of the offering, the stage of its product life cycle, and its promotion and distribution.

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Factors affecting financial decisions
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