Financial Management: Evaluating Key Financial Decisions Impact

This report provides a comprehensive overview of financial management, emphasizing its crucial role in business operations and its impact on shareholders. It critically evaluates the purpose of financial management and the implications of investment, financing, and dividend decisions from a shareholder's point of view. The report explores how these decisions are influenced by factors such as company performance, shareholder objectives, and market conditions. It highlights the importance of aligning financial strategies with shareholder interests to maximize returns and ensure long-term sustainability. Furthermore, the report discusses the interrelation between investment, financing, and dividend decisions, emphasizing their combined effect on a company's financial health and shareholder value. The conclusion underscores the need for organizations to consider shareholder interests when making financial decisions, as these decisions are directly affected by organizational performance and can significantly impact shareholder returns and overall financial position.

FINANCIAL
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
PURPOSE OF FINANCIAL MANAGEMENT AND DECISIONS..............................................1
CONCLUSION................................................................................................................................2
REFERENCES................................................................................................................................4

INTRODUCTION
Finance is a lifeline of a business. Without it a business cannot undertake any kind of
economic activity. This report critically evaluates the purpose of financial management and the
implications of the three main decisions from a shareholder's point of view. Additionally, critical
factors have been identified that affect the financial position of the shareholders
PURPOSE OF FINANCIAL MANAGEMENT AND DECISIONS
Financial Management refers to that field of finance which is concerned with the equity,
debts and ratios. In addition to this, financial management also concerns itself with generation of
cash-flows in order to take rational capital budgeting and investment decisions (Andreou, Louca
& Panayides, 2014). In the current business scenario, the focus and perspective of financial
management has shifted from that of a financing option to that of asset management as well as
funnelling of financial resources through proper allocation and apportionment. This has led to a
wider applicability of the concept so as to maximize economic welfare for individuals,
stakeholders as well as corporations. This acceptance, hence, proves that the financial
management is the lifeblood of organisations that can lead to rise and fall in a given business
environment.
It is noteworthy for evaluation purposes to understand that financial management, no
matter how important, must not be relied upon completely. The main reason to make such an
assertion is that no organisation can be fully reliant on a single factor. It is a combination of
different factors such as competition, industry trends, capacity of the business, customer
perspective regarding the organisation and many more which affect how a business takes
strategic decisions in order to achieve its goals or objectives. Due to this, an organisation must be
cautious, adaptable as well as rational to survive in current business scenario.
Conversely, from shareholders' perspective, the same rule applies. They need to be
rational as well as calculative before making a decision (McKinney, 2015). These decisions are
similar to those made by a business entity and include investment decisions, financing decisions
and dividend decisions. A shareholder is one who owns a certain portion of an entity's stock.
They may be an individual, corporation or a judicial body. For these, an investment decision is
one which includes determination of financial opportunities that provide them with maximum
profits or return. Similar to a corporation, a shareholder views a company as an investment
1

opportunity when they seek to receive more than what they expect. Identifying such
opportunities have certain criteria which include the company's profitability, personal needs of
the shareholder itself as well as the perception of shareholder regarding the company on a
personal level as well as among the public. If the shareholder is able to identify an opportunity
fulfilling all these conditions, they would tend to stay associated with such organisations for a
longer period of time and vice versa. Hence, one can say that personal motives and biases dictate
the investment decisions made by the shareholder. Any change in these conditions would also be
reflect in the financial position of such parties. In addition to this, decline in company
performance as well as policies such as decision to retain more and pay less may also result in
switching of shareholders from one corporation to another.
On contrary, Financing Decisions prevails that whether the shareholder of the company is
able to meet its financial obligation by making the investments in the various business
(Mukhametzyanov & Nugaev, 2016). It is vital not only for business but also for shareholders to
make the decision that whether their investment will bring better outcome for them or not. In
addition to it, investment is perceived as an opportunity for shareholder thus they sound decision
by investing in those companies where their obligation can be fulfilled. Moreover, shareholder
objective is to receive financial gains so that they can easily pay back their financial obligation or
debt. Thus, their are essential factor associated with financial decision that affect the
shareholder's financial position are total number of shares hold by company. Along with that the
amount of return received by the company as well as internal stability or politics. Therefore,
these factor affect the financial decision like negative politics within the business negatively
affect the capital, creditability as well as operations of business.
Dividend decision are closely interlinked with investment and financial decision, as they
are considered valuable for the perspective of shareholder. As the shareholder makes the
investment only on those business which brings high revenue or profit to the company (Zhao,
Xie & West, 2016). Hence, it is an opportunity for the shareholder such as investor to make the
investment on profitable business because their return or dividend is associated with the growth
of company. Therefore, any profit or loss faced by company directly affect the interest of
shareholder.
2

CONCLUSION
From the above report it has been concluded that while formulating any decision related
to investment, financial and dividend organisation must consider the interest of shareholder. As
the shareholders of the company such as creditor, investor, consumer, government and so on
consider these decision while formulating the policy related to these decision (Zietlow & et.al.,
2018). Therefore, these decision gets affected by the performance of organisation like dilution of
ownership, return received, liquidity position etc. In addition to it any change in organisational
position is associated directly causes impact on the shareholder's interest.
3

REFERENCES
Books and Journal
Andreou, P. C., Louca, C. & Panayides, P. M. (2014). Corporate governance, financial
management decisions and firm performance: Evidence from the maritime industry.
Transportation Research Part E: Logistics and Transportation Review. 63. pp.59-78.
McKinney, J. B., 2015. Effective financial management in public and nonprofit agencies. ABC-
CLIO.
Mukhametzyanov, R. Z. & Nugaev, F. S. (2016). Financial statements as an information base for
the analysis and management decisions. Journal of Economics and Economic Education
Research. 17. p.47.
Zhao, Z. Y., Xie, M. & West, M. (2016). Dynamic dependence networks: Financial time series
forecasting and portfolio decisions. Applied Stochastic Models in Business and
Industry. 32(3). pp.311-332.
Zietlow, J. & et.al., 2018. Financial management for nonprofit organizations: policies and
practices. John Wiley & Sons.
4