4 Oct 2022


Financial Management Decisions

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Academic level: College

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According to Levy & Sarnat (2004), the finance team makes three fundamental decisions, investment decisions, financial and assets dividend decisions. The financial decisions involve carrying out calculation to determine the amount of assets required by a firm in the allocation of funds. The team also makes capital investment decisions and working capital decisions in the investment decisions. The capital investment involves a large sum of money, longer term and critical thing in business while the working capital involves the regular routines but critical decisions. Therefore, the financial team involves balancing the benefit and the risks involved in order to maximize the profit and ensuring there is liquidity to run the business. 

The Impact of the Financial Decisions on the Balance Sheet 

Financial decisions have substantial effects on the balance sheet. The decisions made determine how the financial position of the company will be designed. In this case, the decisions made involve deciding on how to fund for the liabilities and the possible assets of the company. Another crucial decision is dividend decision; this decision involves making decisions concerning the distribution of surplus funds which will be included in the balance sheet under “financed by”. Additionally, the profit for the year has to be divided among various parties such as the creditors, the debenture holders, employees and the shareholders; this should also be reflected in the balance sheet. In making this decision, the financial manager decides on how much to be distributed as dividend and the amount to keep aside for future investment (Schwan, 2007). 

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Stakeholders and stockholders 

Stakeholders are the people who have a stake in a company success depending on the variety of reasons. These are the people interested in a particular company, and they invest their money. Stakeholders can have an effect or be affected by the objectives, actions and the policies of an organization. The stakeholders play a significant role in the success of a company as they make crucial business decisions; they are involved in direct management and are investors as they increase their stake in a company. On the other hand, the stockholders can either be individual or institution that has legal ownership of a share of stock in private or public corporation. They are the part owners of a company as they buy shares. For the success of a company the stakeholders play vital roles in financing, controlling, governance and operation aspects of the business (Freeman & Reed, 2009). 


Freeman, R. E., & Reed, D. L. (2009). Stockholders and stakeholders: A new perspective on corporate governance.  California management review , 25 (3), 88-106. 

Schwan, E. S. (2007). The effects of human resource accounting data on balance sheet: An empirical test.  Accounting, Organizations and Society 1 (2), 219-237. 

Levy, H., & Sarnat, M. (2004).  Capital investment and financial decisions . Pearson Education. 

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