Name: Shiela Mae Mainit

Course and Section: BSA 2A

1. Trade-off Risk and Return

Investors must be careful while forming a portfolio from available investment

opportunities, the choice of investment is based on the individual’s trade-off
between risk and return. Risk and reward have a positive relationship. The
predicted rates of return are higher the riskier the investment. A portfolio should
contain both investments with higher risk and those with lower risk. The
fundamental concepts of finance and financial management, risk and return, are
carefully handled by a finance manager.

2. Formation of Optimal Capital Structure

The capital structure of a firm is its debt to equity ratio as a percentage of total assets. A
potential investor can quickly comprehend an organization's finance strategy by looking
at its capital structure. A stable organization's reliance on debt financing should
outweigh its reliance on equity funding. For this reason, equity-based funds are more
expensive than debt. Therefore, it is the responsibility of a CFO or finance management
to ensure that the firm has the optimal balance of debt and equity at the time of
financing, thereby ensuring that the weighted average cost of capital is kept to a
minimum. Because of how crucial this idea is, you cannot ignore it.
3. Diversification of both Investment and Borrowing
Diversification in portfolio formation is a strategy that can be used for both borrowing
and investing. Remember that your goal is to guarantee the lowest cost of borrowing or
financing and the most return on your investment. The balance between risk and return
is something you should think about while making a decision. In order to keep total
financial risk manageable.
4. Aware of Time Value of Money
In order to avoid becoming financially worse, it is important to always be conscious of
the temporal worth of money. Money that is received right away is worth more than
money that is received later. The temporal worth of money and the average pace at
which its value depreciates due to inflation or other causes must therefore be kept in
mind when handling money.
5. Forecast Cash Flows
The asset that moves in both directions most easily is cash. Financial decisions are
influenced by the flow pattern. It is preferable to have more consistent cash flows as
opposed to erratic cash flows. Forecasting cash flows and managing cash according to
needs are vital to ensure that the necessary amount of cash is available for all
organizational activities. Utilizing financial management principles is expressed by
holding the appropriate amount of liquid assets.
6. Take a Right Insurance Plan
The corporation might shift risk to the insurance provider with the aid of a suitable
insurance strategy. Risk can be diverted in return for an insurance premium that is paid
by the insurance taker. Choosing an insurance policy involves making a financial
decision, and the type of insurance policy will determine how much the premium will be.
Your organization should therefore implement a suitable insurance plan as part of
financial management.
7. Concentration on Wealth Maximization
The practice of maximizing an organization's value, or its net present value, is known as
wealth maximization. If you wish to manage your financial condition as a finance
manager or top management of a business, you must concentrate on how to increase
the value of your company. A wealthy corporation may devote greater resources to the
creation of novel products. This will make a company's growth much more seamless.
8. Reinvest Rather than Consume
If your company has sufficient financial stability, you should be able to both invest in the
best possibilities and consume the revenue your company generates. Reinvestment
aids in the expansion of the firm that produces employment, value creation, and value
exchange for the economy. Always looking for new chances is a good financial
management strategy. If you come across any worthwhile investment prospects,
reinvest your existing assets.
9. Determine Cost of Capital
Cost of capital in this context refers to the costs incurred in connection with the fee
assessed on the funding of debt and equity. The actual cost of capital, which is the
average cost of both equity and debt financing, is the weighted average cost of capital.
Financial incentives and associated capital costs are continually compared in effective
financial management. You can invest if the predicted rates of return exceed the cost of
capital.
10. Financial Decision Align with Business Cycle
A business experiences ups and downs continuously, much like a cycle. Every time you
make a financial decision, you should take into account where the firm is right now in its
life cycle as well as where it will be in the future. so that you can create a strategy to
guarantee your company's ultimate financial gain. The tastiest juice from the investment
and financing prospects can be extracted with the aid of a sound financial plan. A
business may need to make a variety of financial decisions over the course of its
existence, and such decisions must be compatible with the business's financial
situation.