Investment decision

• Financial Management is mainly concerned with

the proper management of funds.
• The finance manager must see that funds are
procured in such a manner that:
Risk
Cost
Control
considerations are properly balanced and there is
optimum utilization of funds.
 Investment Decisions
• Total amount of assets to be held in a firm
• Composition of asset
• Long term investment decisions: Capital
budgeting
• Short term investment decisions: Working
capital management
 Nature of investment decisions
• The investment decisions of a firm are
generally known as the capital budgeting or
capital expenditure decisions.
• It may be defined as the firm’s decision to
invest its current funds most efficiently in the
long-term assets in anticipation of an
expected flow of benefits over a series of
years.
• The long-term assets are those that affect the
firm’s operation beyond the one-year period.
• Investment decisions would generally include
expansion, acquisition, modernization and
replacement of the long-term assets.
• Sale of a division or business (divestment) is
also as an investment decision.
Appraisal of project