Introduction to Financial Decision Making

Decision Making

The process of determining and selecting the most appropriate choice of action from available alternatives to ensure the best outcome.

Financial Decision Making

Choices made in a business context designed to lead to the best financial outcome for the organization.

Strategic Level Decision Making

Handled by senior management, focusing on long-term decisions (5+ years) involving high complexity.

Tactical Level Decision Making

Managed by senior management, it deals with mid-term to long-term impacts (2 to 5 years) with moderate to high complexity.

Operational Level Decision Making

Typically handled by departmental managers, focusing on short-term decisions (up to 1 year) which are routine.

Sales Revenue Strategies

Decisions to increase sales through techniques like lowering prices, promotional campaigns, or entering new markets.

Cost of Sales Strategies

Improving efficiency by decreasing actual costs, reducing inventory levels, or unit costs to enhance cash flow.

Profitability Management

Strategies to maintain or improve profit margins by reducing training costs and general expenses.

Asset Management

Guidelines for managing assets and liabilities to optimize liquidity and investment.

Retained Earnings

Funds remaining after all expenses are deducted, transferred to Profit/Loss Reserve as part of shareholders' equity.

Dividends

Returns on investment for shareholders usually paid annually, providing income and inducement for further investment.

Equity Management

Strategies to increase equity value, including reducing owner drawings or dividends.

Variance Analysis

Used to investigate differences between actual performance and planned performance.

Stewardship

Managers' responsibility to account for all resources under their control.