Financial Management Free Essay Example, 1000 words

If the business does not manage its credit effectively, the amount of cash generated from the sales will reduce which ultimately reduce the cash inflow (The trade creditor’s guide to statement of cash flows 1999). Write about considerations that companies need to make before investment. The primary goal of any business firm is to earn profit. One way through which firms can earn profits is investments. Investment is the buying or creation of assets with the purpose of generating revenue in the future. Usually investment entails making use of capital to buy equipment or a building or any other asset, which will then generate returns to an organization  over a period of time (Savvides 1994). The key factor in making the investment decisions is the risk-return tradeoff (Van Horne & Wachowicz Jr. 2001). This is the evaluation of the risk that is associated with the investment and the benefit or return that will be generated from making the investment (Van Horne & Wachowicz Jr. 2001). If the return from the investment is greater than the risk associated with the investment then the company would take measures to make the investments and vice versa. We will write a custom essay sample on Financia l Management or any topic specifically for you Only $17.96 $11.86/page For this purpose, companies can evaluate the investment by comparing it with other investments being offered. The investment with the highest rate of return and the shortest payback period will be favored by the organizations (Van Horne & Wachowicz Jr. 2001). In addition, another factor involved in making investments is inflation which is not increase in prices but it is the depreciation in the value of money (Savvides 1994).