FINACIAL MANAGEMENT 4
Capitalbudgeting is the process in which organization managers evaluate andselect long-terminvestments that are consistent with the goals and objectives of abusiness organization (Gitman et al., 2007). Organizations whichundertake the process of capital budgeting must put in place all thenecessary steps inorder toensure that the process upholds competitive business strategy andenhance competitive advantage. Financial managers are responsible forestablishing both systematic and non-systematicways in handling the procedures of capital budgeting in theirrespective organizations. In the contemporary society, financialmanagers base their capital budgeting decisions fromresearch conducted from the competitive business environment.
Capitalstructure is defined as the combination of long-standing debt andother equity instruments used in financing an organization’sassets.Thesecomponents include common stock, debtand also preferred stock. The role of financial managers with regardsto the capitalstructure is to plan a capital structure that minimizes the cost offinancing, thereby maximizing the organizational value (Baker&Wurgler, 2002).Firm financial managers need to make decisions whichensurethe organization curtail on the costs of financing the company’sactivities hence maximizing its rate. This balance in the capitalstructure is referred to as optimum capital structure a situationwhichis very challenging to attain.
Workingcapital is defined as the organization’s short-term assets,for instance,inventory as well as its short-term liabilities like money that isowed to suppliers. A financial manager’s role in working capitaldecision making is to guarantee that the daily operations of the firmare well equipped with resources without any interruptions. Themanagers also have the prerogative responsibility to ensure workingcapital does not in any way have any costly interruptions onorganizations. Management of working capital may as well mean theimplementation of short-termdecisions by the financial manager carried over a given earning.
Baker,M., & Wurgler, J. (2002). Market timing and capital structure.The journal of finance, 57(1), 1-32.
Gitman,Lawrence J., Roger Juchau, & Jack Flanagan. Principles ofmanagerial finance. Pearson Higher Education AU, 2010.