Financial Managers take investment decisions for the well-being of the company. Every company seeks the best outcome from their decisions and hence every company strives to strike the best cord in terms of financial management.
However, there are certain natures of investments every manager should be aware of. Finance Managers usually pay much attention to investment decisions, as these are some of the basic decisions businesses must make to survive and grow.
Here are some of the characteristic features of Investment Decisions.
Investments are meant for the long term and they have a future probability of profits or losses. Every company hopes that their decisions bring the most amount of profits. As any wrong step may have an adverse impact on the bottom line, managers make investment decisions for the best of the company.
Note − The nature of investment decisions is dynamic and long-term.
Investment decisions are mostly irreversible in nature. Once these decisions are taken, the companies stick to them for a long time.Therefore, it is important that managers make the best decisions on behalf of the company.
There is, usually, a high risk associated with the investment functions. As the decisions are either estimation or interpretation, there is hardly any evidence that the decisions would be successful in the long run.
Investment decisions usually require huge amount of funds. Therefore, companies must track the records and stay aware of the situations all the time.
Note − Investment decisions are usually taken for the long term.
Investment decisions impact the cost structure heavily. As the companies commit to all expenses, including rent, insurance, etc., they must take all costs into account for a perfect investment decision.
The funds in case of investment are committed for a long time which entails financial risk and lets the company act at its best while making the decisions.
Investment decisions are uncertain, as they are made for future events. It is hardly predictable to interpret the future and hence finance functions do not assure companies of success in the long run.
Finance functions are not quite flexible in nature and once a company commits funds, they hardly have control over the funds. This makes the investment rigid and unavailable till the maturity of the invested fund.
Note − Finance functions deal with uncertainty to a large extent.