Decision: Determination of sources of finance

The decision discussed in the above paragraph is the determination of sources of finance for a newly promoted company in the garment industry. This decision involves identifying and selecting the appropriate methods or channels through which the company will obtain the necessary funds to acquire fixed assets and cover day-to-day expenses.

Factors influencing the decision:

The decision regarding the determination of sources of finance is dependent on several factors. These factors need to be carefully considered in order to make an informed decision. Some of the key factors include:

1. Financial condition: The financial condition of the company plays a crucial role in determining the sources of finance. If the company has strong financials and a good credit rating, it may have more options available to raise funds.

2. Cost of finance: The cost associated with different sources of finance is an important consideration. The company needs to evaluate the interest rates, fees, and other charges associated with each option to determine the most cost-effective solution.

3. Repayment terms: The repayment terms and conditions offered by various sources of finance need to be assessed. The company should consider factors such as the repayment period, installment amounts, and flexibility in repayment to ensure it aligns with its cash flow projections.

4. Risk tolerance: The company's risk tolerance level is another factor to consider. Some sources of finance may involve higher risks, such as taking on debt or issuing equity, while others may be more secure, such as utilizing internal funds or seeking government grants.

5. Industry norms: It is important to consider industry norms and practices while determining the sources of finance. Different industries may have specific financing options that are more suitable and commonly used.

6. Long-term goals: The company's long-term goals and strategic plans should also be taken into account. The chosen sources of finance should align with the company's growth plans and provide the necessary capital to support its future endeavors.

Confusion between financing decision and investing decision:

The financing decision and investing decision are two distinct concepts in financial management. While they are related, they refer to different aspects of the business.

1. Financing decision: The financing decision focuses on determining the sources of funds to finance the company's operations and investments. It involves evaluating various options such as debt financing (loans, bonds) and equity financing (issuing shares). The objective is to identify the most suitable and cost-effective sources to raise capital for the company's needs.

2. Investing decision: The investing decision, on the other hand, relates to how the company will allocate its available funds for different investment opportunities. It involves assessing the potential returns, risks, and feasibility of various investment projects. The objective is to maximize the value of the company by making strategic investment decisions.

While both decisions are interrelated, the financing decision focuses on obtaining funds, while the investing decision focuses on allocating funds to different investment opportunities. It is crucial for a company to carefully evaluate both decisions to ensure optimal financial management and achieve its overall objectives.

Financing decision