A firm is facing difficulties managing the expenses of day-to-day operations. Which decision has the company ignored here?

Working Capital decision

The correct answer is option 3- Working Capital decision.

Working Capital decision is ignored by the company.

Working capital decision- Short-term investment decisions (also called working capital decisions) are concerned with the decisions about the levels of cash, inventory and receivables. These decisions affect the day-to-day working of a business. These affect the liquidity as well as profitability of a business. Efficient cash management, inventory management and receivables management are essential ingredients of sound working capital management.

OTHER OPTIONS

• Investment decision- A firm’s resources are scarce in comparison to the uses to which they can be put. A firm, therefore, has to choose where to invest these resources, so that they are able to earn the highest possible return for their investors. The investment decision, therefore, relates to how the firm’s funds are invested in different assets. Investment decision can be long-term or short-term.

• Solvency decision refers to a business’s decision about how to finance its long-term operations- basically, how much money to raise from debt (like loans) and equity (like shares).

• Dividend Decision- The important decision that every financial manager has to take relates to the distribution of dividend. Dividend is that portion of profit which is distributed to shareholders. The decision involved here is how much of the profit earned by company (after paying tax) is to be distributed to the shareholders and how much of it should be retained in the business.