Question.3687 - 3. Financial Management Practices and Their Impact on Organizational Performance: Your reports should critically asses the relationship between organizational performance and financial management practices. These include capital structure decision, investment appraisal techniques, dividend policy, working capital management and financial performance assessment. Use current events and challenges in your report as specific sections, headings, and topics.
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3. ?Financial Management Practices and Their Impact on Organizational Performance:? Your reports should critically asses the relationship between organizational performance and financial management practices. These include capital structure decision, investment appraisal techniques, dividend policy, working capital management and financial performance assessment. Use current events and challenges in your report as specific sections, headings, and topics.? Financial Management Practices and Their Impact on Organizational Performance It is essential to practice financial management effectively for enhancing organizational performance. This report assesses the relationship between key financial management practices and their impact on success. Key financial management practices consist of capital structure decisions, investment appraisal techniques, dividend policy, working capital management, and financial performance assessment. Capital Structure Decisions By the mix of debt and equity, a firms capital structure is defined as one that significantly influences its risk and growth potential. Due to a high debt-to-equity (D/E) ratio, financial risk might increase; however, it might also offer higher returns during growth periods (Tuovila, 2024). Despite the fact that a conservative structure helps to stabilize performance, it may restrict growth opportunities. Balancing capital structure is extremely crucial for optimizing performance while managing risk. Investment Appraisal Techniques NPV stands for while IRR stands for Internal Rate of Return. These are the techniques essential for evaluating project profitability. NPV accounts for the time value of money. It enables the opportunity for effective project comparison (Kenton, 2024). However, it is challenging to forecast cash flows accurately, in a volatile market. Due to the choice of appraisal method, decision-making and organizational performance are impacted. Dividend Policy A companys dividend policy affects retained earnings and available capital for reinvestment. Due to high dividends, there is a chance of limitation of growth potential by reducing funds for new investments; conversely, reinvesting profits can enhance long-term growth. A well-structured dividend policy maintains a balance of short-term shareholder satisfaction with long-term goals (Harris & El-Massri, 2011). Working Capital Management By effective management of working capital, sufficient liquidity to meet short-term obligations is ensured while optimizing operational efficiency. Due to poor management, cash flow issues can occur, which hinder performance (Hofstrand, 2023). Companies should adopt strategies for the sake of efficient inventory management and receivables collection to enhance liquidity. Current Events and Challenges Todays economic landscape presents challenges like rising interest rates and inflation, which further complicates both capital structure decisions and increasing financing costs. Additionally, the shift toward sustainability prompts firms to reconsider traditional investment appraisal methods in favour of holistic approaches that account for environmental impacts (Hasan, 2024; Imarticus, 2024). It can be summarized by stating that the interplay between financial management practices and organizational performance is intricate and very crucial. By the firms, these relationships must be navigated carefully to achieve sustainable growth in an ever-changing economic environment. References: Harris, E. P., & El-Massri, M. (2011). Capital Investment Appraisal. Review of Management Accounting Research, 343377. Springer. Hasan, Z. (2024, May 22). In the realm of project management and corporate finance, capital budgeting and investment appraisal are fundamental processes. These techniques are employed to evaluate the potential profitability and financial viability of investment projects. Linkedin.com. https://www.linkedin.com/pulse/capital-budgeting-investment-appraisal-techniques-hasan-nizami-pmp--yfxff Hofstrand, D. (2023, June). Capital Budgeting Basics | Ag Decision Maker. Www.extension.iastate.edu. https://www.extension.iastate.edu/agdm/wholefarm/html/c5-240.htmlImarticus. (2024, February 8). Top Investment Appraisal Methods for Financial Management. Finance, Tech & Analytics Career Resources | Imarticus Blog. https://imarticus.org/blog/top-investment-appraisal-methods-for-financial-management/ Kenton, W. (2024). Capital budgeting. Investopedia. https://www.investopedia.com/terms/c/capitalbudgeting.aspTuovila, A. (2024, February 25). Capital structure definition, types, importance, and examples. Investopedia. https://www.investopedia.com/terms/c/capitalstructure.aspMore Articles From Finance
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