Financial Decision Making For Managers

1. Running head: THE RELATIONSHIP 1
THE RELATIONSHIP BETWEEN FINANCIAL MANAGEMENT PRACTICES AND THEIR
IMPACT ON ORGANIZATIONAL PERFORMANCE
MODUPE O SARRATT
UNIVERSITY OF MARYLAND UNIVERSITY COLLEGE
MGMT 640 SECTION 9080

2. THE RELATIONSHIP 2
EXECUTIVE SUMMARY
The management practices for financial decisions is to effects the organizational performance to
use capital structure decision, investment appraisal techniques, dividend policy, working capital
management, and financial performance assessment in corporate practice.
Welch, (2004), points out that capital structure decisions recognize “the fluctuation in stock
returns for debt-equity ratio” to indicate capital structure decisions include the techniques for
offsetting debts to growth equity is important for increasing capital for organizational
performance is operational efficient for residual return with the risk of zero.
Investment appraisal techniques are the process of using the long-term investment to
restructuring by financial management practices for analyzing a replacement of old machines or
to purchase a new product with the capital structure of internal rate of return that will give the net
present value for the efficiency of an investment.
According to Kitonga, (2011), financial management practices, "is the discipline dealing with the
financial decisions for long and short term goals to ensure the return on capital exceeds the cost
without taking excessive financial risk" (p.1).
When profits are held and not paid out as dividends, retention ratio is used to divide dividend per
share by Earnings per share for 1 to 0 ratios to reinvests shareholders net income for growth, the
profit withheld is called retained earnings, the money reinvest to use for business operation is
working capital.
Working capital management is a process of ensuring that a firm has sufficient liquidity to
continue its operations with utilizing its inventories, accounts receivable, accounts payable, cash
for current assets and liabilities and still has sufficient capital to run the company operations.

3. THE RELATIONSHIP 3
INTRODUCTION
Financial management practices and their impact on organizational performance is the
business operations of a mission and a vision for strategic planning that supports the reporting of
financial condition and profit performance for cash flow. According to Kitonga, (2011), financial
management practices, “is the discipline dealing with the financial decisions for long and short
term goals to ensure the return on capital exceeds the cost without taking excessive financial
risk” (p.1). The management practices for financial decisions is to effects the organizational
performance to use capital structure decision, investment appraisal techniques, dividend policy,
working capital management, and financial performance assessment in corporate practice.
CAPITAL STRUCTURE DECISION (CSD)
CSD is the combination of the debt and equity used to finance its long-term operation for
cost-effective of making a profit with revenues. Three methods for analyzing cost-effective
include a firm debt-to-equity ratio to project a risk; the debt versus equity to raise capital, and
long-term debt plus equity and total liability for financial stability. Welch, (2004), points out that
capital structure decisions recognize “the fluctuation in stock returns for debt-equity ratio”
(p.106) to indicate capital structure decisions include the techniques for offsetting debts to
growth equity is important for increasing capital for organizational performance is operational
efficient for residual return with the risk of zero. The goal of capital structure decision is capital
budgeting with the utilization of stock for investment appraisal.
INVESTMENT APPRAISAL TECHNIQUES (IAT)
Investment appraisal techniques are the process of using the long-term investment to
restructuring by financial management practices for analyzing a replacement of old machines or
to purchase a new product with the capital structure of internal rate of return that will give the net

4. THE RELATIONSHIP 4
present value for the efficiency of an investment. According to Hunjra et.al, (2011) “Investment
appraisal technique is the investigation area of financial management practices for a number of
issues affecting project selection”. However, “if IAT is applied, an organization would achieve a
better resource utilization for profit margin” (p.2). The method of appraisal for selecting project
include net present value (NPV), internal rate of return (IRR) and payback period. Investment
appraisal is significant for organizational performance for the quality that gives rise to
developing a comparative advantage in a firm future forecasting. There were a number of
apprehensions in investment appraisal to shift profit for share prices with dividend policy.
DIVIDEND POLICY (DP)
The dividend policy is the amount of money paid quarterly the shareholders for common
practice from the evaluation of total net income of the corporation’s earning power and surplus
for excess cash to two formulas for a policy to pay out a dividend for income or not to pay a
dividend for no income. According to Sheppard, (2008) dividend policy “provides guidance on
when to pay stockholders dividends or when not to pay the dividends and use profits for other
purposes”. When a dividend is a payout for income, dividend payout ratio formula is used to
divide the total net income. When profits are held and not paid out as dividends, retention ratio is
used to divide dividend per share (DPS) by Earnings per share (EPS) for 1 to 0 ratios to reinvests
shareholders net income for growth, the profit withheld is called retained earnings, the money
reinvest to use for business operation is working capital. The working capital is use to gauge the
organizational performance for a new project with cash. The cash is the working capital for the
management of the new project.

5. THE RELATIONSHIP 5
WORKING CAPITAL MANAGEMENT (WCM)
Working capital management is a process of ensuring that a firm has sufficient liquidity
to continue its operations with utilizing its inventories, accounts receivable, accounts payable,
cash for current assets and liabilities and still has sufficient capital to run the company
operations. The key role of WCM is to sustain the ongoing operation. Ahamad & Javaid, (2016)
describes working capital management is the “measurement for sufficient amount money for the
nature of business, objective of the business, for its effective and efficient operations”. For
organizational performance, working capital is primarily a day to day cash inflow and outflows
for reducing potential liquidity problems to have a backup credit for adjusting short-term
fluctuations of capital.
FINANCIAL PERFORMANCE ASSESSMENT (FPA)
Financial performance assessment is the quality of a firm for a strong balance sheet, solid
earning potential, and positive cash flow. FPA is a subjective measure of a firm’s uses of assets to
generate income for efficiency. However, FPA for organizational performance is preventing
financial problems that may lead to bankruptcy with using generally accepted accounting
practice (GAAP) for FPA that is recognized by financial accounting standards board (FASB).
CONCLUSION & RECOMMENDATION
There is no research to confirm a relationship between financial management practices
and organization performance for separation. Butt et.al (2010) explain “managers used some
informal techniques like crediting rating and earning per share in marketing decisions and the
company’s capital structure do better with outside financing”(p.7) suggest the balance sheet by
the GAAP is the financial management practices recognized by the FASB for organizational
performance.

6. THE RELATIONSHIP 6
References
Ahmad, R., & Javaid F. (2016). The Moderating Role of Corporate Governance on Working
Capital Management and Firms Performance. Journal of Global Economics, Management
& Business Research, 7(3), 182-194.
Butt, B. Z., Hunjra, A. I., & Rehman, K. (2010). Financial management practices and their
impact on organizational performance
Hunjra, A. I., Batool, I., Niazi, G. K., & Rehman, I. u. (2011). Investment appraisal techniques
and constraints on capital investment
Kitonga, K. G. (2013). The relationship between Financial Management Practices and Financial
Performance in the shipping industry in Keya (Doctoral dissertation. School of Business,
the University of Narobi).
Sheppard, B. (2008). Corporate governance: To distribute or not distribute? That is the question.
New Zealand Management, 55, 66-67. Retrieved November 14, 2016, from EBSCO
Online Database Business
Welch, I. (2004). Capital structure and stock return. Journal of political economy, 112(1), 106-
132.