Importance of Investment Decisions

  1. Such decisions are importance because they will influence the company’s size (fixed assets, sales, and retained earnings).
  2. They increase the value of the company’s shares and thus its credibility.
  3. The fact that they are irreversible means that they have to be made carefully to avoid any mistake which can lead to the failure of such investment.
  4. Due to heavy capital outlay, more attention is required to avoid loss of huge sums of money which in the extreme may lead to the closure of such a company. However, these decisions are influenced by:
  • Political factors – Under conditions of political uncertainty, such decisions cannot be made as it will entail an element of risk of failure of such investment. Thus political certainty has to be analysed before such decisions are made, such factors must be taken into account such that the company forecasts the inflows and outflows within given limitations such as the degree of competition, performance of economy, changing tastes etc. which influence ability to generate sufficient return from a venture which will pay not only interest but principal on such funds invested.
  • Technological factors – These influence the returns of the company because such technology will affect the company’s ability to utilise its assets to the utmost ability in particular if such assets become obsolete and cannot generate good returns or the output of such machines may be low with time and may not meet planned expectations which in most cases will have an impact on inflows from a venture.
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