Summary
In this essay we can find several aspects about the business environment in Mexico, and we will contribute to the understanding of the financial decisions that are taken.
Decision-making is the process by which a choice is made between options or ways to solve different life situations in different contexts; at work, family, sentimental, business level, decision-making basically consists of choosing an option among the options that are available, in order to solve a current or potential problem. For this, we will explain the evaluation processes on the alternatives and limitations that companies have when making a decision that can lead to absolute success or failure and the closure of the company.
Analysis of financial decision making in Mexican companies
Every organization makes its decisions in order to achieve its objectives which will lead us to success or the direction that this decision leads. Most financial decisions are irrevocable since they have very high costs and could lead to bankruptcy for the company. To avoid this there are various methods that will help to analyze the situation of the economic entity and make the most pertinent decisions possible.
Financial decision-making is not only an issue that can be exercised without some knowledge, so it is imperative that every director, manager or person who performs similar positions is completely necessary that before making any decision a prior analysis of the internal and external variables that may affect the normal development of business or company activities.
Something that we must take into account because of what is important and elementary, is that we must know at the time of starting the process of making financial decisions what type of decision we are going to make, this means if it is for investment, or financing, if dividends will be distributed, to cite an example, when at the end of the year the balance sheet of the company must be shown depending on how much profit the company has had, decide what percentage of it will be allocated to the partners, or if it is viable the idea of reinvesting in improvements for the company that capital, deciding interest rates and situations that contribute to the growth of the company.
We could group financial decisions into two broad categories and these are investment decisions and financing decisions. The former has to do with decisions about the financial resources that will be necessary for the organization at a time, where we will allocate those resources that we have, which option is the most viable and which would give us more profits in the future.
In the second group, that is, in the decisions that are financing, they talk about how to acquire resources for the organization, with which it is worth going into debt, with which not, where they will give us more profits and in which not.
More specifically, financial decisions in companies must be made on: investments in plant and equipment; investments in the money market or in the capital market; investment in working capital; search for financing by own capital or by foreign capital (debt); search for financing in the money market or in the capital market. Each of them involve even more specific aspects, such as: decisions on the level of cash on hand or on the level of inventories. It is necessary to study the different interrelations between these two great types of financial decisions.
Decision-making must always be rational and not emotional or intuitive, this refers to the fact that there must always be a prior analysis and not follow the famous hunches or hunches. According to (Ortíz, 2012) rationality is based on a set of concepts or axioms that are formed based on the level of instruction received, the education and the experience that has been had.
It is for this reason that, as mentioned previously, to make financial decisions and sustain them, you must have a knowledge of finances. For this reason, we must first understand what finances are, what we mean by opportunity cost, what is the value of money in time and know how to analyze financial statements.
According to (Román, 2012), when seeking to define what finance is, one must take into account the balance that must exist between the variables: risk, profitability, liquidity and value creation. Risk, because there is the possibility of losing in the business since the market is not controlled, profitability is the relationship that exists between income and expenses generated by those assets that were used for the operation of the company, liquidity is the solvency to The short term the organization has to face its immediate obligations and the creation of value is understood as the creation of positive values towards a brand over time.
Knowing these concepts, it is a little easier to continue with decision-making and its phases to make decisions in the best way, not without first analyzing the most important financial statements.
The Financial Statements, also known as accounting statements, are according to (Roman, 2012) financial reports or annual accounts, which companies use to report financial economic situations and the changes that companies experience on a date established to be analyzed.
This information is very useful for many people, call themselves administrators, managers, credit companies, banks, clients, suppliers, owners or shareholders.
Among the most important Financial Statements we could mention the following as the most used in Mexican organizations.
Income statement: It is the summary of the sales income of a company and its expenses for the year, and reports the final profit of the same. In this financial statement we can find the expenses we have in the company, the sales and the profits generated by our main economic activity.
Balance sheet: Also called statement of financial position, it is a summary of the assets, liabilities and capital at the close of the. To interpret a statement of financial position you need to know the differences between the types of assets that the company uses, in addition to understanding the accounts that show the liabilities and the capital of the company.
Statement of cash flows: It is important to mention that the information reported is of great interest to managers, financial institutions and investors.
Here we can find the expenses and income that the company has, there we find a balance of the money movements reported by the company.
Managers, financial institutions and investors must pay more attention, to cash flows, to decide which direction the company should take. The inflows and outflows of cash are the heart of every business, because if you have a good financial situation, more investors will be willing to grant loans to the company for capital increases.
Now that we know the importance of financial statements, we can go to the important step that every financial manager wants to do and yes, the decision-making phases are as follows:
Gather information: First, in order to make decisions correctly, the problem we seek to solve or avoid must be thoroughly known, that is why it is necessary to obtain as much financial information as possible from our company, so we will fight in the war with a rifle, and we will be well armed with the pertinent information to assimilate whatever challenges lie ahead.
Analysis of financial information: Having the information in our hands it is important to have a clear and comprehensive overview of our environment and thus analyzing the information we have collected is a little more reliable to make our final decision. All this is done through financial ratios that are according to (Roman, 2012) indicators that analyze the situation of a company by evaluating the two most important financial statements that are the income statement and the balance sheet, these financial ratios have 4 main indicators that are solvency, productivity, indebtedness and profitability.
Results evaluation: It consists of interpreting the results with the methods applied in the analysis of financial information.
I want to take the liberty of adding a step before making the final decision-making, and that is the decision, because it is important to trust faithfully in what we do and have the conviction that our correct preparation will lead us to success.
The last step is to make the final decision.
To conclude with this essay we must be clear that currently there is a need to find new leaders, who strive for ethics, discipline and innovation, they must be a role model, a leader who influences with their actions and not a leader office, to avoid being around people to feel superior to others.
Being a leader is not a position, an award or a distinction that can be boasted, it is a beautiful responsibility and a moral obligation. So we cannot avoid the commitment that bad decision-making can generate, that is why he urged all readers to take that responsibility and go forward in always trusting in everything they do, because Mexico and the world are looking for brave people who dares to make decisions, it is the moment when you do things.
Bibliography
- Ortíz, AV (2012). Applied finance. Santiago de Chile: Polola. Roman, CL (2012). Fundamentals of financial management. Mexico City: Third Millennium Network. Rubio, MC (2010). Value of money over time. Lima: Cusco.
