Selection of Long-Term Investments and Related Issues

Subject: Financial Management
Pages: 1
Words: 259
Reading time:
< 1 min

Long-term investments are very important in securing the future of a business in various markets. The process of deciding the areas in which a business can invest is very complex and requires careful consideration because of the interplay of factors that influence organizational goals. Some of the considerations that a business should make when deciding on long-term investments include competitors, the need to maximize profitability, corporate goals, the level of risk tolerance, and its equity position. Making a long-term investment requires a market with very few competitors because high competition leads to low product prices that eventually affect profit margins achieved by a business. In addition, long-term investments should involve a market with very few risks in order to avoid compromising the future of a business through lowered equity. Other important considerations include developing good comprehension of financial needs, tax obligations, good market analysis, available resources, cash flow, and discipline.

All these issues have varied impacts on the way a business achieves efficiency in the development of monetary statements. One of the main elements of budgeting affected by these issues is the asset value. When a business chooses to invest, its asset value often rises, and its effects are often reflected in the balance sheet. Another change that reflects on the balance sheet is increased expenditure as a result of labor costs. In some cases, businesses take loans in order to finance their long-term investment interests. This is reflected in the liability section of the balance sheet, along with increased tax obligations.