Abstract
In order for corporations to operate effectively, it is necessary to emphasize the importance of financial decision-
making in the stability of corporate governance. This paper is based on addressing two main issues. First, focusing
on the key decisions of financial executives whose work should focus on maximizing corporate value or minimizing
the cost of capital. Second, deepening the impact of the auditor’s characteristics on the performance of the
corporate governance so that the audit creates added value for the entity. It aims to give a fresh perspective of the
treatment of financial decision-making in corporations, arguing every step through the empirical analysis of the
DuPont model where we rely to compare the performance over the years under review of the KESH sh.a (Albanian
Electro-Energetic Corporation). The difference between the ordinary and the extraordinary is made by practice and
financial decision-making is a topic that is both beautiful to deal with and difficult to analyze in information. We are
all witnesses of the economic situation of our country. On the one hand we have a transition economy that is growing
at a normal pace and on the other hand we have a community whose business is already trying to move to a
consolidated stage becoming more competitive. Only in this way can corporations in Albania survive the demanding
conditions of the global economy.
Introduction
In recent years, socially responsible business has become the most determining
instrument in both company and public policy worldwide. It is becoming common practice
that if a company wants to be successful, it is expected to participate in getting all key
partners involved in socially responsible business, which includes providing high quality
products and services, employee care, fair treatment of all stakeholders, ethical
management in the company, principles of corporate governance, responsibility to the
environment, cooperation with local communities etc. The mentioned ideas are
particularly important in a crisis (and post-crisis) period. The statements of the European
Commission and the OECD in the context of the economic crisis are consistent and as the
main problem they see that the managements of companies failed to apply the principles
of corporate governance. In the context of the financial and economic crisis,
representatives of world institutions are looking for a global solution which could help to
create effective and sustainable management systems. The principles of corporate
governance can help to make this happen and these principles are one of the means to
reduce the harmful short-term and excessive risk taking. Nowadays, corporate governance
is one of the key elements in building people’s trust.
Key Eements of financial Decision making
Corporate financial decision-making is like to sailing a ship through constantly shifting waters. It
necessitates meticulous preparation, smart thought, and a thorough comprehension of the
available tools and resources. Fundamentally, this process involves making decisions that will
allow a business to prosper now while being ready for the future. Let's dissect it into its most
basic components in a way that is approachable and human.
1. Financial Planning and Budgeting: A Roadmap
Financial planning may be compared to creating a route map. It involves determining the
company's goals and the best way to achieve them. This entails establishing objectives,
projecting revenue, and making prudent spending plans for costs. Allocating resources to
various departments or projects to make sure everything goes as planned is similar to
packing for a vacation. This stage helps businesses stay on course and adjust to
unforeseen market fluctuations, whether they are preparing for the upcoming quarter or
the next ten years.
2. Investment Choices: Selecting the Appropriate Course
Making capital budgeting or investment decisions is similar to determining whether
opportunities are worthwhile. Consider yourself at a fork in the road, where each way
signifies a possible investment or enterprise. Businesses utilize tools such as these to
make informed decisions:
Value of Net Present (NPV): By contrasting future cash flows with the initial cost, this
helps ascertain if an investment will be profitable. It’s like asking, “Will this path lead to
treasure or trouble?”
• Internal Rate of Return (IRR): This measures the expected return on an
investment. Think of it as calculating how much gold you’ll find at the end of the
road.
• Payback Period: This tells you how long it will take to recover the initial
investment. It’s like asking, “How soon will I break even?”
By carefully evaluating these factors, companies can pick projects that align with their
long-term goals and avoid risky detours.
3. Financial Choices:
Advancing the Process after determining its destination, a business must choose how to
finance the journey. Finding the ideal balance between debt (borrowed funds) and equity
(ownership stakes) is the goal of financing choices. It's similar to choosing whether to sell
a portion of the treasure map or take out a loan in order to raise money. Businesses
evaluate the benefits and drawbacks of each choice, taking into account variables
including interest rates, periods of repayment, and the effect on shareholder value.
Finding a balance between having enough debt to benefit from tax advantages and not
being burdensome is the aim.
4. Dividend Choices: Splitting the Benefits
Following a successful expedition, businesses must decide what to do with the prize.
Determining how much profit to reinvest in the company and how much to distribute to
shareholders is the goal of dividend choices. It’s like deciding whether to throw a
celebration feast or save the gold for future adventures. Some companies prefer a stable
dividend policy, paying consistent dividends regardless of profit fluctuations. Others opt
for a residual dividend policy, where dividends are paid only after funding essential
projects. There’s also a hybrid approach, which balances both strategies. These decisions
can influence how investors perceive the company and its stock value.
5. Risk Management: Preparing for Storms
No journey is without risks, and the same goes for running a business. Risk management
is about anticipating challenges and having a plan to deal with them. Companies face
various financial risks, such as:
Market Risk: Fluctuations in interest rates, exchange rates, or stock prices.
Credit Risk: The chance that borrowers or clients won’t pay what they owe. Liquidity
Risk: The possibility of running out of cash to cover short-term needs.
Operational Risk: Issues like system failures, fraud, or external disruptions.
To manage these risks, companies use strategies like hedging (a form of insurance),
diversification (not putting all eggs in one basket), and financial tools like options and
futures. It’s like packing an emergency kit before setting sail—preparing for the worst
while hoping for the best.
Bringing It All Together
The financial decision-making process in corporations is a delicate dance of planning, investing,
financing, and risk management. It’s about making choices that balance short-term needs with
long-term goals, all while navigating the uncertainties of the business world. By mastering these
elements, companies can steer their ship toward success, ensuring they not only survive but
thrive in the ever-changing seas of the global economy.