Corporate Financial Management Decisions During COVID-19

Introduction

Financial decisions made in a difficult time result in negative cash profits in most cases, as these decisions are not supported by the environmental forces like demand for a product, raising price level, reduced disposable income etc. Joseph et al. (2020) present that any global crisis makes a firm cashless but at the same time makes companies with high level of cash more competitive in the long run. Investment decisions such as expanding the existing business, replacing old assets with new ones, modernizing the existing state of factory and office etc. are made after carefully estimating the return on investment and payback period of those projects. Thus, the present value of cash inflows is compared with present value of cash outflows and if the result of this comparison is positive, such investment are favored by the finance team of an organization. In Financing decisions, cost of capital is the determining factor and accordingly financing modes are preferred by the organizations. At the same time, financial decisions must be made at the right time to attain maximum returns. For example, if the market is moving downwards and the supply side is greater than the demand side, then the returns are not maximized, rather revenues are focused on covering the costs.

Schoemaker & Russo (2016) presents that decision making is the process of choosing the best alternative among the alternatives within the purview of limited resource availability. Financial decisions such as investment and financing decisions are crucial for an organization as these decisions are the hopes of an organization in achieving target revenue and profit. Lie et al. (2021) argues that due to this ongoing COVID-19 crisis, the stock markets suffered a severe shock as it resulted in negative returns and the stock market crash risk has become higher than normal. Thus, financing decisions are the hardest decisions that companies could make during COVID -19 times as the cost of capital might have skyrocketed and the companies themselves would have found their profits declining significantly. With declining profits, and higher cost of capital, companies must have felt the difficulties associated with funding their investment projects through debt or equity financing modes. Yun Ke (2022) argues that cost of capital of organizations’ during COVID times had increased to a greater extent. Thus, COVID-19 has made the financing and investment markets more challenging. Corporate must now be thinking seriously about alternative sources of funding and be using them for funding their investment projects.