Decisions making is a process that needs to be carefully followed. This is also more important in business when we have multiple alternatives to choose from. Based on what you have learned in finance courses, how can we make financially sounded decisions and what method and tools can we use to achieve that?

I believe this is a two-part solution. First, we must evaluate decisions based on the measure of factors involved. The clearest and most organized manner of creating this risk analysis is the SWOT. SWOT provides managers with relevant information concerning the company and which directions are the best possibilities. There is also a financial factor that must be included in this analysis which is the measure of ratios.

A manager will use financial ratios to determine the financial status of a business and which decisions can be made for the benefit of the company. There are several ratios that are used to help them determine decision making. For example, it is important to review the accounts receivable ratio. If this ratio is low then this means there may be issues with the collection of the outstanding debts. Another example would be the sales to inventory ratio (Fridson, Martin, & Alvarez, 2002). If this ratio is high then there may be a loss of sales due to low inventory. Different ratios allow for different decisions to be made in terms of risk and benefit to the company in conjunction with using SWOT.

Fridson, Martin, & Alvarez, a. F. (2002). Financial Statement Analysis: A Practitioner’s Guide. New York: John Wiley.