The investment decision, also called capital budgeting, is the allocation and reallocation
of capital and resources to projects, products, assets, and divisions of an organization.
Once strategies are formulated, capital budgeting decisions are required to successfully
implement strategies. The financing decision determines the best capital structure for the
firm and includes examining various methods by which the firm can raise capital (for
example, by issuing stock, increasing debt, selling assets, or using a combination of these
approaches). The financing decision must consider both short-term and long-term needs
for working capital. Two key financial ratios that indicate whether a firm’s financing decisions
have been effective are the debt-to-equity ratio and the debt-to-total-assets ratio.