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Danyell Morris
MBA 524 Managerial Accounting
Professor Hickman
Unit 8 Complete
May 4, 2021
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Provide an example of a possible capital investment to use in your argument to management that will
be used throughout your paper.

Capital Investment is based on having enough amount of money, assets, or loans to fund a company’s
day-to-day operations. There are ways to fund these things such as investors, financial institutions, and
even venture capitalists of all sources of capital investment. It is important to understand that an
investor doesn’t give money to a business out of kindness. They are interested in a company’s business
plan, model, and the leadership keeping the company moving. Investors know that giving funds is worth
the risk, but does it based on the working capital needed for operations as well as the long-term need
for equipment and machinery needed to operate. “Investment capital is used to cover any of these
sorts of cost.” (Dixit & Pindyck, 1995, p. 6) If I were working in an accounting department in my
organization, and we had limits to our resources, an investment that would provide to my company
would be enough land, construction on the land, landscaping, business improvements, machines, and
whatever it takes to maintain a healthy growing business.

There are a few ways to show an approach to finding the right type of capital for your business. One of
those ways is personal assets. Personal Assets are the owner’s savings and money put into a business to
make it work and run. If I, a business owner, deems that $100,000 in capital investment is required to
establish the business and also get the required equipment and launch, but to accomplish this, one has
to use their resources.

Another capital investment would be family and friends, which could be a risky investment to take. The
reason would be on the terms of the business plans not being surrounded by business partners that
won’t take business personally. Family and friend investments way become tense and personal, and
business may overlap with personal life. Using friends and family would result in an investment coming
like a loan or a family wanting to take ownership in a company, which may not be the plan for my
business vision.

Banks and Lenders offer small business programs for capital investments, which are also loans. My
business could qualify for such loans that include real property purchases that come with capital for
machinery. There is an SBA loan that helps qualify for these sorts of loans and fund programs that values
millions of dollars depending on the project, industry, and size of a single company.

Crowdfunding Resources are also a factor for capital investment. A fun fact is in the past a business
would hold a function to get hundreds and thousands of investors, who would all give small investments
into the company. These are ways that a company can raise funds for a company, and launch a new
company as well as a new line of products. Crowdfunding resources created a way for everyone to come
together and make a way for small businesses to expand and grow.

Professional Investors hold the title of venture capitalist and angel investors. Venture capitalist works
with large financial institutions and also raises a lot of money for those institutions. Angel investors
focus on young businesses in their first set of years. Professional investors take on managerial roles
within a business and create profit for investors. Professional investors ensure a company that the
company will grow to the capacity it needs to turn a profit for the investors.
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Discuss what level of management would be involved in making capital investment decisions?

As I stated previously, Professional Investors are involved in making capital investment decisions. Capital
investments are a company’s contribution of funds towards the acquisition of long-lived assets for
further growth. Management has to make the decision what is most important while dealing with a
business, and the best person to make decisions for a business would be the people investing in the
business. Capital Investment decisions occur on a frequent basis and it’s important for a company to
determine its project needs to establish a path for business development. The decision isn’t always
simple or easy because there is a lot at stake while using capital investments. For investors, it is
important to reduce the risk involved with capital investment, and it starts with choosing the best option
for your company.

“The process for capital decision making includes determining the capital needs for both new and
existing projects, identifying resource limitations, create alternatives, evaluate preference decisions for
the company, and make a final decision.” (Goodman et al, 2014, p. 331) Management must first
determine its needs by deciding with capital improvements require attention at that moment. Second,
management must explore resource limitations. Management must evaluate the company’s ability to
invest in capital expenditures given the availability of funds and time.

Many times, however, they only have enough resources to invest in a limited number of opportunities. If
this is the situation, the company must evaluate both the time and money needed to acquire each asset.
“Time allocation considerations can include employee commitments and project set-up requirements.”
(Goodman et al, 2014, p. 334) Fund limitations may result from a lack of capital fundraising, tied-up
capital in non-liquid assets, or extensive up-front acquisition costs that extend beyond investment
means. Once the ability to invest has been established, the company needs to establish baseline criteria
for alternatives.

As management, to evaluate alternatives, businesses will use the measurement methods to compare
outcomes. Measurement will not only be compared against alternatives, but also against criteria for that
investment opportunity. If alternatives exceed or meet manager and company expectations a decision is
determined is considered. A decision like a preference decision companies potential projects and meets
screen decision criteria and will rank their alternatives in the level of importance for the business. Once
management and the firm determine the rank order, it is able to make a decision that is the best option
to pursue.

Capital investment decisions are made through the management who also tends to invest in the
companies, and are most likely are selected for business development. The development of a business
requires a large outlay of money, which gives uncertainty and ties up investor funds for a period of time.
Also, having a nice amount of alternatives needs a careful budgeting and analysis process. This process
determines capital needs, which helps explore resource limitations. This process also establishes criteria
for alternatives and evaluates alternatives using screening and preference decisions, and making the
decision. Screening decisions help eliminate undesirable alternatives that may waste time and money.
Preference decisions rank alternatives emerging from the screening process to help make the final
decision. Both decision avenues use capital budgeting methods to select between alternatives.
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Describe the financial analysis tools you would use to convince management to make the investment
you are proposing.

As a financial analysis, if I had a business and I wanted to convince management to make an investment I
would use multiple techniques to win over these investments. “Networking with multiple investors
would be a wise start, and a good way for me “a new entrepreneur” to pitch my ideas in a non-formal
way.” (Lev, 2012, p. 7) When starting a business it is wise to get out and network so your community and
local businesses can help with the startup of the business. It is known that many meetings with investors
develop by being out business events. Also, for the beginning of my business, it may be hard to make a
breakthrough, so it is important to create a fan base and give the investor confidence that people want
to be involved with your company.

It is also important as financial analysis to ask for help from other financial analysis and investors.
Instead of going in head first to beg for help from investors, it would be wise to gain advice from them,
and strategically reach out to an investor, and build relationships with them. This gives the investor a
chance to point out potential flaws in your business and show that you value their input. Wanting
genuine advice can lead to future help and success with that investor.

Another way for convenience management to invest in your company could be having more cofounders.
More co-founders mean more investments and more profit in the long run. Finding an investor who can
also be a partner puts more money into the business and create a strong business. It also gives a more
hands-on environment, which cuts down the cost of having to hire another person.

Another way to give new investors would be the investor knowing that their investment is going
towards a bigger and more profitable cause. For example, if a business joins a startup accelerator
program, a company can profit from mentoring programs and investment programs for new business
owners who are interesting in learning how to create longevity in their company. Always follow through
with your start-up plans and programs, and follow up with investors to let them know you are serious
about your new business. The best way to keep up with a potential investor is telling them where you
are in the progress of your business, and what new capital you now have at this point in your journey.

Another way to get management to invest in your business is by sharing user engagement and self-
engagement with your products in your business. It is always a plus to be able to show investors and
management that you trust your products so much that you use them yourself. Also, when the business
gains more clientele and those customers post positive review videos online, it creates the perfect
marketing strategy that would make an investor want to partake in future business ventures. This takes
me to my next topic, which is marketing for your business. Networking in person is important, but it is
equally important to have a platform in all forms, like social media marketing to reach all sorts of
audiences. Using social media can create investors for the online world, and create more customers who
can’t come to live events and businesses.

Some non-financial factors included in capital investment decisions are more important now than
they were 20-25 years ago. Give some examples of the types of non-financial factors that managers
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would consider in this decision that is more important in today's capital investment decisions than
they were in the past.

“Some non – financial factors that will contribute to capital investments decisions with management
could be the improvement of staff morale, matching industry standards, improving business reputations,
building skills and experience in all areas of a company, and protecting intellectual properties against
potential competition.” (Masini & Menichetti, 2013, p. 510)

Any non-financial factor that is a capital investment decision that would be most important for a
company has to be surrounded by management structures, growth potential, and diversity within the
business. A strong management team is one of those important things because the people managing the
company when the owners are not around will determine the wellbeing of a company. Being dependent
on the owner to keep the business running will cause failure once the owner can no longer manage the
company on his own. This is where strong management comes into place and creates a healthy work set
of policies and rules. Management would be responsible for keeping the value of the business high, and
train workers to do the proper day-to-day operations.

Another non-financial factor is diversifying human capital risk within the business. When a company is
dependent on anyone customer, supplier, or employee, this can be detrimental to the business. For
example, if you only had one customer who provided more than half of the income coming into the
business then if that one customer stopped shopping with the business, it would completely affect the
business in a harsh way. It is important to have more than one supplier so if one can’t come through,
there are other suppliers on standby. Reducing the dependency on one of any employee, customer or
supplier can reduce failure within your business.

Growth potential for customers, markets, and products is another non-financial factor in a business that
will allow management to consider capital investment decisions. Although an investor can look at
financial statements and see a company’s growth potential, there are any non-financial elements that
can show investors what the future holds for a business. One has to think if something happened to the
owner of this business would there be enough potential to keep this business going or expand the
company. Potential investors or buyers need to be able to see the full potential of growth in a business
plan.

Investors want a clear growth strategy as well as an expansion in customer base, markets, and
potentially even products. They also would love to see the bottom line impact sales for this business. If
a company isn’t making enough money, then this same company may not have the value it needs to
keep the doors open. Owners who have successfully sold products sometimes can have unsellable
businesses because of non-financial issues. When thinking about a business all of these factors must be
thought about. This is why it’s important to have not only the finances in place but to gain property
value as well. To have property value, a company must give its customers and investors a reason to
believe that they are the best option when marketing and creating sales. Growth within your business
can make your business the most valuable asset to the team. The environment around the business can
contribute to how successful your business will become, and balancing the non-financial factors with
financial factors such as machinery.
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References

Dixit, A. K., & Pindyck, R. S. (1995). The options approach to capital investment. Real Options and
Investment under Uncertainty-classical Readings and Recent Contributions. MIT Press, Cambridge, 6.

Edmonds, T. (2020). Fundamental Managerial Accounting Concepts (9th ed.). McGraw Hill.

Goodman, T. H., Neamtiu, M., Shroff, N., & White, H. D. (2014). Management forecast quality and capital
investment decisions. The Accounting Review, 89(1), 331-365.

Lev, B. (2012). Winning investors over: Surprising truths about honesty, earnings guidance, and other
ways to boost your stock price. Harvard Business Press, 7.

Masini, A., & Menichetti, E. (2013). Investment decisions in the renewable energy sector: An analysis of
non-financial drivers. Technological Forecasting and Social Change, 80(3), 510-524.