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3. Selection and value of investments methods

Financial management is the one in charge of choosing the most profitable investments. The company's resources are limited, that is why they need to establish rigorous criteria to make a selection. Basically, all of the criteria used seeks one thing: maximize the profitability of the money invested.

We can find two different methods:

  • Static methods

These methods suppose that the value of money is constant throughout time, due to this the cash flows have the same value even though they were created in different time periods.

  • Dynamic methods

These methods keep in mind the value of money at the time the flow occurs. For this reason, these methods are more realistic.