Final answer:
The statement is false; finance must understand operations concepts to judge the need for capital investments. They consider various funding sources like reinvested profits, loans, or equity, and must navigate information asymmetry between internal knowledge and what outside investors know.
Step-by-step explanation:
The statement 'Finance cannot judge the need for capital investments if they understand operations concepts and needs' is False. Finance professionals must certainly understand operations concepts and needs to accurately judge the requirement for capital investments. For instance, firms in the early stages typically need financial capital to fund their ventures, even without showing a current ability to earn profits.
Companies can source financial capital for investments in several ways: (1) from early-stage investors; (2) by reinvesting profits; (3) by borrowing through banks or bonds; and (4) by selling stock. Each choice involves different payment methods and risks. Establishing an adequate flow of financial capital is crucial for sustaining operations, particularly when earnings are not sufficient.
Moreover, when businesses opt for certain sources of capital, they face the challenge of imperfect information, where outside investors may not have the same knowledge as the firm's internal managers regarding future profitability. Understanding operations helps finance departments make informed decisions about the type and amount of capital investments needed while being mindful of the information asymmetry in the market.