Financial Management

Question 1

Meaning of business finance?
What is financial management?

Answer 1

Money required for carrying out
business activities is called business
finance.
Financial
Management is concerned with optimal
procurement as well as the usage of
finance

Question 2

Some aspects being affected under financial management?

Answer 2

The size and the composition of
fixed assets of the business:
The quantum of current assets and
its break-up into cash, inventory
and receivables
The amount of long-term and
short- term funds to be used
Break-up of long-term financing into
debt, equity
All items in the Profit and Loss
Account, e.g., Interest, Expense,
Depreciation, etc.

Question 3

Objectives of financial management?

Answer 3

All financial decisions aim at
ensuring that each decision is efficient
and adds some value. is
to maximise the current price of equity
shares of the company or to maximise
the wealth of owners of the company,
that is, the shareholders.

Question 4

Investment decision

Answer 4

The investment decision, relates to how the firm’s funds are invested in different assets.
Investment decision can be long term or short-term. A long-term investment decision is also called a Capital Budgeting decision.
These decisions are very crucial for any business since they affect its earning capacity in the long
run. Short-term investment decisions (also called working capital decisions) are concerned with the decisions about the levels of cash, inventory and receivables. These decisions affect the day-to-day working of a business.

Question 5

Three types of financial decision?

Answer 5

1. Investment
2. Financing
3. Dividend

Question 6

Factors affecting capital budgeting decision?

Answer 6

1. Cash flow of the project
2. Rate of return
3. investment criteria involved

Question 7

Financing decision

Answer 7

This decision is about the quantum
of finance to be raised from various
long-term sources. The main sources
of funds for a firm are shareholders’
funds and borrowed funds. therefore, needs to have a judicious mix of both debt and equity
in making financing decisions, concerned with the decisions about how much to be raised
from which source.

Question 8

Factors affecting financial decision?

Answer 8

1. Cost
2. Risk
3. Flotation cost
4. Cash flow position of the company
5. Fixed Operating cost
6. Control consideration
7. State of capital market

Question 9

Dividend Decision

Answer 9

The decision involved here is how much of the profit should be distributed to the shareholders and how much should be retained in the business. The decision should be made with the view of maximising shareholders wealth.

Question 10

Factors affecting dividend decision?

Answer 10

1. Amount of earning
2. Stable earning
3. Stability of earning
4. growth opportunities
5. Cash flow position
6. Shareholders preferences
7. Taxation policy
8. Stock market reaction
9. Access to capital market
10. Legal constraints
11. Contractual constraints