Financial management involves planning, organizing, directing, and controlling financial activities to maximize shareholder wealth. Key financial decisions include capital budgeting, capital structure, working capital management, and dividend decisions, each affecting investment and profitability. Effective financial management is crucial for the establishment, survival, and growth of businesses by ensuring sound allocation of funds and maintaining cash flow.

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1.Financial Management
2.Financial Decisions
3.Types of Financial Decisions-
3.1 Capital Budgeting Decision
3.2 Capital Structure Decision
3.3 Working Capital Management Decision
3.4 Dividend Decision

3. Financial management
• Deals with planning, organizing, directing and controlling the financial
activities
• Concerned with maximizing shareholders wealth
• Sound allocation of funds, maintaining cash flow and minimization of
capital cost
• Helps in establishment, survival, expansion, growth of business
• A comparative analysis of cost, risk and return constitutes an important
aspect of financial management
• Raising the market value of firm
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4. 1.Capital Budgeting Decision- Investment decision
2.Capital Structure Decision- Financing decision
3.Working Capital Management Decision- Liquidity decision
4.Dividend Decision- Shareholder’s wealth decision
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Financial decisions

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Capital Budgeting
 It is the process in which a business determines and evaluates decisions
regarding the expenses or investments that are large in nature
 It is a long term decision which would be irreversible as it involves huge cost
in it
 It would be a deciding factor of firm’s future earning capacity
 Investment decisions are made with the sole motive of earning higher returns
 It may include investments in plans or projects related to acquisition of fixed
assets, research and development, new product launch, expansion etc.
 Some of the most commonly used methods to take major investment
decisions include Net Present Value, Internal Rate of Return, Profitability
Index, Payback Period

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Capital Structure
 The capital structure decision involves decisions regarding financing for the
firm
 This includes choice for sources of generating capitals by either debt or
equity financing or a mix of both
 Forming a capital structure that would maximize the earning per share which
would be an appreciation in shareholders wealth
 It would act as a support to the investment decisions made in absence of
which firm won’t be able to invest in the assets
 An optimum financing mix can maximize the revenue of the firm thus
creating a positive market value

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Working Capital Management
 It involves decision regarding the required level of working capital in
business to run the operational activities smoothly
 Deals with balancing of current assets and current liabilities efficiently
 The level of working capital required depends on various factors like the
nature of business, length of operating cycle, business condition
 Gross working capital deals with investment in current assets and net
working capital shows the difference between the current assets and current
liabilities
 To maintain cash flow in the business
 Trade off between liquidity and profitability

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Dividend Decision
 It involves decision concerning the dividend payment to shareholders
 Decision involving management of two different interest-
1.Shareholder’s point of view: They would like to have dividend out of
company’s profit as a reward to their investment
2.Manager’s point of view: Investing the gained profit for the future growth
and expansion of business rather than paying as dividend
 Distributing the entire profit in form of dividend or retaining some amount
for further future projects
 When the dividend need to be paid ,what amount should be paid, form in
which it should be paid
 Maximization of shareholder’s wealth by profit maximization and cost
reduction

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