Financial management deals with planning and controlling a firm's financial resources, including procuring funds and utilizing them effectively. There are four major financial decisions: 1. Financing decisions involve acquiring long-term funds either from shareholders or loans. Managers must weigh the advantages and disadvantages of different sources. 2. Dividend decisions determine how much earnings to distribute to shareholders versus retaining for future needs. Considerations include growth requirements, cash flow, taxes, and legal restrictions. 3. Investment decisions involve selecting assets to invest in based on profitability as well as what property, plant and equipment the firm should hold. 4. Liquidity/working capital decisions ensure sufficient short-term funds for day

1. 1. FINANCIAL MANAGEMENT
Financial management is defined as the managerial function that is concerned with planning
and controlling of the firm’s financial resources including administration and maintenance of
financial assets.
Financial management deals with procurement of funds and their effective utilization in the
business.
2.1 MAJOR DECISION IN FINANCE
1. FINANCING DECISION
Financing decisions deals with the acquisition of funds needed to support long-term
investments.
The business can either finance from its shareholder funds or borrowings loans from financial
institutions.
While taking this decision, a financial manager needs to weights the advantages and
disadvantages of the different sources of finance. For example choosing banks which provide
loans of lower interest level.
2. DIVIDEND DECISION
The dividend decision is concerned with determining how much part of the earnings (profit)
should be distributed among the share holders by way of dividend and how much should be
retained in the business for meeting the future needs of funds internally.
While declaring dividend, a large number of considerations are kept in mind such as the
requirement of funds for future growth of the business, Stability in dividends, the cash flow
situation, the tax impact on shareholders, Trend of earnings, the trend of share market prices
And Restrictions under the Companies Act.

2. 3. INVESTMENT DECISION
A determination made by management as to how, when, where and how much capital will be
spent on investment opportunities by selecting the right lines of business that a firm should
engage which consist of a project aiming on maximizing profit of the company.
It relates to the careful selection of assets in which funds will be invested by the firm. It
involves buying, holding, reducing, replacing, selling & managing assets
It also involves checking what sort of property, plant, and equipment should the firm hold.
4. LIQUIDITY / WORKING CAPITAL DECISION
Working capital is simply the excess of current assets over current liabilities.
This is a decision that ensures a business has sufficient funds to finance its day to day
business operation. It includes meeting short term decisions (obligations) of the firm that have
a maturity of less than a year. For example Electricity cost.