Podcast Beta
Questions and Answers
What factors should be considered when making decisions about capital expenditure?
Which decision involves determining the amount and timing of dividends to be paid to shareholders?
What is a vital aspect of running a business that directly affects the financial health and growth of the organization?
What does understanding the objectives of financial management enable businesses to do?
Signup and view all the answers
What is the main focus of financial management?
Signup and view all the answers
Which one of the following is NOT an objective of financial management?
Signup and view all the answers
What does capital structure decision involve?
Signup and view all the answers
How does financial management affect a company's aspects?
Signup and view all the answers
What is the wealth-maximization concept in financial management?
Signup and view all the answers
What is one of the main objectives of financial management related to funds?
Signup and view all the answers
Study Notes
Business Studies Class 12: Financial Management
Financial management is a crucial aspect of running a successful business, as it involves the proper allocation, acquisition, and use of funds by the company. In this article, we will discuss the importance of financial management, the objectives of financial management, and the three main financial decisions that businesses need to make.
Importance of Financial Management
Financial management has a direct bearing on the financial health of a business. It affects various aspects of a company, such as:
- The size and composition of fixed assets
- The quantum of current assets and their break-up into cash, inventory, and receivables
- The amount of long-term and short-term funds to be used
- The break-up of long-term financing into debt, equity, etc.
Objectives of Financial Management
The main objectives of financial management are:
- Maximize shareholders' wealth, also known as the wealth-maximization concept
- Ensure that each decision is efficient and adds value
- Reduce the cost of funds procured, keeping the risk under control, and achieve effective deployment of such funds
Three Main Financial Decisions
Financial management is based on three broad financial decisions:
-
Capital Structure: This decision involves determining the optimal mix of debt and equity financing for a company. Factors to consider include the cost of capital, risk appetite, and tax considerations.
-
Capital Expenditure: This decision involves allocating funds for purchasing fixed assets, such as machinery or infrastructure. The choice depends on factors like expected return on investment, cost of funds, and risk.
-
Dividend Policy: This decision involves determining the amount and timing of dividends to be paid to shareholders. Factors to consider include the company's profitability, cash flow, and market conditions.
Conclusion
In conclusion, financial management is a vital aspect of running a business, as it directly affects the financial health and growth of the organization. By understanding the objectives of financial management, businesses can make informed decisions about raising and using funds, ensuring efficient allocation and maximizing shareholder wealth.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Explore the importance of financial management, its objectives, and the three main financial decisions in this article about Financial Management in Business Studies Class 12.
