Financial Management
Class 12 Business Studies · Business Studies Part II · Chapter 1
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Business Studies
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Business Studies
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History
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Geography
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Accountancy
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Mathematics
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हिंदी (आधार)
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Accountancy
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اردو (اختیاری)
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Mathematics
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हिंदी (आधार)
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संस्कृतम् (केन्द्रिकम्)
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Physics
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हिंदी (ऐच्छिक)
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संस्कृत (ऐच्छिक)
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Physics
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हिंदी (ऐच्छिक)
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اردو (کور)
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Chemistry
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Urdu Elective
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Computer Science
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Chemistry
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Fine Art · Painting
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हिंदुस्तानी संगीत (गायन / वादन)
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Biology
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Informatics Practices
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Accountancy
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Biotechnology
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Accountancy
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सृजनात्मक लेखन और अनुवाद
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हिंदुस्तानी संगीत (तबला / पखावज)
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Economics
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Economics
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History
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History
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History
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Geography
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Geography
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Geography
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English Elective · Kaleidoscope
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Political Science
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Political Science
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Sociology
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Sociology
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Psychology
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English Core · Flamingo
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English Core · Vistas
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Home Science
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Home Science
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Summary
Business finance refers to the money and credit employed in a business; financial management is concerned with the optimal procurement and usage of finance. Its primary aim is to maximise the wealth of the shareholders, that is, the market value of the firm's equity shares. Financial management involves three broad financial decisions. The investment decision (capital budgeting for long-term assets and working-capital decisions for short-term assets) decides where funds are committed; it is affected by cash flows, the rate of return and the investment criteria. The financing decision is about the proportion of funds raised from shareholders (equity) and from borrowing (debt), and is affected by cost, risk, the floatation cost, cash-flow position and control considerations. The dividend decision concerns how much profit is distributed as dividend and how much retained, influenced by earnings, stability, growth opportunities, cash-flow position and shareholders' preference. Financial planning is the preparation of a financial blueprint of an organisation's future operations; it ensures that enough funds are available and avoids surplus or shortage. Capital structure is the mix of debt and equity used to finance the business; the use of debt is called financial leverage or trading on equity, which raises the return to equity shareholders but also raises risk. The choice of an appropriate capital structure depends on cash-flow position, interest-coverage ratio, return on investment, cost of debt, tax rate, cost of equity, floatation cost, risk, flexibility, control, the regulatory framework and stock-market conditions. Decisions on fixed and working capital depend on the nature and scale of business, the business cycle and the operating cycle.
Meaning of business finance and financial managementObjectives of financial managementInvestment, financing and dividend decisionsFinancial planningCapital structure and financial leverageFixed and working capital
Key terms
Financial management
The optimal procurement and usage of finance to maximise shareholder wealth.
Wealth maximisation
The main objective of financial management — raising the market value of the firm's equity shares.
Investment decision
Deciding where and how much funds are committed in long-term and short-term assets.
Financing decision
Deciding the proportion of funds raised from equity (shareholders) and debt (borrowing).
Capital structure
The mix of debt and equity used to finance the business.
Financial leverage
Use of debt in the capital structure (trading on equity) to raise the return to equity holders.
Extra questions & answers
Try one from this chapter
Financial management is concerned with the: