UNIT SNAPSHOT
UGC NET COMMERCE
Unit 4
Business Finance
,❖ Financial Management - Financial management is managerial activity which is concerned
with the planning and controlling of the firm’s financial resources.
a) Howard and Uptron define financial management “as an application of general
managerial principles to the area of financial decision-making”.
b) Weston and Brighem define financial management “as an area of financial decision
making, harmonizing individual motives and enterprise goal”.
c) “Financial management is concerned with the efficient use of an important economic
resource, namely capital funds” - Solomon Ezra & J. John Pringle.
d) “Financial management is the operational activity of a business that is responsible for
obtaining and effectively utilizing the funds necessary for efficient business operations”-
J.L. Massie.
❖ Wealth Maximization objective of Financial Management - The earlier objective of profit
maximization is now replaced by wealth maximization. The very objective of Financial
Management is to maximize the wealth of the shareholders by maximizing the value of the
firm. This prime objective of Financial Management is reflected in the EPS (Earning per
Share) and the market price of its shares.
❖ Functions of Financial Management - The functions of financial management can be broadly
classified into three major decisions, namely Investment decisions, Financing decisions and
Dividend decisions.
www.everstudy.co.in Query:
,❖ Investment Decision - The investment decision is concerned with the selection of assets in
which funds will be invested by a firm. The assets of a business firm includes long term assets
(fixed assets) and short term assets (current assets). The long term investment decision is
known as capital budgeting and the short term investment decision is identified as working
capital management.
❖ Financing Decision - The financing decision is concerned with capital – mix, financing – mix
or capital structure of a firm. The term capital structure refers to the proportion of debt
capital and equity share capital. Financing decision of a firm relates to the financing – mix.
This must be decided taking into account the cost of capital, risk and return to the
shareholders.
❖ Dividend Decision - Dividend policy decisions are concerned with the distribution of profits
of a firm to the shareholders. How much of the profits should be paid as dividend? i.e.
dividend pay-out ratio. The decision will depend upon the preferences of the shareholder,
investment opportunities available within the firm and the opportunities for future
expansion of the firm.
❖ Sources of Finance - Sources of finance for business are equity, debt, debentures, retained
earnings, term loans, working capital loans, letter of credit, euro issue, venture funding etc.
www.everstudy.co.in Query:
, ❖ Bonds - Bonds are issued by organizations generally for a period of more than one year to
raise money by borrowing. A bond is generally a form of debt which the investors pay to the
issuers for a defined time frame.
www.everstudy.co.in Query:
UGC NET COMMERCE
Unit 4
Business Finance
,❖ Financial Management - Financial management is managerial activity which is concerned
with the planning and controlling of the firm’s financial resources.
a) Howard and Uptron define financial management “as an application of general
managerial principles to the area of financial decision-making”.
b) Weston and Brighem define financial management “as an area of financial decision
making, harmonizing individual motives and enterprise goal”.
c) “Financial management is concerned with the efficient use of an important economic
resource, namely capital funds” - Solomon Ezra & J. John Pringle.
d) “Financial management is the operational activity of a business that is responsible for
obtaining and effectively utilizing the funds necessary for efficient business operations”-
J.L. Massie.
❖ Wealth Maximization objective of Financial Management - The earlier objective of profit
maximization is now replaced by wealth maximization. The very objective of Financial
Management is to maximize the wealth of the shareholders by maximizing the value of the
firm. This prime objective of Financial Management is reflected in the EPS (Earning per
Share) and the market price of its shares.
❖ Functions of Financial Management - The functions of financial management can be broadly
classified into three major decisions, namely Investment decisions, Financing decisions and
Dividend decisions.
www.everstudy.co.in Query:
,❖ Investment Decision - The investment decision is concerned with the selection of assets in
which funds will be invested by a firm. The assets of a business firm includes long term assets
(fixed assets) and short term assets (current assets). The long term investment decision is
known as capital budgeting and the short term investment decision is identified as working
capital management.
❖ Financing Decision - The financing decision is concerned with capital – mix, financing – mix
or capital structure of a firm. The term capital structure refers to the proportion of debt
capital and equity share capital. Financing decision of a firm relates to the financing – mix.
This must be decided taking into account the cost of capital, risk and return to the
shareholders.
❖ Dividend Decision - Dividend policy decisions are concerned with the distribution of profits
of a firm to the shareholders. How much of the profits should be paid as dividend? i.e.
dividend pay-out ratio. The decision will depend upon the preferences of the shareholder,
investment opportunities available within the firm and the opportunities for future
expansion of the firm.
❖ Sources of Finance - Sources of finance for business are equity, debt, debentures, retained
earnings, term loans, working capital loans, letter of credit, euro issue, venture funding etc.
www.everstudy.co.in Query:
, ❖ Bonds - Bonds are issued by organizations generally for a period of more than one year to
raise money by borrowing. A bond is generally a form of debt which the investors pay to the
issuers for a defined time frame.
www.everstudy.co.in Query:
