question_answer 17)

Financial management is based on three broad financial decisions. What are these?

Answer:

Financial management is concerned with the solution of three major issues relating to the financial operations of a firm corresponding to the three questions of investment, financing and dividend decision. In a financial context, it means the selection of best financing alternative or best investment alternative. The finance function therefore, is concerned with three broad decision which are as follows (i) Investment Decision The investment decision relates to how the firm's funds are invested in different assets. (ii) Financing Decision This decision is about the quantum of finance to be raised from various long term sources and short term sources. It involves identification of various available sources of finance. (iii) Dividend Decision This decision relates to distribution of dividend. Dividend is that portion of profit which is distributed to shareholders the decision involved here is how much of the profit earned by company is to be distributed to the shareholders and how much of it should be retained in the business for meeting investment requirements.