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प्रश्न
Financial management is based on three broad financial decisions. What are these?
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उत्तर
Financial management refers to the procurement, allocation and utilisation of funds. It deals with three main decisions :-
a) Procurement decisions :- To decide the source of capital that is from where the capital should be raised so as the overall cost of capital should be at its minimum.
b) Investment decisions (Allocation of funds) :- Where the available funds should be invested so as to ensure maximum return.
c) Dividend decision :- To decide the rate of dividend to be paid to the shareholders
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संबंधित प्रश्न
'Mission Coach Ltd.' is a large and creditworthy company manufacturing coaches for Indian Railways. It now wants to export these coaches to other countries and decides to invest in
new hi-tech machines. Since the investment is large, it requires long-term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of floatation cost, the company decides to tap the money market.
1) Name and explain the money-market instrument the company can use for the above
purpose
2) What is the duration for which the company can get funds through this instrument?
3) State any other purpose for which this instrument can be used.
'Abhishek Ltd'. is manufacturing cotton clothes. It has been consistently earning good profits for many years. This year too, it has been able to generate enough profits. There is the availability of enough cash in the company and good prospects for growth in future. It is a well-managed organisation and believes in quality, equal employment opportunities and good remuneration practices. It has many shareholders who prefer to receive a regular income from their investments. It has taken a loan of Rs 50 lakhs from I.C.I.C.I. Bank and is bound by certain restrictions on the payment of dividend according to the terms of the loan agreement.
The above discussion about the company leads to various factors which decide how much
of the profits should be retained and how much has to be distributed by the company.
Quoting the lines from the above discussion, identify and explain any four such factors.
Explain the following as factor affecting dividend decision:
Cash flow position
Explain the following as factor affecting dividend decision:
Shareholder's preferences
What is ‘Financial Risk?’ Why does it arise?
| Ananta Ltd. is a company dealing in ready-made garments for the last many years. Recently the profit of the company has started increasing. The finance manager decided to retain the profit instead of distributing it among shareholders. |
- Identify and state the financial decision taken by the finance manager in the above case.
- State any three factors affecting the decision identified in (i) above.
| Ravi has joined as a finance manager at MTA Ltd. He had to arrange funds of rupees one crore for the company. The Chief Executive Officer of the company wants to arrange the funds by a public issue whereas the finance manager wants to have a mix of debt and equity as this will determine the overall cost of capital and the financial risk of the enterprise. |
- Identify and give the meaning of the financial decision suggested by the finance manager in the above case.
- State any three factors affecting the decision identified in (i) above.
Identify the financial decision that is concerned with deciding how much of the profit earned by a company is to be distributed to shareholders and how much should be retained in the business. Also state any three factors affecting the identified decision.
What must a business decide about each available source of finance?
Which set of outcomes is affected by a financing decision?
What combination must a firm select when choosing between debt and equity?
What is the nature of equity in a debt-and-equity comparison?
What may be the effect of a fresh issue of equity on control?
What happens to debt’s interest and principal commitments when profits are inadequate?
How does a higher floatation cost affect a financing source?
How does lower cost affect the attractiveness of a source of finance?
What financing choice is supported by strong cash flows?
What financing choice do high fixed operating costs generally favour?
Which set lists sources of finance considered in a financing decision?
Which sequence correctly orders the seven factors affecting financing decisions?
