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Financial Management
Somnath Ltd. is engaged in the business of export of garments. In the past, the performance of the company had been upto the expectations. In line with the latest technology, the company decided to upgrade its machinery. For this, the Finance Manager, Dalmia estimated the amount of funds required and the timings. This will help the company in linking the investment and the financing decisions on a continuous basis. Dalmia, therefore, began with the preparation of a sales forecast for the next four years. He also collected the relevant data about the profit estimates in the coming years. By doing this, he wanted to be sure about the availability of funds from the internal sources of the business. For the remaining funds, he is trying to find out alternative sources from outside. Identify the financial concept discussed in the above para. Also, state the objectives to be achieved by the use of the financial concept,
so identified.
The concept of Financial planning has been discussed in the paragraph. Financial planning involves identifying the sources from where the funds can be obtained and ensuring that the required funds are available to the firm as and when needed or required.
Two main objectives of financial planning are:
i.Timely availability of funds: financial planning helps in making an estimation regarding the amount of funds to be required for various business operations and activities at the right or correct time at which the funds would be needed.
ii. Proper utilisation: To ensure that there is proper utilisation of funds in the sense that there is neither surplus nor inadequate funds in a firm. In other words, it ensures that situations of both excess or shortage of funds are avoided. This is because while inadequate funds obstruct operations of the firm, excess funding leads to wasteful expenditure by the firm. Thus, proper financial planning ensures optimal and proper utilisation of funds.
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Explain briefly the factors affecting the investment decision.
Explain, in brief, any five factors that should be taken into consideration while determining the long-term dividend policy.
Or
Explain factors affecting the dividend policy of a company.
“Determining the relative proportion of various types of funds depends upon various factors”. Explain any five such factors.
Or
“Determining the overall cost of capital and the financial risk of the enterprise depends upon various factors”. Explain any five such factors.
Investment decision can be long-term or short-term. Explain long-term investment decision and state any two factors affecting this decision.
Identify the financial decision which determines the amount of profit earned to be distributed and to be retained in the business. Explain any four factors affecting this decision.
Explain, in brief, any three decisions involved in financial management.
What is meant by investment decision?
From the point of view of ‘Floatation costs’ which source of finance is most appropriate?
From the point of view of ‘Control’ which source of finance should be avoided?
How the ‘Stability of Earning’ affects the dividend decision?
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