Business Studies · Ch 9 — Financial Management
Key Terms
Key Terms
- Financial Management: The management activity concerned with the optimal procurement and use of finance — raising funds at the lowest cost and deploying them to earn the best possible returns.
- Wealth Maximisation: The primary objective of financial management — maximising the current market price of the company's equity shares, i.e., the wealth of the shareholders.
- Investment Decision: The decision about how a firm's scarce funds are allocated across different assets, covering both long-term (capital budgeting) and short-term (working capital) choices.
- Financing Decision: The decision about how much finance to raise and from which sources — the mix of shareholders' funds and borrowed funds — which determines the firm's capital structure and financial risk.
- Dividend Decision: The decision about how much of the profit earned is distributed to shareholders as dividend and how much is retained in the business as retained earnings.
- Capital Budgeting: The long-term investment decision that involves committing funds on a long-term basis, such as buying a new machine, acquiring a fixed asset, or opening a new branch.
- Working Capital: The funds invested in current assets — cash, inventory, and receivables — needed for the day-to-day operations of a business.
- Financial Planning: The process of estimating the fund requirements of a business and specifying the sources from which those funds will be raised, so that adequate funds are available at the right time without unnecessary excess. …