Q2

The basic financial management decision areas are capital budgeting, capital structure,
and working capital management. 
Capital budgeting
The capital budgeting decision is a financial management decision concerned with the
long-term projects or investments a company should take on. Therefore, it is the process of
planning and managing the long-term investments of a firm. With regards to capital budgeting
decisions, the financial manager is responsible for attempting to identify profitable investment
opportunities. These include assets for which the value of the cash flow they generate is higher
than the cost of the asset. The essence of capital budgeting is the evaluation of the size, timing,
and risk of future cash flow, such as cash outflows and cash inflows. To achieve this, several
capital budgeting techniques are used such as discounted payback period, net present value
(NPV), profitability index, and internal rate of return (IRR)
Capital structure
           The capital structure decision refers to the financial management decision concerned with
how the company should pay for its assets by either using debts or equity. Therefore, it is
concerned with obtaining funds to meet the long-term investment requirements of a firm. It
entails a particular mixture of long-term debt and equity used in financing the assets. Therefore,
the finance manager has to decide exactly how much funds to raise, when to raise them, and
from which sources to raise them. The finance manager has to carefully evaluate different
feasible combinations of raising required funds to select an optimal combination of different
sources of funds.
Working capital management
The working capital management decision is concerned with effective management of the
current assets or short-term assets of a company such as receivables, cash, inventory, and short-
term or current liabilities like accounts payables. It refers to the decision about how a company
manages the day-to-day finances of the firm. Working capital management involves issues such
as the possible sources of raising short-term funds, optimum levels of inventory and cash, the
proportion of funds to be raised from different short-term sources, and the credit policy of a firm
while selling to customers.