WHAT IS FINANCIAL

MANAGEMENT? financial
management is the business function
that deals with investing the
available financial resources in a way
that greater business success and
return-on-investment (ROI) is
achieved. Financial management
professionals plan, organize and
control all transactions in a business.
They focus on sourcing the capital
whether it is from the initial
investment by the entrepreneur,
debt financing, venture funding,
public issue, or any other sources.
Financial management professionals
are also responsible for fund
allocation in an optimized way to
ensure greater financial stability and

growth for the organization. Three

Major Decisions in Financial
Management-1. INVESTMENT
DECISIONS-The investment decision
relates to the selection of assets in
which funds will be invested by a
firm. The assets as per their duration
of benefits, can be categorized into
two groups: (i) long-term assets
which yield a return over a period of
time in future (ii) short-term or
current assents which in the normal
course of business are convertible
into cash usually with in a year.
Accordingly, the asset selection
decision of a firm is of two types. The
investment in long-term assets is
popularly known as capital budgeting
and in short-term assets, working
capital management. 2. FINANCE
DECISIONS -The second major
decision involved in financial
management is the financing
decision, which is concerned with
the financing — mix or capital
structure of leverage. The term
capital structure refers to the
combination of debt (fixed interest
sources of financing) and equity
capital (variable — dividend
securities/source of funds). The
financing decision of a firm relates to
the choice of the proportion of these
sources to finance the investment
requirements.3.DIVIDEND POLICY
DECISIONS-The third major decision
of financial management is relating
to dividend policy. The firm has two
alternatives with regard to
management of profits of a firm.
They can be either distributed to the
shareholder in the form of dividends
or they can be retained in the
business or even distribute some
portion and retain the remaining.
The course of action to be followed is
a significant element in the dividend
decision. The dividend pay out ratio i.
e. the proportion of net profits to be
paid out to the shareholders should
be in tune with the investment
opportunities available within the
firm.