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CBSE Class 12 Financial Management Notes: In this article, students can find revision notes for CBSE Class 12 Business Studies Chapter 9, Financial Management along with a PDF download link for the same. Business Studies Class 12 Financial Management notes will help you understand and memorizing important parts of the chapter in an easy and convenient manner
Financial Management Class 12 Notes: This article hands out CBSE Class 12 Business Studies Chapter 9 Financial Management revision notes for students of the current academic year 2023-2024. Also, find attached a PDF download link for the same. The revision notes presented here have been prepared on the basis of the CBSE Class 12 Business Studies syllabus 2024. Thus, all the deleted topics have been referred to and checked before the preparation of these revision notes.
Revision notes are the handwritten summation of the chapter with only relevant information present in it. They are quite handy and convenient to use for students during the examinations. They also save you time and help you prepare well for the examination. Generally, it is advisable for students to prepare revision notes on their own but if they do not find the appropriate amount of time to do so, they are free to refer to these revision notes prepared especially for them.
Related:
CBSE Class 12 Business Studies MCQs
CBSE Class 12 Business Studies Mind Maps
NCERT Solutions for Class 12 Business Studies 2023-2024
Revision Notes for Class 12 Business Studies Chapter 9, Financial Management
What is financial management?
Financial Management is concerned with optimal procurement as well as usage of finance. For optimal procurement, different available sources of finance are identified and compared in terms of their costs and associated risks. It aims at reducing the cost of funds procured, keeping the risk under control, and achieving effective deployment of such funds.
Importance of financial management
- It has a direct bearing on the financial health of a business.
- Almost all items in the financial statements of a business are affected directly or indirectly through some financial management decisions.
Aspects being affected by the financial management of the firm
- The size and the composition of fixed assets of the business
- The quantum of current assets and its break-up into cash, inventory, and receivables
- The amount of long-term and short-term funds to be used
- Break-up of long-term financing into debt, equity, etc
Objectives of Financial Management
- Maximise shareholders’ wealth, which is referred to as the wealth-maximisation concept
- All financial decisions aim at ensuring that each decision is efficient and adds some value. Such value additions tend to increase the market price of shares.
- To maximise the current price of equity shares of the company or to maximise the wealth of owners of the company, that is, the shareholders
- Ensure that benefits from the investment exceed the cost so that some value addition takes place
- Reduce the cost so that the value addition is even higher
What are financial decisions?
Financial decisions mean the selection of the best financing alternative or best investment alternative.
What is investment decision
It relates to how the firm’s funds are invested in different assets. Investment decisions can be long-term or short-term. A long-term investment decision is also called a Capital Budgeting decision. It involves committing the finance on a long-term basis. These decisions are very crucial for any business since they affect its earning capacity in the long run. The size of assets, profitability and competitiveness are all affected by capital budgeting decisions. Short-term investment decisions are called working capital decisions. They are concerned with the decisions about the levels of cash, inventory and receivables.
Factors affecting Capital budget decision
- Cash flows of the project
- The rate of return
- The investment criteria involved
What are financing decisions?
This decision is about the quantum of finance to be raised from various long-term sources. It involves the identification of various available sources. The main sources of funds for a firm are shareholders’ funds and borrowed funds.
Factors affecting financing decisions
- Costof raising funds
- Risk is associated with different sources
- Floatation Costs
- Cash Flow Position of the Company
- Fixed Operating Costs
- Control Considerations
- State of Capital Market
What is Dividend decision?
Dividend is a portion of profit that is distributed to shareholders. The decision involved here is how much of the profit earned by the company (after paying tax) is to be distributed to the shareholders and how much of it should be retained in the business. Since the firm does not require funds to the extent of re-invested retained earnings, the decision regarding dividends should be taken keeping in view the overall objective of maximizing shareholder’s wealth.
Factors affecting Dividend decision
- Amount of Earnings
- Stability Earnings
- Stability of Dividends
- Growth Opportunities
- Cash Flow Position
- Shareholders’ Preference
- Taxation Policy
- Stock Market Reaction
- Access to Capital Market
- Legal Constraints
- Contractual Constraints
What is financial planning?
It is the preparation of a financial blueprint for an organisation’s future operations. The objective of financial planning is to ensure that enough funds are available at the right time. It aims at smooth operations by focusing on fund requirements and their availability in the light of financial decisions. It enables the management to foresee the fund requirements both the quantum as well as the timing.
Objectives of Financial Planning
- To ensure availability of funds whenever required
- To see that the firm does not raise resources unnecessarily
Importance of financial planning
- It helps in forecasting what may happen in future under different business situations. By doing so, it helps the firms to face the eventual situation in a better way
- It helps in avoiding business shocks and surprises and helps the company prepare for the future
- It helps in co-ordinating various business functions, e.g., sales and production functions, by providing clear policies and procedures.
- Detailed plans of action prepared under financial planning reduce waste, duplication of efforts, and gaps in planning
- It tries to link the present with the future
- It provides a link between investment and financing decisions on a continuous basis
- It makes the evaluation of actual performance easier
What is capital structure
Capital structure refers to the mix between owners and borrowed funds. These shall be referred to as equity and debt in the subsequent text. It can be calculated as a debt-equity ratio or as the proportion of debt out of the total capital
To download the complete revision notes for Class 12 Chapter 9 Financial Management, click on the link below
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