Business Finance
Unit IX. Covers Financial management; Financial decisions; Financial planning; Capital structure; Fixed and working capital.
About this unit
Business finance refers to the money required to carry out business activities. This unit explains financial management and its objective of maximising shareholders' wealth, the three key financial decisions (investment, financing and dividend), financial planning, capital structure and trading on equity, and the factors that decide how much fixed capital and working capital a business needs.
Key ideas
- Financial management deals with the optimal procurement and use of funds.
- Its main objective is wealth maximisation of shareholders.
- The three financial decisions are investment, financing and dividend decisions.
- Capital structure is the mix of owners' funds and borrowed funds.
- Trading on equity raises earnings per share when the return on investment exceeds the cost of debt.
- Fixed capital is invested in long-term assets; working capital is current assets minus current liabilities.
How to prepare
- Learn the factors affecting each financial decision and capital structure, as case questions often test them.
- Practise simple calculations of earnings per share, interest coverage and working capital.
- Compare the needs of trading and manufacturing firms for fixed and working capital.
Topics in this chapter
Financial management
Meaning, role and objectives of financial management.
5 questionsFinancial decisions
Investment, financing and dividend decisions and the factors affecting them.
5 questionsFinancial planning
Meaning and importance.
5 questionsCapital structure
Meaning and factors affecting it.
5 questionsFixed and working capital
Meaning and factors affecting requirements.
5 questionsPractice questions
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