Financial management is based on three b | Class 12 Business Studies Chapter Financial Management, Financial Management NCERT Solutions

Question:

Financial management is based on three broad financial decisions. What are these?

Answer:

Financial management is concerned with optimum procurement as well as usage of finance. It aims at mobilization of funds at a lower cost and deployment of these funds in the most profitable activities. Three broad decisions are:

  1. Investment decision: It relates to how the firm’s funds are invested in different assets, so that the firm is able to earn the highest possible returns on investment. Investment decisions can be long-term or short-term.

  2. Financing decision: It is concerned with the decisions of how much funds are to be raised from which long-term source, i.e. by means of shareholders’ funds or borrowed funds. Shareholders’ funds include share capital, reserves and surplus and retained earnings, whereas, borrowed funds includes debentures, long-term loans and public deposits.

  3. Dividend decision: It relates to how much of the company’s net profit is to be distributed to the shareholders and how much of it should be retained in the business for meeting the investment requirements. This decision should be taken, keeping in view the overall objective of maximizing shareholders’ wealth.


Study Tips for Answering NCERT Questions:

NCERT questions are designed to test your understanding of the concepts and theories discussed in the chapter. Here are some tips to help you answer NCERT questions effectively:

  • Read the question carefully and focus on the core concept being asked.
  • Reference examples and data from the chapter when answering questions about Financial Management.
  • Review previous year question papers to get an idea of how such questions may be framed in exams.
  • Practice answering questions within the time limit to improve your speed and accuracy.
  • Discuss your answers with your teachers or peers to get feedback and improve your understanding.

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Welcome to the NCERT Solutions for Class 12 Business Studies - Chapter . This page offers a step-by-step solution to the specific question from Excercise 2 , Question 4: Financial management is based on three broad financial decisions. What are these?....