Exam Tomorrow · Class 12 Business Studies · Chapter 9

Financial Management Quick Revision

Investment, financing and dividend decisions—plus the factors that shape them.

60-second revision

  • Financial management is concerned with procurement and effective use of funds to achieve financial objectives.
  • Its three major decisions are investment decision, financing decision and dividend decision.
  • Capital structure is the mix of debt and equity used to finance the business.
  • Working capital refers to funds required for day-to-day operations; fixed capital supports long-term assets.

Keywords to remember

investment decision · financing decision · dividend decision · capital structure · working capital · fixed capital

Common mistakes

  • Do not confuse financing decision with investment decision: financing asks where funds come from; investment asks where funds are used.
  • Debt can increase financial risk even when it offers possible tax and return advantages.

Important questions

  1. Explain the three financial decisions.
  2. What factors affect capital structure decisions?
  3. Differentiate fixed capital and working capital requirements.

Quick MCQ check

Question 1: Choosing between debt and equity is mainly a:

  • Investment decision
  • Financing decision
  • Marketing decision
  • Staffing decision

Explanation: The financing decision concerns the sources and mix of funds.

Question 2: Buying a new production plant is mainly a:

  • Investment decision
  • Dividend decision
  • Recruitment decision
  • Promotion decision

Explanation: Investment decisions allocate funds to assets and projects.

Question 3: Funds required for routine day-to-day operations are called:

  • Working capital
  • Goodwill
  • Share premium
  • Long-term reserve only

Explanation: Working capital supports current operating needs.

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