The capital invested in current or working assets such as stock of materials and finished goods, accounts receivable, bills receivable, short-term securities and cash or bank balance for meeting day-to-day expenses is known as working capital or current capital.
It represents investment for a short period. The term 'working capital' is used in two senses, namely gross working capital and net working capital.
(i) Gross Working Capital It is the total value of current assets.The amount of gross working capital indicates the total funds available for financing the current assets.It is a  quantitative concept, which fails to reveal the true financial position of a company
(ii) Net working capital It represents the excess of current assets over current liabilities.Net working capital is a qualitative concept and it reveals the soundness of current financial position.It shows a firm's ability to meet its current obligations as they fall due fro payment.

Current assets can be changed into cash and cash equivalents in a short period of time, i.e., within a year or operating cycle of a business. Such assets are used to facilitate the day-to-day business operations. These assets provide liquidity to the company. Firms keep such assets to meet their various payment obligations. However, such assets provide very little returns and are thereby, less profitable if kept as such. Examples of current assets are short-term investment as government bonds, inventories, trade receivables and short-term loan".

Capital structure refers to the composition of debt and equity.A capital structure is said to be optimum when the proportion of debt and equity is such that, it results in increase in the wealth of shareholders. If the capital structure results in increasing or maximising the wealth of shareholders, then it is considered best for a firm.  

The main objectives  of financial management are:
(i) Effective utilisation of funds, by ensuring that benefits of an investment exceeds its cost.
(ii) To raise funds at minimum cost and minimum risk, through effective financing decision.
(iii) To ensure safety of funds by creating reserves, reinvesting profits etc.
(iv) To maintain financial liquidity and profitability through working capital decision.

(i) Nature of business
(i) The basic nature businessZ influences the amount of working capital.A trading organisation and a service industry firm usually needs a smaller amount o working capital as compared to a manufacturing. 
(ii) Scale of operations
Organisations which operate on a large scale, their quantum of inventory and debtors required is generally high, Such organisations, therefore, require  large amount of working capital as compared to the organisations which operate on a lower scale.
(iii) Seasonal Factors
Some the business have seasonal operations.During peak season, larger amount of working capital is required because of higher level of activity.
As against this, the level of activity, as well as the requirement for working capital, will be lower during the lean season.
(iv) Production of cycle/operating Cycle
Production cycle is the time span between the receipt of raw material and their conversion into finished goods.
Some businesses have a longer production cycle while some have a shorter one.Duration and the length of production cycle affect the amount of funds required for raw materials and expenses.

Trading on equity refers to the increase in profit earned by the equity shareholders due to presence of fixed financial charges. When the rate of earning or Return on Investment (ROI) of a company is higher than the rate of interest on borrowed funds only then a company should opt for trading on equity. Let us consider the following example

\(\therefore \) Earning  Per Share (EPS) \(=\frac { Profit \ After \ Tax \ }{ Number \ of \ Equity \ Shares } \)
\(\frac { 150000 }{ 10000 } = Rs.\ 15\)  \(\frac { 105000 }{ 4000 } = Rs.\ 26.25\)​​​​​​
It should be clear from the above example, that shareholders of the company ‘X’ have a higher rate of return than company ‘Y’ due to loan component in the total capital of the company.
Case Problem
‘S’ Limited is manufacturing steel at its plant in India. It is enjoying a buoyant demand for its products as economic growth is about 7%-8% and the demand for steel is growing. It is planning to set up a new steel plant to cash on the increased demand it is facing. It is estimated that it will require about? 5,000 crores to set up and about t 500 crores of working capital to start the new plant.

Dividend decision 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 maximising shareholders, wealth.
Stability of Dividends
Generally, companies try to stabilise dividends per share.A steady dividend is given each year A change is only made if the company's  earning potential has gone up and not just earnings of the current year.
Shareholders' preference
While declaring dividends, management must keep in mind the preferences of the shareholders.Some shareholders in general desire that atleast a certain amount is paid as dividend.The companies should consider the preferences of such shareholders.
Legal constraints
Certain provisions of the companies act, place restrictions on payouts as dividend.Such provisions must be adhered to, while declaring the dividend.
Access to capital market
Large and reputed companies generally have easy access to the capital market and, therefore, may depend less on retained earnings to finance their growth.These companies tend to pay higher dividends than the smaller companies
Stability of Earnings
A company having higher and stable earnings can declare higher dividends than a company with lower and unstable earnings.
Growth Opportunities
Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment.The dividend declared in growth companies is, therefore, our flow smaller than that in the non-growth companies. 
Cash Flow position
Dividend involves an outflow of cash.Availability of enough cash is necessary for payment or declaration of dividends.
Taxation of policy
If the tax on the dividends is higher, is is better to pay less by way of dividentd.But if the tax rates are lower, higher dividends may be declared. This is because as per the current taxation policy, a dividend distributions tax is levied on companies.However, dividends shareholders prefer dividends, as dividends are tax free in the hands of shareholders
Amount of Earnings
Dividends are paid out of current and past earnings.Thus, earnings is a  major determinant of dividend decision
Stock Market reaction
Generally, an increase in dividends has a positive impact on stock market, whereas, a decrease or no increase may have a negative impact on stock market.Thus, while deciding on dividends, this should be kept in mind.
Contractual Constraints
While granting loans to a company, sometimes, the lender may impose certain restrictions on the payments of dividends in future.The companies are required that the dividend payout does not violate the terms of the loan agreement  in this regard.