Capital Budgeting decision refers to investment decision to which are to be taken by a finance manager for investment in long term projects. The basic criteria involved for taking such decisions are:-
(a) Rate of return and
(b) risk involve. Firms try to invest in projects with maximum rate of return and minimum risk. The other factors to be considered are
(i) Cash flow of project :- A project must be able to generate reasonable cash flow.
(ii) Investment Criteria involved :- Calculations regarding amount of investment, interest rate and purpose have to be carefully analysed before making such decision.

The capital structure of a company refers to the composition of its long term funds. The following factors effect the capital structure of a company –
i) Position of cash Flow :- The decision relating to composition of capital structure depends upon the ability of the business to generate enough cash flow. Funds are required to meet its day to day requirements. long term investments & to pay fixed commitments.
ii) Return on investment (ROI) :- It refers to the earnings expected from the investment. If ROI is high a Co. can opt for trading on equity to increase the earning per share. Thus, it is an important determinant of the extent of trading on equity and hence, capital structure.
iii) Interest Coverage Ratio :- The purpose of calculating this ratio is to determine the composition of debt funds in the capital structure of a Co. It is a ratio between earning before interestand taxes (EBIT) and interest obligation
ICR =  \(\frac {EBIT}{Interest}\)
iv) Debt Service Coverage ratio (DSCR) :- This ratio takes care of the limitation of ICR. It is calculated as follow 
= \(\frac {Net profit after tax + depreciation + Int. on term borrwings}{Repayment of term berrowings + Int.on term borrowings}\)

Long-term investment decision is referred to as the capital budgeting decision. It relates to the investment in fixed assets e.g. buying a new machine. Before taking the final decision the finance manager makes a comparative study of various alternatives available in the market on the basis of their cost and profitability.
These decisions are very important as they affect the earnings of the business in the long-run.
Factors affecting long-term investment decision are::
(i) Cash flow of the project Cash flow of the project during the life if an investment affects the long-term investment decision.
Series of cash receipts and payments over the life of an investment has to be carefully analysed before taking a capital budgeting decision.
(ii) Rate of return of the project The most important criterion is the rate of return of the project. Investment yields return in future. Thus, calculation of returns is necessary to analyse the best project.
(iii) Risk involved With every investment proposal, there is some degree of risk involved. The company must try to calculate the risk involved in every proposal and select a proposal and select a proposal with moderate degree of risk only.

Long-term investment decision is referred to as the capital budgeting decision.It relates to the investment in fixed assets e.g. buying a new machine.Before taking the final decision the finance manager makes a comparative study of various alternatives available in the market on the basis of their cost and profitability.
These decisions are very important as they affect the earnings of the business in the long-run.
Factors affecting long-term investment decision are::
(i) Cash flow of the project Cash flow of the project during the life if an investment affects the long-term investment decision.
Series of cash receipts and payments over the life of an investment has to be carefully analysed before taking a capital budgeting decision.
(ii)Rate of return of the project The most important criterion is the rate of return of the project.Investment yields return in future.Thus, calculation of returns is necessary to analyse the best project.
(iii)Risk involved With every investment proposal, there is some degree of risk involved. The company must try to calculate the risk involved in every proposal and select a proposal and select a proposal with moderate degree  of risk only

Financial management is concerned with the solution of three major issues relating to the financial operations of a firm corresponding to the three questions of investment, financing and dividend decision. In a financial context, it means the selection of best financing alternative or best investment alternative. The finance function therefore, is concerned with three broad decision which are as follows
(i) Investment Decision
The investment decision relates to how the firm’s funds are invested in different assets.
(ii) Financing Decision
This decision is about the quantum of finance to be raised from various long term sources and short term sources. It involves identification of various available sources of finance.
(iii) Dividend Decision
This decision relates to distribution of dividend. Dividend is that portion of profit which is distributed to shareholders the decision involved here is how much of the profit earned by company is to be distributed to the shareholders and how much of it should be retained in the business for meeting investment requirements.

Dividend decision determines amount of profits to be retained in the business factors affecting dividend decisions are :
(a) Growth opportunities : Companies with growth opportunities retain dividend for expansions and distribute lesser amount as dividend.
(b) Earnings : It earnings are high more dividend can be distributed and vice versa. The other two types of decisions taken by a finance manager ar:
(i) Investment decision and
(ii) Financing decision.

The five major factors affecting financing decisions are :
a) Cost of raising funds through various sources analysed and cheapest source is determined.
b) Risk-funds with least risk associated are selected.
c) Floatation Cost :- Higher floatation costs makes a source less attractive.
d) Cash Flow position of business :- When cast flow position is good debt financing may be more reliable.
e) Level of fixed operating costs : If fixed operating costs like rent insurance premium of a business are high then low debt financing must be resorted to.
f) Control Consideration : Equity leads to dilution of control. Hence firm facing takeover bide generally go for debt financing.
g) State of Capital Markets : If capital markets are in a state of boom raising finds through equity becomes easy.

Financing decision is concerned with the decisions about 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 include debentures, long-term loans and public deposits.
Cost
The cost of raising funds from different, A wise finance manager opt for the cheapest source of finance.
Cash Flow Position
A stronger cash flow position may make debt financing more viable than funding through equity.
Level of Fixed Operating Cost
If a firm is having a higher fixed operating burden like payment of interests, premiums, salaries, rent, etc.then it should avoid financing through debt.This because it will further increase the interest payment burden and the firm can reach an unfavourable position.However, if the firm has lower operating cost, then the firm can borrow funds
Control Consideration  
Issue of more equity may dilute shareholders' control over the business.Therefore, a company afraid of a takeover bid may prefer debt to equity.  

Financing decision is concerned with the decisions about 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 include debentures, long-term loans and public  deposits.
Cost
The cost of raising funds from different, A wise finance manager opt for the cheapest source of finance.
Cash Flow Position
A stronger cash flow position may make debt financing more viable than funding through equity.
Level of Fixed Operating Cost
If a firm is having a higher fixed operating burden like payment of interests, premiums, salaries,rent, etc.then it should avoid financing through debt.This because it will further increase the interest payment burden and the firm can reach an unfavourable position.However, if the firm has lower operating cost, then the firm can borrow funds
Control Consideration  
Issue of more equity may dilute shareholders' control over the business.Therefore, a company afraid of a takeover bid may prefer debt to equity.

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.