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.

Financial management is concerned with optimum procurement as well as usage of finance.It aims at mobilisation of funds at a lower cost and deployment of these funds in the most profitable activities. Three broad decisions are:
(i) Investment decision It relates to how much 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.
(ii) 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 include debentures, long-term loans and public deposits.
(iii)Dividend decision It relates to how much of the company's net profit is to be distributed to be 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.

It is concerned with optimal procurement as well as usage of funds.It aims to reduce the cost of funds, achieve keep the risks under control and achieve effective deployment of funds.Financial management plays a vital role in an organisation.

The main and foremost objective of financial management is to maximise the wealth of equity shareholders.The financial manager of a company takes this decision because the shareholders are the owners of the company.

Financial decisions taken will determine the manner in which the funds are invested.The return earned on investment will determine the value and price of the shares.The market price of the shares will increase if the benefit from the decision has exceeded its cost.

Secondly, the objective of increase in value of equity shares automatically fulfils many other objectives like increasing the profitability, maintaining liquidity, effective utilisation of funds and providing for growth of the company. 

Working capital is that part of total capital which is required to H meet day-to-day expenses, to buy raw materials, to pay wages and other expenses of routine nature in the production process or we can say it refers 2 to excess of current assets over current liabilities.
Working Capital = Current Assets – Current Liabilities
Factors affecting working capital requirement are
(i) Nature of Business The basic nature of a business influences the amount of working capital required. A trading organisation usually needs a lower amount of working capital compared to a manufacturing organisation. This is because in trading, there is no processing required. In a manufacturing business, however, raw materials need to be converted into finished goods, which increases the expenditure on raw material, labour and other expenses,
(ii) Scale of Operation The firms which are operating on a higher scale of operations, the quantum of inventory, 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) Production Cycle Production cycle is the time span between the receipts of raw materials and their conversion into finished goods. Some businesses have a longer production cycle while some have a shorter one. Working capital requirement is higher in terms with longer processing cycle and lower in firms with shorter processing cycle.
(iv) Credit Allowed Different firms allow different credit terms to their customers. A liberal credit policy results in higher amount of debtors, increasing the requirements of working capital.
(v) Credit Availed Just as a firm allows credit to its customers it also may get credit from its suppliers. The more credit a firm avails on its purchases, the working capital requirement is reduced.

The following factors decide a company's capital structure:
(a) Cash flow position: A company must have enough cash in hand or liquidity if it has to raise capital through debentures to pay interest in time. If cash inflows are not enough, then it should issue shares.
(b) Cost of debt: A firm's ability to borrow at a lower rate increases its capacity to employ higher debt. Thus, more debt can be used if debt can be raised at a lower rate.
(c) Control: To retain control over the management of the company, debentures and preference shares should be issued to raise capital.
(d) Flexibility: Equity allows more flexibility to change its capital structure according to market conditions while debt restricts this freedom.
(e) Size of the company: Large companies are able to raise capital through shares more easily while smaller companies have to depend on their own sources or retained earnings as they do not get loans easily.
(f) Tax rate: It will be beneficial for the company to raise funds through debt if tax rates are high. Tax rate influences cost of debt as interest is a tax deductible item.
(g) Stock market conditions: If there is a boom period, then company will be in a better position to issue shares and that also at a premium. On the other hand, if there is depression in the market then investors may not be in a mood to take risk and therefore it is advisable for the company to issue debentures.
(h) Risk consideration: More risk is attached to debt as compare to shares such as interest payment, repayment etc. If level of fixed operating costs (like rent of the building) are high, then business should go in favour of issuing more of equity instead of debt.
(i) Cost of equity: More debt means more risk for the equity holders which increases their desired rate of return. To control cost of equity, limit should be imposed on the use of debt.
(j) Return on investment: Trading on equity/financial leverage can be used to increase earnings per share if ROI is higher.
(k) Floatation costs: It refers to costs involved in the issue of shares or debentures. These costs are high in case of equity as compared to debt.
(l) Interest coverage ratio: Risk of company is lower if ICR is higher. But it is not a full proof measure.
\(\mathrm{ICR}=\frac{\text { Earning before Interest and Taxes }}{\text { Interest }}\)
(m) Debt service coverage ratio: Company can use more debt, if DSCR is higher.
\(\)DSCR = \(\begin{array}{c} \text { Profit after tax }+\text { Depreciation }+\text { Interest } \\ \quad+\text { Non cash expenses } \\ \hline \begin{array}{c} \text { Preference dividend }+\text { Interest } \\ +\text { Repayment obligation } \end{array} \end{array}\)
(n) Regulatory framework: The Companies Act and SEBI provide guidelines from time to time regarding the raising of funds from the public. All these rules and regulations should be considered before taking a decision that whether company would like to issue shares or debentures or take loan from a financial institution.
(o) Capital structure of other companies: A company, before taking decision on the capital structure, should observe/study the relative proportion of various sources of funds in the capital structure of other companies in the same industry.

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.