Comment on the following: Investment, financing and dividend decisions are inter-related.

Financial Management is concerned with investment, financing and dividend decisions in relation to objectives of the company. Investment ordinarily means profitable utilisation of funds. Investment decisions are concerned with the question whether adding to capital assets today will increase the net worth of the firm. Financing is next step in financial management for executing the investment decision one taken. Financial decision making is concerned with the question as to how funds requirements should be met keeping in view their cost, and how far the financing policy influences cost of capital. The dividend decision is another area of financial management. The financial manager helps in deciding whether the firm should distribute all profits or retain them or distribute a portion and retain the balance. The basic decisions of finance includes three types of decisions i.e. investing, finance and dividend decisions but they are interlinked with each other somehow. It can be evident from the following points: The main objective of all the above decisions is same which is profit maximization of business and wealth maximization of shareholders. In order to make investment decisions such as investing in some major projects, the first thing we need to consider is the finance available and required to make investment. Finance decision is also influenced by dividend decision. If more of the dividend is distributed, there is a need to raise more finance from external sources. If more of the profits are retained for long term investment, there is less need of outside financing. Hence, there is a need to take into account the joint impact of all the three decisions and effect of each of the decision on the market value of the company and its shares to achieve the overall objective of the business.