Financing decision and dividend decisions.

Financing decisions and Dividend decisions Financing decision involves evaluation of the company's financial needs and raises the appropriate type of capital that best fits those needs. It is concerned with determining the appropriate proportion of equity and debt so as to obtain optimum capital structure. The firm's capital structure is considered optimum when the market value of shares is maximized. Therefore financial decision making is concerned more and more with the questions as to how cost of funds be measured, projects requiring usage of capital be evaluated, or how far the financing policy influences cost of capital or should corporate funds be committed to or withheld from certain purposes and how the expected returns on projects be measured. Dividend decision is another major area of financial management wherein the finance manager decides whether the firm should distribute all profits or retain them or distribute a portion and retain the balance. This decision depends on whether the company or its shareholders are in the position to better utilise the funds, and to earn a higher rate of return on funds.