Major risk return decision areas, Financial Management

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Q. Major Risk Return Decision Areas?

1) Financial Analysis and Control: This area is concerned with the Financial Statements, i.e. Income Statement, Balance Sheet, Funds Flow Statement, Cash Flow Statement, etc.which provide an overall view of the financial position of the business.

2) Budgeting and Profit Planning: This area is concerned with forecasting the future operating and financial performance of the firm. He is in a position to compare alternative choices of action and select one which gives him maximum profit with minimum risk.

3) Capital Budgeting: This area is concerned with long-term planning for proposed capital outlays and their financing. It includes both rising of long-term funds and their utilization.

4) Financial Planning: This area is concerned with estimating the amount of capital to be raised, determining the form and proportionate amount of securities and laying down the policies as to the administration of the financial plan.

5) Working Capital Management: This area is concerned with the problems that arise in attempting to manage the current assets, current liabilities and the inter-relationship that exists between them.

6) Cost of Capital: This area is concerned with determination of the rate of return the firm require from its investments in order to maximize the value of the firm's shares.

7) Valuation Theory: This area is concerned with valuing the firm's shares under current and potential operating conditions. It also tries to identify the steps to be taken to increase firm wealth.

8) Acquisition: This area is concerned with financial and operating impacts which a firm must consider while deciding about the acquisition of another firm. It helps in determining the firm's value which must be paid for acquisition of other firm's shares.


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