‘S’ Limited is manqufacturing steel at its plant in India. It is enjoying a buoyant demand for its products as economic growth is about 7%-8% and the demand for steel is growing. It is planning to set up a new steel plant to cash on the increased demand it is facing. It is estimated that it will require about ? 5,000 crores to set up and about t 500 crores of working capital to start the new plant.
What is the role and objectives of financial management for this company?
Role of Financial Management Financial management is concerned with the proper management of funds. It involves
(i) Managerial decisions relating to procurement of long term and short term funds.
(ii) Keeping the risk associated with respect to procured funds under control.
(iii) Utilisation of funds in the most productive and effective manner
(iv) Fixed debt equity ratio in capital.
Objective of Financial Management
The objective of financial management is maximisation of shareholder's wealth. The investment decision, financial decision and dividend decision help an organisation to achieve this objective. In the given situation, S limited envisages growth prospects of steel industry due to the growing demand. To expand the production capacity, the company needs to invest. However, investment decision will depend on the availability of funds, the financing decision and the dividend decision. However, the company will take those financial decisions which result in value addition, i.e., the benefits are more than the cost. This leads to an increase in the market value of the shares of the company.
Explain the importance of having a financial plan for this company. Give an imaginary plan to support your answer.
Discuss about working capital affecting both the liquidity as well as profitability of a business.
‘S’ Limited is manqufacturing steel at its plant in India. It is enjoying a buoyant demand for its products as economic growth is about 7%-8% and the demand for steel is growing. It is planning to set up a new steel plant to cash on the increased demand it is facing. It is estimated that it will require about ? 5,000 crores to set up and about t 500 crores of working capital to start the new plant.
What is the role and objectives of financial management for this company?
Capital structure decision is essentially optimisation of risk-return relationship. Comment.
Keeping in mind that it is a highly capital intensive sector what factors will affect the fixed and working capital. Give reasons with regard to both in support of your answer.
What is meant by working capital? How is it calculated?
Discuss five important determinants of working capital requirements.
A capital budgeting decision is capable of changing the financial fortune of a business. Do you agree? Why or why not?
Explain the term ‘trading on equity’. Why, when and how it can used by a business organisation?