Chapter 9 of Class 12 Business Studies is all about Financial Management, which is a core part of any business operation. This chapter talks about how finance is managed in a business, how decisions are taken related to funds, and what impact those decisions have on the overall performance. It covers key areas like financial planning, capital structure, investment decisions, and more. Understanding this chapter gives you a good idea of how money works in the business world and why finance is called the lifeblood of any organisation.
The reason I’m writing about this topic is that many students either skip it or just mug up the theory without actually grasping the logic behind financial terms and decisions. But trust me, if you understand this chapter properly, you will be more confident not just for your board exam, but also for future commerce-related courses and real-life financial planning. Whether you want to run a business or manage your personal finances better, the concepts taught here are highly practical. Having the NCERT PDF version is a great help because it gives clear explanations, simple diagrams and plenty of examples to revise from.
What is Financial Management?
Financial management refers to the planning, organising, directing and controlling of financial activities such as procurement and utilisation of funds in a business. In simple words, it deals with how money is raised, how it is used, and how efficiently it can be managed to achieve business goals.
In real life, if a company wants to expand its operations, it will need funds. So, financial management helps the manager decide how much to borrow, how much to invest, and how much to retain in the business. This process involves key decision-making which directly affects the success and growth of the business.
Objectives of Financial Management
The main aim of financial management is to maximise the shareholder’s wealth. This is done by increasing the value of the company in the market. Some other key objectives are:
- Ensuring regular and adequate supply of funds
- Ensuring optimum use of funds
- Maintaining a good balance between risk and profitability
- Reducing the cost of capital
- Ensuring liquidity and proper cash flow
Key Financial Decisions Covered in the Chapter
Chapter 9 focuses on three major financial decisions that every business has to take. These are:
1. Investment Decision (Capital Budgeting)
This decision relates to how a business invests its money in long-term assets like machines, buildings, or new projects. The aim is to get maximum returns from the investment.
Example: Deciding whether to invest in a new factory or upgrade the existing one.
2. Financing Decision
This decision is about where the money will come from. It can be from equity shares, loans, debentures, etc. The goal is to choose a source which costs less but gives more control and flexibility.
Example: A business might choose a bank loan if it wants to avoid giving ownership to others.
3. Dividend Decision
Once the company earns profit, the decision is whether to give it to shareholders as dividends or keep it for future growth. A balance needs to be maintained between rewarding shareholders and strengthening the business.
Example: A fast-growing tech company might keep profits for expansion rather than paying high dividends.
Factors Affecting Financial Decisions
There are many factors that affect financial decisions, like:
- Cost of source of funds
- Risk involved
- Control considerations
- Cash flow position
- Return expectations
These factors help managers decide the best financial route based on current business needs and future goals.
Importance of Financial Management
Here are some key points that show why financial management is important:
- Helps in the smooth running of business operations
- Ensures effective use of financial resources
- Helps in business expansion and growth
- Supports decision-making and financial control
- Builds investor confidence
Even in small businesses or households, good financial management helps control expenses, save money and plan for the future.
Download PDF – NCERT Class 12 Business Studies Chapter 9
NCERT Class 12 Business Studies Chapter 9: Financial Management PDF
