Objectives of financial management are: 

a. The primary aim of financial management is to maximize shareholder’s wealth which is referred to as wealth maximization concept: 

• Company funds belong to the shareholders and the manner in which they are invested and the return earned by them determines their market value or price. It means maximization of the market value of equity shares. 
• Market price of equity shares increase if the benefits from the decision exceed the cost involved. 
• Thus, we can say, the objective of financial management is to maximize the current price of equity shares of the company or to maximize the wealth of owners of the company, that is, the shareholders. 

b. Reducing the cost of funds procured 

c. Keeping the risk under control and achieving effective deployment of such funds. 

Importance of financial planning: 

a. It tries to forecast what may happen in the future under different business situations. 

b. In other words, it makes the firm better prepared to face the future 

c. It helps in avoiding business shocks and surprise and helps the company in preparing for the future. 

d. It helps in coordinating various business functions eg, sales and production functions, by providing clear policies and procedures. 

e. Detailed plans of actions prepared under financial planning reduce waste, duplication of efforts and gaps in planning. 

f. It tries to link the present with the future. 

g. It provides a link between investment and financing decisions on a continuous basis. 

h. By spelling out detailed objectives for various business segments. It makes the evaluation of actual performance easier. 

Factors which will affect capital structure of this company are: 

a. Cash flow position: 

Size of cash flows must be considered before issuing debt. 

Company must ensure that sufficient cash flows are expected to cover fixed cash payment obligations (interest payment and repayment of principle). 

b. Risk: 

The risk associated with different sources is different. Debt financing is risk prone source. 

• The financial risk depends upon the proportion of debt in total capital. 
• Debt is more riskier because of interest payment obligation attached. 

c. Floatation costs: Cost of raising funds is called floatation cost. Higher the floatation cost, less attractive the source. 

Factors affecting requirement of Fixed Capital 

a. Nature of the business: 

• The type of business has a bearing upon the fixed capital requirements. 
• For example, a trading concern needs lower investment in fixed assets compared with a manufacturing organization; since it does not require to purchase plant and machinery etc. 

b. Scale of operations: A larger organization operating at a higher scale needs bigger plant, more space, etc and therefore requires higher investment in fixed assets when compared with the small organization. 

c. Choice of technique: 

• Some organizations are capital intensive whereas others are labour intensive. 
• A capital-intensive organization requires higher investment in plant and machinery as it relies less on manual labour. The requirement of fixed capital for such organizations would be higher. 
• Labour-intensive organizations, on the other hand, require less investment in fixed assets. Hence, their fixed capital requirement is lower. 

Factors affecting requirement of Working Capital 

a. Scale of operations: 

• For organizations which operate on a higher scale of operation, the quantum of inventory, debtors required is generally high. 
• Such organizations, therefore, require large amount of working capital as compared to the organizations which operate on a lower scale. 

b. Business cycle: 

• In case of a boom, the sales as well as production are likely to be higher and therefore higher amount of working capital is required. 
• As against this, the requirement of working capital will be lower during period of depression as the sales as well as production will be low. 

c. Seasonal factors: 

• In peak season, because of high level of activity higher amount of working capital is required. 
• As against this, the level of activity as well as the requirement for working capital will be lower during the lean season.