Core concepts
- 01Functions: Investment (capital budgeting), Financing (capital structure), Dividend (payout policy), Working Capital.
- 02Profit maximisation vs Wealth maximisation — wealth (NPV) is the goal.
- 03Time value of money is foundational concept.
- 04Agency relationship — costs to align managers with shareholders.
- 05Financial decisions interact: investment & financing affect each other (M&M, Modigliani-Miller).
Flowchart summary
FM Functions | Investment ── Capital Budgeting Financing ── Capital Structure Dividend ── Payout Policy Working Capital ── Short-term funding | Goal: Maximise Shareholder Wealth (MV/share)
Exam-critical pointers
- ⭐EVA (Economic Value Added) = NOPAT − (Cost of Capital × Invested Capital).
- ⭐Distinguish profit max (short-term) from wealth max (NPV, risk-adjusted).
- ⭐Agency cost categories: monitoring, bonding, residual loss.
- ⭐Indian regulatory environment: SEBI for listed, RBI for NBFCs, MCA for compliance.
Make it click