The financing decision is about the quantum of finance to be raised from various long-term sources. Short-term sources are studied under:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → working capital management
Option (1) capital budgeting — Incorrect. Capital budgeting is the long-term investment decision. It decides which fixed assets or projects the firm will invest in, such as a new plant. It does not deal with the sources of finance.
Option (2) the dividend decision — Incorrect. The dividend decision is about how much of the profit to pay to shareholders and how much to retain in the business. It does not deal with sources of finance, short-term or long-term.
Option (3) financial planning — Incorrect. Financial planning prepares a blueprint of the funds the whole business will need and when, and of their possible sources. It is a wider planning exercise. The detailed study of short-term sources falls under working capital management.
Option (4) working capital management — Correct. Working capital is the money for day-to-day work, such as cash, stock and receivables. A part of these current assets is usually financed through short-term sources, and such sources are studied under working capital management. The financing decision itself covers only long-term sources.
NCERT (2026-27 Edition): “Financing Decision This decision is about the quantum of finance to be raised from various long-term sources. Short-term sources are studied under the ‘working capital management’. …” “Investment Decision … Short-term investment decisions (also called working capital decisions) are concerned with the decisions about the levels of cash, inventory and receivables. These decisions affect the day-to-day working of a business. These affect the liquidity as well as profitability of a business. Efficient cash management, inventory management and receivables management are essential ingredients of sound working capital management.” |