Financial Management Essay Example | Topics and Well Written Essays - 1500 words - 9

Financial Management - Essay Example need to have a clear and well planned budget, monitoring the performance and taking action whenever needed, focus should be placed on essential numbers like salaries, materials and also sales. A keen eye on these aspects of the financial management will lead to the better financial management in large companies (Brodie, 2009). Choice of a determining the optimal mix of components of the capital structure is a very complex process and involves a number of different considerations. A number of different views of the capital structures need to be considered like the net corporate or personal tax, agency costs, bankruptcy cost and pecking order. There are a few components which build a company’s capital, these are: Ordinary shares, preference shares, debentures, and loan stock. Deciding the optimal mix is based on finding the right mix of long term funds which allow minimizing the cost of capital and helping maximize the value of the organization. This situation is referred to as the optimal capital structure. However, it is a known fact that gaining an optimal capital structure is not possible since, the changing of the mox of capital does not change the values. A company can be financed by a number of different modes. The type of capital financing that has been chosen for the company is referred to as the capital structure of the company. A company can be financed using debentures, equity shares, long term loans, etc. These options however are based on the nature of risk the investors are willing to take. The following sections will discuss the various financing options that are available for investors to finance their companies and the factors that affect the choice have also been discussed. a) Equity Financing: This is the most common mode of financing used by companies. Here companies raise monies for the business by selling stocks of the company. These can either be