In corporate finance, the financial management process primarily deals with which types of decisions?

Introduction / Context:
Financial management is a core function of any business and is frequently tested in finance and MBA interviews. It is not just about recording transactions; it involves taking key decisions that affect the value of the firm. Understanding which decisions fall under financial management helps you clearly explain what finance managers and CFOs actually do in practice, from raising capital to choosing investment opportunities.

Given Data / Assumptions:

• A business needs funds to operate, grow and invest in assets or projects.
• Funds can be raised from different sources such as equity shares, debentures, bank loans and retained earnings.
• Once funds are raised, management must decide how to allocate them among competing investment options.
• The overall objective is often to maximise shareholder wealth or firm value while managing risk.

Concept / Approach:
Financial management can be broken into three broad areas: investment decisions, financing decisions and dividend decisions. Investment decisions focus on where to allocate funds, such as new projects, acquisitions or asset purchases. Financing decisions focus on how to raise those funds, choosing between equity, debt and hybrid instruments to create an optimal capital structure. Dividend decisions look at how much profit to distribute versus retain. Among these, investment and financing decisions form the core of the financial management process because they directly determine how money flows into and out of the business.

Step-by-Step Solution:
Step 1: Identify financing decisions as those involving the sources of funds, including choosing between equity, debt and internal funds. Step 2: Identify investment decisions as those involving the use of funds, such as capital budgeting, working capital management and portfolio selection. Step 3: Recognise that financial management is concerned with both raising and deploying funds in a way that supports the company long term goals. Step 4: Note that while dividend policy is also part of financial management, the question specifically contrasts financing and investment with the option of “none of the above”. Step 5: Conclude that the financial management process deals with both financing decisions and investment decisions, making option C the correct choice.

Verification / Alternative check:
Think of a company planning to build a new factory. First, management evaluates whether this project is financially viable, estimating cash flows, required investment and risk. This is an investment decision. Next, management decides how to fund this factory, possibly by issuing new shares, taking a loan, or using retained earnings. This is a financing decision. Together, these decisions illustrate the core activities of financial management: selecting attractive investments and arranging suitable financing. This example verifies that both financing and investment decisions are central to the financial management process.

Why Other Options Are Wrong:
Option A mentions only financing decisions and ignores the equally important investment side. Option B mentions only investment decisions and omits how funds are obtained. Option D wrongly suggests that financial management is just bookkeeping, which is actually part of accounting, not strategic finance. Option E focuses only on dividend decisions, which are important but not the only or primary domain of financial management. Only option C correctly states that financial management deals with both financing and investment decisions.

Common Pitfalls:
A common misunderstanding is to equate financial management with accounting or record keeping. Another is to focus only on investment decisions and ignore the impact of capital structure and cost of capital. In exams and interviews, explicitly mentioning both financing and investment decisions, and optionally adding dividend policy, shows that you understand the full scope of financial management and how it supports the objective of maximising value for owners while managing risk and liquidity.

Final Answer:
The financial management process deals with both financing decisions and investment decisions, because it covers how funds are raised and how they are allocated to profitable uses.