Financial management is the process of managing the funds both for individuals and organizations to ensure proper utilization of funds. The principles of financial management work as a guideline for managing financial activities. If you follow the core principles then you will never become financially loser. To get the most benefit from a financial action, the person needs to be careful enough to handle the risk and return trade balance. The broad principles of corporate finance are: 

1) Investment Decision 

2) Financing Decision 

3) Dividend Decision 

4) Liquidity Decision 

1. Investment Decision 

The firm has scarce resources that must be allocated among competing uses. On the one hand the funds may be used to create additional capacity which in turn generates additional revenue and profits and on the other hand some investments results in lower costs. In financial management the returns, from a proposed investment are compared to a minimum acceptable hurdle rate in order to accept or reject a project. The hurdle rate is the minimum rate of return below which no investment proposal would be accepted. In financial management we measure (estimate) the return on a proposed investment and compare it to minimum acceptable hurdle rate in order to decide whether or not the project is acceptable. The hurdle rate is a function of riskiness of the project, riskier the project higher the hurdle rate. There is a broad argument that the correct hurdle rate is the opportunity cost of capital. The opportunity cost of capital is the rate of return that an investor could earn by investing in financial assets of equivalent risk. 

2. Financing Decision

Another important area where financial management plays an important role is in deciding when, where, from and how to acquire funds to meet the firm’s investment needs. These aspects of financial management have acquired greater importance in recent times due to the multiple avenues from which funds can be raised. Some of the widely used instruments for raising finds are ADRs, GDRs, ECBs Equity Bonds and Debentures etc. The core issue in financing decision is to maintain the optimum capital structure of the firm that is in other words, to have a right mix of debt and equity in the firm’s capital structure. In case of pure equity firm (Zero debt firms) the shareholders returns should be equal to the firm’s returns. The use of debt affects the risk and return of shareholders. In case, cost of debt is used the firm’s rate of return the shareholder’s return is going to increase and vice versa. The change in shareholders return caused by change in profit due to use of debt is called the financial deaverage. 

3. Dividend Decision

Dividend decisions is the third major financial decision. The share price of a firm is a function of the cash flows associated with the share. The share price at a given point of time is the present value of future cash flows associated with the holding of share. These cash flows are dividends. The finance manager has to decide what proportion of profits has to be distributed to the shareholders. The proportion of profits distributed as dividends is called the dividend pay out ratio and the retained proportion of profits is known as retention ratio. The dividend policy must be designed in a way, that it maximises the market value of the firm’s share. The retention ratio depends upon a host of factors the main factor being the existence of investment opportunities. The investors would be indifferent to dividends if the firm is able to earn a rate or return which is higher than the cost of the capital. Dividends are generally paid in cash, but a firm may also issue bonus shares. Bonus share are shares issued to the existing shareholders without any charge. As far as dividend decisions are concerned the finance manager has to decide on the question of dividend stability, bonus shares, retention ratio and cash dividend. 

4. Liquidity Decision 

A firm must be able to fulfill its financial commitments at all points of time. In order to ensure that the firm should maintain sufficient amount of liquid assets. Liquidity decisions are concerned with satisfying both long and short-term financial commitments. The finance manager should try to synchronise the cash inflows with cash outflows. An investment in current assets affects the firm’s profitability and liquidity. A conflict exists between profitability and liquidity while managing current assets. In case, the firm has insufficient current assets it may default on its financial obligations. On the other hand excess funds result in foregoing of alternative investment opportunities. 

 An annuity is defined as stream of uniform period cash flows. The payment of life insurance premium by the policyholder to the insurance company is an example of an annuity. Similarly, deposits in a recurring bank account are also an annuity.

Depending on the timing of the cash flows annuities are classified as:

a) Regular Annuity or Deferred Annuity
b) Annuity Due.

The regular annuity or the deferred annuities are those annuities in which the cash
flow occur at the end of each period. In case of an annuity due the cash flow occurs at
the beginning of the period.

The extreme frequency of compounding is continuous compounding where the interest is compounded instantaneously. The factor for continuous compounding for one year is eAPR where e is 2.71828 the base of the natural logarithm. The future value of an amount that is compounded for n years is

FV = PV x e^kn

Where k is annual percentage rate and ekn is the compound factor.

The working capital requirement of a firm depends upon various factors such as nature and size of business, the character of their operations, the length of production cycles, the rate of stock turnover and the state of the economic situation. It is very difficult to rank them because all such factors of different importance change for firm over time. However, the following are important factors generally influencing the working capital requirement. Let us discuss them in detail.

Nature of business: The working capital requirement of a firm is closely related to the nature of its business. In general businesses with short operating cycles will require lesser amount of working capital as compared to businesses with
longer operating cycles. The firms engaged in manufacturing and trading will require more working capital as large amount of funds are locked in inventories and receivables. In general utility companies and service companies (water
supply, electricity undertakings, telecom companies) will require lesser amount of working capital as compared to manufacturing and trading concern.

Business Cycle: During economic boom there is increased production which require higher amount of working capital, but this is partly off set by reduced operating cycle. At the time of economic recession again there would be need
for increased working capital, as large amount of funds would be locked in inventories and receivables.

Seasonal Variations: Commodities with seasonal demand results in increased level of working capital requirement. This could be offset by scaling down operations during the lean part of the year and increasing production prior to
demand period. Products manufactured with raw materials, the production of which is seasonal (agricultural products) would require higher amount of working capital.

Size of Business: Size of the firm is also a determining factor in estimating working capital requirements. The size of a firm may be measured either in terms of scale of operations, or assets or sales. Large firms require more
amount of working capital for investment in current assets and also to pay current liabilities than smaller firms. However, in some cases even a small firm may need more working capital as a cushion against cash flow interruptions.

Change of Technology: Changes in technology generally leads to improvements in the efficient processing of raw material, decrease in wastages, higher productivity and more speedy production. All these improvements lead
to reduction in investment in inventories, which in turn leads to reduction in working capital requirement. If changed technology results in shorter manufacturing process the lesser would be the requirements of working capital.

Length of Operating or Working Capital Cycle: As explained in the section dealing with operating cycle concept of working capital the amount of working capital will depend upon the duration of operating cycle. The operating cycle in
turn is dependent on many other variables such as length of manufacturing process, debtors’ collection period, etc.

Firms credit policy: The credit policy of the firm also impacts working capital needs. A firm following liberal credit policy will require more amount of working capital, as a large amount of funds would be blocked in debtors.

 

Cloud Computing	Fog Computing	Edge Computing
Centralized approach	Distributed approach	Distributed approach
Large amount of resources	Intermediate amount of resources	Limited resources
High latency	Medium latency	Low latency
Low data rate	Medium data rate	High data rate
Globally distributed	Regionally distributed	Locally distributed
Non-real time response	Near real time response	Real time response
Can be accessed with internet	Can be accessed with internet or without internet	Can be accessed without internet

Edge computing has applications similar to fog computing due to its close proximity. Some of the applications are listed below.

1. Gaming : Gaming's which require live streaming feed of the game depends upon latency. In this, edge servers are placed closed to the gamers to reduce latency.

2. Content Delivery
It allows caching of data like- web pages, videos near users in order to improve performance by delivering content fastly.

3. Smart Homes
   IoT devices can collect data from around the house and process it. Response generated is secure and in real time as round-trip time is reduced. For example –response generated by Amazon’s Alexa

4. Patient monitoring
Edge devices present on the hospital site can process data generated from various monitoring devices like- temperature sensors, glucose monitors etc. Notifications can be generated to depict unusual trends and behaviors.

5. Manufacturing
   Data collected in manufacturing industries through sensors can be processed in edge devices. Edge devices here can apply real time analytics and machine learning techniques for reporting production errors to improve quality.

Fog computing offers several advantages, but there are several challenges associated with it. Some of them are –

1. Complexity
   Fog devices can be diverse in architecture and located at different locations. Fog devices further store and analyse their own data hence add more complexity to the network.

2. Power Consumption : Fog devices require high power consumption for proper functioning. Adding more fog devices increases energy consumption, which results in an increase of cost.

3. Data Management
Data is distributed across multiple fog devices hence data management and maintaining consistency is challenging.

4. Authentication
Establishing trust and authentication may raise issues.

5. Security
Since there are many fog devices, each with a different IP. Getting access to personal data by spoofing, taping, and hacking can be a challenge.