The functions of financial management are divided into two categories like-

  1. Executive Functions
  2. Incidental Functions
  1. Executive Functions

These are functions where special administrative skill is required. These functions are as follows-

  1. Financing Decision

A finance manager should decide about sources from where he can raise funds and the amount which he can raise from each of these sources. Further, he needs to plan about the costs of these funds. This is important to supply necessary funds at the right time.

  1. Managing Cash Flow

A major importance is that a financial manager needs to check that there is a constant inflow and outflow of cash without any interruptions. Along with this, he needs to maintain the cash flow statement too.

  1. Financial Forecasting

One of the major functions of financial management is that it forecasts the financial requirements of the company for a particular time period. Based on this forecast, various financial budgets are prepared to ensure that the finance requirements are matched.

  1. Decision on dividend policy

Formation of a dividend policy is an important function that a finance manager needs to take for effective financial management of the company. Here, the profit percentage which is to be paid to the shareholders and investors needs to be decided as per profits incurred by the company.

  1. Decision on Capital Budgeting

Long term implications involved in the decision making of the company makes it a complicated one. Since the process requires handsome capital, it is essential that a financial manager identifies the investment proposals open to him. These proposals are determined on the basis of profitability, urgency, risk sensitivity and liquidity.

  1. Acquisitions and Mergers

A business organization can either expand by acquiring other companies or by entering into mergers with other firms.

While acquisition denotes a process of purchasing new companies, merger is a process where two or several companies join together in the formation of a new one. During such ventures, a financial manager has to deal with complex valuation of securities. Thus, he needs to opt for the right valuation method and carry out this process carefully.

  1. Negotiating several new outside financing

It is the primary function of a financial manager to evaluate financial requirements of the company based on-long term, short term and medium term requirements. Based on these needs, it is important that he starts negotiating these funds at various levels to raise the capital.

  1. Determining the borrowing policy

While planning about modernization and expansion, the company requires various additional financial resources.  Thus, the finance manager has to decide about the source of these funds, how long they require it and when it needs to be repaid.

  1. Determining the financial performance

To ensure that a company goes through rapid expansion and improvement, it is essential that a financial manager uses new software to check the organization’s financial performance. He can further make use of techniques like fund flow statements, ratio analysis, etc. Only when the assessment is done in an unbiased manner, can the company aim for better performance.

  1. Tax Planning

To lessen the tax liability, it is important that a finance executive properly evaluates various schemes and invest accordingly.

Other than these executive functions, there are some incidental functions too.

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