The functions of financial management are divided into two categories like-
- Executive Functions
- Incidental Functions
- Executive Functions
These are functions where special administrative skill is required. These functions are as follows-
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Links of Previous Main Topic:-
- Introduction to accounting and branches of accounting
- Preparation of final accounts
- Introduction of fund flow statement
- Introduction cash flow statement
- Ratio analysis significance of ratio analysis
- Fixed assets and depreciation meaning causes objectives methods and basic factor
- Cost accounting concept objectives advantages limitations general principles and cost sheet
- Job costing
- Introduction process costing
- Activity based costing introduction concept and classification
- Introduction inventory pricing and valuation
- Standard costing introduction
- Management accounting
- Marginal costing
- Relevant cost for decision making
- Budget and budgetary control
- Limitations of historical accounting
- Introduction to responsibility accounting
- Introduction to financial management
Links of Next Finance Topics:-
- Introduction and types of dividend
- Concept of cost of capital
- Capitalization meaning
- Concepts of working capital
- Concept of capital expenditure
- Learning objectives and chapter outline
- Limitations of operations research
- Linear programming learning objectives and outline of chapter
- Introduction learning objectives
- Duality in linear programming
- Learning objectives
- Learning objectives and chapter outline in assignment model
- Minimization problems
- Learning objectives the transportation problems
- Special case of traveling sales man problem
- Replacement theory learning objectives and chapter outline
- Learning objectives and chapter outline for waiting line queuing theory
