Financial management is concerned with optimum procurement as well as usage of finance. It aims at mobilisation of funds at a lower cost and deployment of these funds in the most profitable activities. Three broad decisions are:
(i) Investment decision: It relates to how the firm's funds are invested in different assets so that the firm can earn the highest possible returns on investment. Investment decisions can be long-term or short term.
(ii) Financing decision: It is concerned with the decisions of how much funds are to be raised from which long-term source, i.e. employing shareholders' funds or borrowed funds. Shareholders' funds include share capital, reserves, and surplus and retained earnings, whereas borrowed funds include debentures, long-term loans, and public deposits.
(iii) Dividend decision: It relates to how much of the company's net profit is to be distributed to the shareholders and how much of it should be retained in the business for meeting the investment requirements. This decision should be taken, keeping in mind the overall objective of maximising shareholders' wealth.
Financial decision-making requires managers to weigh the cost of capital, the organization's creditworthiness, and the range of available financing options.
Answer and Explanation: The three functions are Investment, Financing, and Dividend distribution. Financing activities, like the issuance of stocks and bonds, raise cash for the company.
The functions of finance involve three major decisions a company must make – the investment decisions, the financing decisions, and the dividend / share repurchase decisions.
The financing decision is about the amount of finance to be raised from various long-term sources, this determines the various sources of finance, as well as it also provides the cost of each source of finance. The main sources of finance are: Shareholders' Funds. Borrowed Funds.
The seven popular functions are decisions and control, financial planning, resource allocation, cash flow management, surplus disposal, acquisitions, mergers, and capital budgeting.
The financial manager's most important job is to make the firm's investment decisions. This, also known as capital budgeting, is the most important job for this type of manager. This individual has to look at and prioritize investment alternatives.
There are different types of financial managers, each with a specific focus. Examples include Risk Managers, Credit Managers, and Treasurer or Finance officers.
Providing financial reports and interpreting financial information to managerial staff while recommending further courses of action. Advising on investment activities and provide strategies that the company should take. Maintaining the financial health of the organization.
The finance field includes three main subcategories: personal finance, corporate finance, and public (government) finance. Consumers and businesses use financial services to acquire financial goods and achieve financial goals.
Management usually must make decisions on where to allocate resources, capital, and labor hours. Capital budgeting is important in this process, as it outlines the expectations for a project.
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