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Functions of the Financial management

Functions of the Financial management can be classified thus.

(a) Executive Functions

(b) Incidental Functions

A. Executive Functions

 

Executive Finance Functions are those functions which require specialised administrative

skill. Some of the executive functions are given below.

 

  1. Financial Forecasting. This is the foremost function of financial management. It forecasts the total financial requirements of the firm during a particular period. To determine the total fund requirement, various budgets are prepared to support fund requirement decision.
  2. Financing Decision. Supplying the required funds at an appropriate time is a primary  objective of finance manager. In this regard, the financial manager should identify the sources of funds raised and the amount that can be raised from each source and the cost of funds and other aspects.
  3. Dividend Policy Decision. Construction of the suitable dividend policy is the next important function of the financial management and managers. This decision involves the determination of the percentage of profits earned by the enterprise which is to be paid to its shareholders. In the practical sense the market price of the shares and trend of the earnings can play an important role in the construction of dividend policy of the company.
  4. Cash Flow Management. An efficient finance manager should ensure that cash inflows and outflows must be continuous and uninterrupted. At the same time, he concentrateson the cash flow statement.
  5. Determination of Borrowing Policy. Each and every organisation plans for the expansion and modernisation of their business. In this situation, it requires additional resources. The finance manager of a company takes correct decision about the funds received through outside sources, how long it is needed and when it is repaid.
  6. Capital Budgeting Decision. Capital Budgeting Decisions are the most complicated one. Because it involves long term implications. It requires huge amount of capital also. In this aspect, the financial manager is to identify the various investment proposals. The decision of the capital budgeting proposals are ranked on the basis of the urgency, liquidity, profitability and risk sensitivity.
  7. Negotiation for Various New Outside Financing. In an organisation, finance manager must assess short term, medium term and long term financial requirements. To obtain these financial needs, he should start the negotiations at different levels for raising these funds.
  8. Checking upon Financial Performance. For the benefit of rapid development of communication and technology, the finance manager has to employ various new software for the evaluation of financial performance of the company. An unbiased assessment of financial performance shall be of great value to the business in improving the standards, techniques and procedures of financial control.
  9. Acquisitions and Mergers. An existing organisation may expand either by acquiring other concerns or by entering into mergers. Acquisition refers to the purchase of new firms or lease of smaller firm by a bigger firm. Merger refers to the joining of two or more firms together to form a new firm. During the periods of merger or acquisition, the major problem is the valuation of securities. In this aspect, the financial manager should follow correct valuation method, and do this process very carefully.