Functions of Financial Management
Estimation of capital requirements:
A finance manager has to make estimation with regards to capital requirements
of the company.
Determination of capital composition: Once the estimation has been made, the capital structure
have to be decided. i.e., How much capital should be utilized and
Where.
Choice of sources of funds: For additional funds to be procured, a company has many
choices like-
a)
Issue of shares and debentures
b)
Loans to be taken from banks and
financial institutions
c)
Public deposits to be drawn like in
form of bonds.
Investment of funds:
The finance manager has to decide to allocate funds into profitable ventures so
that there is safety on investment and regular returns is possible.
Disposal of surplus (
):
The net profits decision has to be made by the finance manager. This can be
done in two ways:
a)
Dividend
declaration - It includes identifying the rate
of dividends and other benefits like bonus.
b)
Retained profits - The volume has to be decided which will depend upon expansion,
innovational, diversification plans of the company.
Management of cash:
Finance manager has to make decisions with regards to cash management. Cash is
required for many purposes like payment of wages and salaries, payment of
electricity and water bills, payment to creditors, meeting current liabilities,
maintenance of enough stock, purchase of raw materials, etc.
Financial controls:
The finance manager has not only to plan, procure and utilize the funds but
he also has to exercise control over finances. This can be done through
many techniques like ratio analysis, financial forecasting, cost and profit control,
etc.
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