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Functions of Financial Management

The document discusses the three main functions of financial management: 1) Financial decisions relate to raising funds through various sources like equity, debt, or public deposits. 2) Investment decisions involve investing funds into fixed assets or current assets. 3) Dividend decisions require determining what portion of earnings will be paid out as dividends to shareholders versus retaining earnings for company reinvestment.

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88 views2 pages

Functions of Financial Management

The document discusses the three main functions of financial management: 1) Financial decisions relate to raising funds through various sources like equity, debt, or public deposits. 2) Investment decisions involve investing funds into fixed assets or current assets. 3) Dividend decisions require determining what portion of earnings will be paid out as dividends to shareholders versus retaining earnings for company reinvestment.

Uploaded by

Anonymous dYDY4Eha
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Functions of Financial Management

1. Financial Decisions
2. Investment Decisions
3. Dividend Decisions

[Link] Decisions ( What will be the source of funds? )


Financial Decisions relate to the raising of funds from various resources. It depends on
the type of source ( debt or equity ), the period of financing, cost of financing and the
returns thereby.
Choice of sources of funds: Choice of funds depend upon the relative merits and
demerits of each resource. Various sources of funds are:
 Issue of shares and debentures
 Loans to be taken from banks and financial institutions
 Public deposits to be drawn, like in the form of bonds

Investment Decisions ( Where the funds will be invested? )


Investment Decisions includes investment in fixed assets ( known as capital budgeting ).
Investment in current assets ( working capital ) is also a part of investment decision.

Dividend Decisions ( What will happen to those earnings? )


The Finance Manager has to take a decision with regards to the net profit distribution.
Net profits are generally divided into two parts:
 The dividend for Shareholders: Dividend and the rate of the dividend need to be
decided.
 Retained Earnings: Amount of retained profits has to be finalized which will
depend upon expansion and diversification plans of the enterprise.

4. Estimation of Capital Requirement:


Estimation depends upon expected costs, profits, future programs and policies of a firm.
Estimation must be adequate, as it can increase the earning capacity of the firm.

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