By | June 19, 2010

Concerns the acquisition, financing, and management of assets with some overall goal in mind.

TYPES OF DECISIONS:

  • Investment Decisions
  • Financing Decisions
  • Asset Management Decisions

The aim of Finance is to maximization of shareholder wealth,Value creation occurs when we maximize the share price for current shareholders.

The main objective of the Finance Manager is to manage funds in such a way so as to ensure their optimum utilization and their procurement in a manner that the risk, cost and control considerations are properly balanced in a given situation. To achieve the objective the Finance Manager performs the following functions in the following areas:-

Forecasting and Planning

The need to estimate/forecast the requirement of funds for both the short term(working capital requirements) and the long term purpose(capital investments).

Forecasting the requirements of funds involves the use of budgetary control and long-range planning.

Financing Decision

Helps to decide what type of Capital structure the company needs to have re: whether these funds would be raised re: from loans/borrowings or from internal source(share capital)

To raise sufficient long term funds to finance fixed assets and other long term investments and to provide for the needs of working capital

Investment Decision

In projects using the various capital budgeting tools like Payback method, accounting rate of return, internal rate of return, net present value.

Assets management policies are to be laid down regarding the various items of current assets like accounts receivable by coordinating with the sales personnel, inventory with production

Dividend Decision

Taking into consideration, earnings trend, share market price trend, fund requirement for future growth, cash flow situation and others.

Financial negotiation

Plays a very important role in carrying out negotiations with the various financial institutions, banks and public depositors for raising funds on favourable terms

Cash Management

The finance manager needs to ensure the supply of adequate, timely and cheap fund to the various parts of the organization

That there is no excessive cash idling around

Evaluating financial performance

To need to constantly review the financial performance of the various units of organization generally in terms of ROI(return on investment. Such review assists management in seeing ow the funds have been utilized in the various divisions and what can be done to improve it.

Dealing with relevant parties in the Financial Markets

Where the company is a listed entity, the need to interact with the Stock Exchange

To deal with money markets and capital markets for financing or investment of idling funds

To foster relationships with bankers, investors, underwriters of equity and bond issuances and other government regulatory bodies.

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