the finance function

the key finance function are the investment, financing,divided and liquidity decisions of an organization.
investment decision
financial manager is concerned with investment decisions. investment decision financial commonly known as capital budgeting decision or long-term assets mix decisions. capital investment is the allocation of capital to investment proposal whose benefits are to be realized in future. because the future benefit are not known with certainly, investment proposal necessarily involves risk. consequently, they should be evaluated in related to their expected return and risk. an investment decision also includes the decision to reallocate capital when assets no longer economically justifies the capital committed to it. the investment decision determines the total amount of assets held by the firm,the composition of these assets, and the business risk complexion of the firm as perceived by the supplier of capital. the essence of investment decisions is that return from the investment in proposals would exceed the firms required rate of return on capital.

financing decision

financial manager is concerned with financing decisions. financial manager must decide when ,where and how to acquirer funds to meet the firms investment needs. he must to find the best financing mix or optimum capital structure for this firm, which maximizes the market value of share financing decision is one of the important functions of finance. financing is concerned with the identification of the need of funds and collection of the funds from the right sources, in the right time in order to achieve the goal of shareholders values maximization. it is because shareholders value maximization is the one and most important goal of financial management. if the firm can effect the market price of its stock by its financing decision, it will undertake a capital structure that explain the relevance of financing policy. the relevant theory explains that the financial structure affects the value of the firm. in other words, value of the firm can be maximized by using optimal capital structure. the irrelevant theory says that the value of the firm cannot be affected by simply changing capital structure.

liquidity decision

financial manager should manager the liquidity position of his firm. current assets should be managed efficiency for safeguarding the firm against the dangers of liquidate and insolvency. if the firm does not invest sufficient funds in current assets, it may become illiquid, but current assets are non-profit generating assets. therefore, the financial manager estimate firm's needs for current assets and make sure that funds would be made available when needed.

dividend decision

the financial manager is concerned with dividend decision. the financial manager must decide whether the firm should distribute all profits, retain them. or distribute a pertain and retain the

balance. the financial manager most determine the optimum divided payout ratio, which maximized the firms value. distribution of profit among share holders is known as dividend decision. dividend decision is closely related with financing decision. dividend decided includes the decision regarding the retention of profit and profit is retained to meet the need of fund. therefore dividend decision is also considered as internally financing decision. retention of profit OS also made with a view to prevent the fluctuations in dividend. critical part of dividend decision is to decide the dividend pay out ratio. dividend payout ratio is the proportion of retained raring and dividend out of firms net profit. if the dividend OS decided below the earning rate, then certain portion of profit is retained in the business . if the firm has investment opportunity, which earns more than or equal to the cost of fund from retained earning. it must plough back the profit. if the earning is expected below the cost ,dividend distribution is desirable. thus dividend decision has multi-dimensional effects and it has to be made carefully.