Managerial finance functions, Financial Management

Managerial Finance Functions

Need skilful planning, control and execution of the financial activities. There are four significant managerial finance functions. These are as shown below:

(a) Investment of Long-term asset-mix choices:

Such decisions (also termed to as capital budgeting decisions) associates to the allotment of funds amongst investment projects. They refer to the firm's choice to commit present finances to the purchase of fixed assets in hope of future cash inflows from such projects. Investment proposals are computed in terms of both risk and predictable return.

Investment decisions also associates to recommitting funds whenever an old asset becomes less productive. This is termed to as replacement decision.

(b) Financing decisions:

Financing decision refers to the decision on the sources of finances to finance investment projects.  The finance manager should decide the proportion of fairness and debt. The mix of debt and equity affect the firm's cost of financing an also the financial risk.

(c) Division of earnings decision:

The finance manager should decide whether the firm must distribute all profits to the shareholder, maintain them, or distribute a fraction and retain a portion. The earnings should also be distributed to other providers of funds like preference shareholder, and debt providers of funds like preference shareholders and debt providers. The firm's divided policy might influence the determination of the value of the firm and hence the finance manager should decide the optimum dividend - payout ratio and hence to maximize the value of the firm.

(d) Liquidity decision:

The firm's liquidity refers to its capability to meet its present obligations as and whenever they fall due. It can also be termed as current assets management. Investment in present assets affects the firm's profitability, liquidity, and risk. The more present assets a firm has, the additional liquid it is. Which implies that the firm has a lower risk of becoming insolvent though as current assets are non-earning assets the profitability of the firm will be low? The contrary will hold true.
The finance manager must develop sound methods of managing current assets to make sure that neither inadequate nor unnecessary funds are invested in present assets.

Posted Date: 12/8/2012 6:21:15 AM | Location : United States







Related Discussions:- Managerial finance functions, Assignment Help, Ask Question on Managerial finance functions, Get Answer, Expert's Help, Managerial finance functions Discussions

Write discussion on Managerial finance functions
Your posts are moderated
Related Questions
What is the financial leverage effect and what causes it?  What are the potential benefits and negative consequences of high financial leverage? Monetary leverage is the additi

Explain the pricing spill-over effect. Suppose a firm operating in a segmented capital market (such as China, for example) decides to cross-list its stock in New York or London.

How would you explain economic exposure to exchange risk? Answer: Economic exposure can be illustrated as the opportunity that the firm’s cash flows and so its market value may

This case provides the opportunity to match financing alternatives with the needs of different companies. It allows the reader to demonstrate a familiarity with different types

There are two major factors to be considered while analyzing sovereign bonds. They are: economic risk and political risk. Economic risk is all about the ability a

Explain the term- Trade receivable days (turnover) [Yearend trade receivables/Credit sales (or turnover)] x   365days It is the average length of time taken by customers t

Cost of Retained earnings (K ) Retained earnings are that portion of EPS that is retained by the firm.  This may be measured as the rate of return which the existing share hol

McGovern Company is comparing two disimilar capital structures - an all-equity plan (Plan I) and a levered plan (Plan II).  Under Plan I, the Company would have 700,000 shares of s

Market Efficiency Though there are various markets present in the financial system, the ease with which the transfer of funds take place depends on the level of efficiency pres

Market development A strategy which seeks to sell existing products in new geographical markets or new market segments. A strategy to find new uses for existing products or ser