According to experts, “ finance is a simple task of providing the necessary funds required by the business of entities like companies, firms, individuals, and others on the terms that are most favorable to achieve their economic objectives.”
#1 Estimation of capital requirements
A finance manager has to make estimation with regards to the capital requirements of the company. This will depend upon expected costs and profits and future programs and policies of a concern. Estimations have to be made in an adequate manner which increases the earning capacity of the enterprise.
#2 Determination of capital composition
Once the estimation has been made, the capital structure has to be decided. This involves short-term and long-term debt-equity analysis. This will depend upon the proportion of equity capital a company is possessing and additional funds that have to be raised from outside parties.
#3 Management of cash
Finance Manager has to make decisions with regards to cash management. Cash is required for many purposes. FM studies help the managers to estimate the cash inflows and match the cash outflows accordingly.
#4 Choice of sources of funds
For additional funds to be procured, a company has many choices like,
Issue of shares and debentures
Loans to be taken from banks and financial institutions.
Public deposits to be drawn like a form of bonds
The choice of factors will depend on relative merits and demerits each source and period of financing.
#5 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 are possible.
#6 Disposal of surplus
The net profits decision has to be made by the finance manager. This can be done in two ways:
Dividend declaration: it includes identifying the rate of dividends and other benefits like a bonus.
Retained profits: the volume has to be decided which will depend upon expansion, innovation, diversification plans of the company.
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