The Decision Functions of Financial Management

The Decision Functions of Financial Management

It can be categories into THREE:-

1) Investment Decision - The most important decision. It begins with the firm determining the total amount of assets needed to be held by the firm. There are 2 types of investment decision:

a) Capital Investment Decision - Involves large sums of money. The impact is critical. examples acquire a new machine or to set up a new plant.

b) Working Capital Investment Decision - a more routine or schedule form of decision . Examples are determination of the amount of inventories, cash and account receivables to hold within a certain period.

2) Financing Decision - The second major decision. After deciding on what assets to buy or what securities to invest in, the financial manager would have to decide on how to finance these assets.

Sources of Finance - 2 sources ; Borrowings and/ or Capital

3) Assets Management Decision - The third and last decision. Once the assets have been acquired and appropriate financing provided, these assets must be managed efficiently. By managing currents assets effectively and efficiently, the company can increase its returns and minimizes its risk of illiquidity.