State and explain the Functions of a Finance Manager

A. Investment decision or long term asset mix
A firm’s investment decisions involve capital expenditures. Therefore referred to as capital
budgeting decisions. It involves the decision of allocation of capital or commitment of funds to
long term asset that would yield benefit (cash flows) inn the future.

B. Financing decision
The mix of debt and equity is known as the firm’s capital structure. The finance manager must
strive to obtain the best financing mix or the optimum capital structure for his/ her firm. Broadly
he/ she must decide when, where from and how to acquire funds to meet the firm’s investment
needs.

C. Dividend decision
The finance manager must decide whether the firm should distribute all profits, or retain them, or
distribute a portion and retain the balance. The proportion of profits distributed as dividend is
called the dividend payout ratio and the retained portion is known as the retention ratio.

D. Liquidity decision.
Investment in current assets affects the firm’s profitability and liquidity. Current assets should be
managed efficiently for safeguarding the firm against the risk of illiquidity. The profitability
liquidity trade off requires that the financial manager should develop sound techniques of
managing current assets.

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NatalieR answered the question on February 9, 2022 at 06:45