Corporate Finance is the area of finance that deals with how corporations manage their funding sources, capital structuring, and investment decisions.
Thank you for reading this post, don't forget to subscribe!Finance functions may be classified as:
- Managerial Finance Functions
- Routine Finance Functions
1.) Managerial Finance Functions:
Managerial finance functions refer to the strategic, analytical, and decision-making activities performed by top-level financial managers such as the CFO, finance manager, or financial controller.
- These functions require managerial judgment, expertise, and planning.
- They help the organization maximize wealth, ensure financial stability, and achieve long-term financial goals.
These functions are crucial because they influence the overall direction of the business and directly affect profitability, liquidity, and growth.
The managerial finance functions are described below:
- Investment Decision:
- It is also known as capital budgeting.
- The investment decision involves determining how the firm’s funds should be allocated to various investment opportunities that will generate the best possible returns over time.
- Financing Decision:
- It is also known as capital structure decision.
- It focuses on identifying and choosing the most appropriate sources of funds required to finance the firm’s investments and operations.
- The objective is to raise sufficient funds at the lowest possible cost without exposing the company to excessive financial risk.
- Dividend Decision:
- It is concerned with determining the portion of the company’s net profit that should be distributed to shareholders as dividends.
- This decision plays a vital role in satisfying shareholder expectations while ensuring the firm has enough internal funding for expansion and operations.
- Working Capital Decision:
- It deals with managing the company’s current assets to ensure it has sufficient liquidity to run its daily operations smoothly.
- The primary objective of this function is to maintain operational efficiency and avoid liquidity problems, such as being unable to meet short-term obligations.
2.) Routine Finance Functions:
Routine finance functions refer to the day-to-day financial and clerical activities that support the overall financial management of an organization.
- These tasks do not require managerial judgment, as they are mostly repetitive, administrative, and operational in nature.
- They are usually performed by junior staff, accountants, or clerical personnel under the general supervision of finance managers.
Routine finance functions ensure smooth financial operations and help in the implementation of strategic financial decisions made by top management.
The routine finance functions includes:
- Supervision of cash receipts and payments.
- Preparing financial statements and reports
- Maintaining accounting records
- Managing bank transactions and reconciliations
- Ensuring compliance with tax and legal regulations
Supervision of Cash Receipts and Payments
- Monitoring daily inflow and outflow of cash
- Handling petty cash and maintaining cash books
- Ensuring timely payments to suppliers and collection from customers
Preparing Financial Statements and Reports
- Drafting routine financial reports
- Assisting in the preparation of profit/loss accounts, balance sheets, and cash flow statements
- Providing financial data for audits and managerial analysis
Maintaining Accounting Records
- Updating ledgers, journals, invoices, and vouchers
- Keeping systematic records of all financial transactions
- Ensuring accuracy and completeness of financial documentation
Managing Bank Transactions and Reconciliations
- Depositing cash and cheques
- Issuing cheques for payments
- Regular bank reconciliation to match company books with bank statements
Ensuring Compliance with Tax and Legal Regulations
- Filing routine tax documents (VAT, income tax, excise, etc.)
- Maintaining statutory records and supporting documents
- Ensuring timely submission of required forms and regulatory filings
Payroll Preparation and Salary Administration (You can add this if needed)
- Preparing salary sheets
- Calculating allowances, deductions, bonuses
- Handling employee financial queries
Handling Routine Correspondence and Documentation
- Communicating with banks, suppliers, customers
- Maintaining financial files and records
- Preparing routine letters and notices related to finance