Corporate Finance is the area of finance that deals with how corporations manage their funding sources, capital structuring, and investment decisions.
Finance functions may be classified as:
- Managerial Finance Functions
- Routine Finance Functions
1.) Managerial Finance Functions:
Managerial finance functions are carried out at managerial level. These are strategic and decision-oriented functions that require analytical thinking and long-term planning. They are crucial for maximizing the value of the firm.
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 are those, which generally do not require managerial involvement to carry out them. These are day-to-day administrative and clerical tasks that support the implementation of managerial finance decisions. They are carried out at lower levels.
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
