finance function is concerned with the functions of procuring funds, investing them into profitable projects and distributing the returns earned from those investments.
Thus, Finance Function includes
- Investment Decision: This decision is also known as Capital Budgeting Decision. It is concerned with the evaluation and selection of proposals for long-term investments. The returns from these proposals are expected in the future. A thorough evaluation of project in terms of risk and return is made as it requires a huge amount of funds.
- Financing Decisions: This decision is concerned with choosing appropriate source of finance. The major issue involved here is to determine the proportion of equity and debt in the capital structure. The mix of equity and debt is known as capital structure.
- Dividend Decision: It is related to distribution of profit. The finance manager has to decide what proportion of earning is to be retained and what proportion is to be distributed as dividend, whether dividend should be paid in cash or in any other form etc. The dividend policy of a firm is critical to its success as it affects market value of shares.