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Articles published on 'Articles Junction Blog' (AJB) are written and published by Sandeep Patil. This blog is updated and maintained by my co-author and webmaster Manoj Patil. Some articles are also contributed by our guest bloggers on a timely manner. We hope you will enjoy reading our articles. We welcome you to submit your suggestions.

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Functions of Financial Management

Functions of Financial Management


Main functions of financial management system are: ↓

  1. Executive functions
  2. Routine functions

Functions of financial management in a organization are given in the diagram below. ↓

Functions of Financial Management

Image credits © Manoj Patil.


Executive Functions of Financial Management


Executive functions of financial management are given in the diagram below.↓

Executive Functions of Financial Management

Image credits © Manoj Patil.

Executive functions of financial management are: ↓

  1. Raising the Funds Required,
  2. Assessing Total Capital Requirement,
  3. Deciding the Capital Structure,
  4. Estimating the Cost of capital,
  5. Management of Fixed Capital,
  6. Management of Working Capital,
  7. Control of Funds,
  8. Allotment of Excess Profit,
  9. Planning Tax,
  10. Performance Evaluation,
  11. Helps Management.

Executive and routine functions of financial management are discussed in brief. ↓

1. Raising the Funds Required


Executive functions of financial management are raising the Required funds. Funds can be raised from various sources like issue of shares, debentures, fixed deposits, bonds, borrowings, etc. The finance executive has to decide the proportion in which the different sources should be raised.

2. Assessing Total Capital Requirement


Executive functions of financial management are assessing the total capital requirement. The basic responsibility of the financial executive is to prepare the monetary plan of the company. At the promotion stage, every firm must estimate its capital needs. Funds may be required for working capital, promotional capital and development capital. To avoid over-capitalization and under-capitalization the finance executive has to access these needs of funds properly.

3. Deciding the Capital Structure


Capital Structure refers to the composition of different securities that comprises the capital of the business. There should be a proper composition of various securities to avoid an imbalance in capital structure.

4. Estimating the Cost of capital


Executive functions of financial management are estimating the cost of capital. Cost of capital is the rate at which an organization may pay to the suppliers of capital for the use of their funds. For E.g. It is expected to pay dividend on equity shares, etc.

5. Management of Fixed Capital


Executive functions of financial management are managing the fixed capital. Investments should be made in those assets which would satisfy the present as well as future needs of the company. For proper, a replacement of fixed assets, convenient depreciation policies should be adopted.

6. Management of Working Capital


The finance executive has to ensure that the company maintain adequate working capital. Inadequate working capital may bring work of the company to a standstill. Excessive amount in working capital will block the funds.

7. Control of Funds


Executive functions of financial management are controlling the funds. The finance executive has to ensure that cash is utilized as per the plan and in case of any deviation, corrective measures should be taken.

8. Allotment of Excess Profit


In distribution of Excess Profit, a firm has two options: To pay dividend or to retain earnings for expansion and diversification. A firm must strike a balance between the two choices else distribute the surplus.

9. Planning Tax


Executive functions of financial management are proper planning of taxes. In every budget, different schemes are announced, which offer tax rebates, deductions, etc. In order to reduce the tax liability the finance executive has to properly-study the schemes and then invests accordingly.

10. Performance Evaluation


Evaluating the financial performance is vital executive functions of financial management. For evaluation, the finance executive may use techniques like ratio analysis, fund flow statements, etc.

11. Helps Management


The finance executive helps the management in decision-making as he is well experienced with the financial aspects of the company.

Routine Functions of Financial Management


Routine functions of financial management are given in the diagram below. ↓

Routine Functions of Financial Management

Image credits © Manoj Patil.

Routine functions of financial management are: ↓

  1. Maintaining Various books of accounts of the companies.
  2. Administration of Cash receipts and payments.
  3. Maintaining cash balances of the company.
  4. Routine functions of financial management are to preserving of securities, insurance policies and other valuable papers.
  5. Preparing of final accounts.
  6. Interacting with banks.
  7. Keeping record and reporting.
  8. Assisting a finance executive in the performance of their roles.











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