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Financial Management Functions in Companies that Must Be Known

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Financial Management Functions

Financial Management Functions is to guide a company to achieve the goal of achieving the goal of earning a profit and maximizing wealth.

The function of financial management can be broadly divided into two, namely procurement of funds (Procurement Fund) and the use of funds (Utilization of funds).

The basic purpose of procuring funds is to minimize costs while the use of funds is to return returns.

Functions of Financial Management

Source of funds (Procurement Fund)

financial management definition

Assess funding needs

The fund procurement function begins by estimating the number of funds needed. Of course, this requires a lot of expertise to identify each or every future need.

Therefore you must find out the number of funds needed for investment in fixed assets and working capital.

A financial manager must make estimates about the company’s capital requirements.

This depends on the expected costs and benefits and policies to anticipate future problems.

This estimation must be made adequately and can increase the company’s income.

Funding/capital structure decision

After you have estimated the required funds, the financial management function is to ensure that capital structure decisions make sense.

The capital structure decision can solve the following two things:

  1. Long and short-term financial mix
  2. Mixed personal funds with debt funds.

Long-term funds are usually used to pay for long-term needs such as a company’s fixed assets, long-term investments and part of the working capital will be invested permanently at any given time.

Fund utilization (Utilization of funds)

A decision on the management of working capital

Managing working capital is important in the financial management function.

The broader management function is the procurement or utilization of funds. This consists of the management of current assets with current liabilities.

Financial managers must maintain the gap between these two things in accordance with the capital available within the company.

In addition, the financial manager must ensure that all units within the company have sufficient cash to overcome the required expenditure.

The better the management of cash, the better the flow of business operations.

Dividend decision

Dividend decisions can be defined as a mechanism for acquiring management decisions to explain dividends.

It is very important for management to determine the share of profits to be distributed as dividends at the end of the reporting period.

This must be done carefully because it can relate to dividend payments to shareholders.

The main concern in this dividend decision is to determine the dividend payout ratio which depends on many things such as the company’s funding needs to work on their project, the returns available to shareholders, etc.

Therefore dividend decisions must be considered in detail because the dividend decision is a bridge between the company and the shareholders.

Investment decisions

importance of financial management

Investment decisions are decisions taken in relation to investments with large capital expenditures.

This capital expenditure is usually associated with investments in factories, machinery, vehicles, etc.

Expenditures like this are certainly very influential on the company’s cash flow in the future.

In other words, investment decisions are the use of funds for the right things from the project and fixed assets to maximize returns for the company.

This is where the financial management functions to care about funding sources, the use of effective funds to achieve company goals.

Effective use of funds can be achieved by investing in productive activities or assets.

The decision to choose the right type of investment for a long period of time can be called an investment decision.

Financial analysis/work assessment

This financial analysis is actually not included in the financial management function. But in financial management, it is necessary to evaluate all financial management functions well.

With this evaluation, it can produce findings or errors to improve.

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