Answer to Question #287664 in Accounting for Yoyo

Question

Discuss about the four finance functions (financial management decisions)

Answer 1

The four finance functions include:

Investment decision: also known as capital budgeting, this function involves allocating capital to long-term assets and decisions of using funds which are obtained by selling those assets which become less profitable and less productive. This function also wises decisions to decompose depreciated assets which are not adding value and utilizing those funds in securing more beneficial assets.

Financial decision: it relates to decisions on when, where and how a business should acquire funds. It ensures the firm's capital structure remains sound and optimal. A sound financial structure is one that maximizes shareholders' returns with minimum risk.

Dividend decision: this is a function that aims to attain an optimum dividend policy of the organization, which maximizes the market value of the firm. This function constitutes calculating an optimum dividend payout.

Liquidity decision: this function entails maintaining a liquidity position for the firm to avoid insolvency. Profitability, liquidity and risk are all associated with investment in current assets and investing sufficient funds in current assets is necessary to maintain a tradeoff between profitability and liquidity.