TYPES OF FINANCE FUNCTIONS/ DECISIONS
The most main decisions in finance relate to procuring funds, investing them in profitable projects or assets, operate for the year and at the same time take working capital decision (investment in current assets and current liabilities) and calculate operating profit and decide upon the form of dividend decision which will make the Equity holders happy and the business runs profitably. These decisions are technically known as follows:
- Financing decision - This decision is associated to long term borrowings of a business and covers several important concepts like Cost of capital, capital structure, EBIT-EPS analysis, Indifference point, Pecking order theory etc.
- Investment decision - Capital budgeting decisions which is related to decisions regarding investment in fixed assets.
- Working capital decision - These decisions are related to the investment in current assets and current liabilities and include several related decisional areas like Management of cash, receivables and inventory - deciding the optimum working capital requirements of a firm etc.
- Dividend decision - These decisions are related to distribution of profit earned by a firm. As the firm does not have any option in payment of its cost to debt holders or preference holders, this decision belongs completely to equity share holders and covers several theories of dividend payment.