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BRILLIANT’S Conceptual Framework of Finance Functions 35

The finance functions may be explained in \$m`ZoÝg gå~ÝYr H$m`m] H$mo Bg àH$ma g_Pm`m Om
following ways: gH$Vm h¡:
1. Investment Decision: The investment 1. BÝdoñQ>_|Q> {S>[gOZ: BÝdoñQ>_|Q> {S>grOZ H$m
decisions are related with selection of assets in gå~ÝY AgoQ²>g Ho$ M`Z Ed§ CZ_| \§$S> BÝdoñQ> H$aZo go h¡Ÿ&
which the funds are to be invested. The assets
may be divided into two categories: AgoQ²>g H$mo _w»`V: Xmo ^mJm| _| {d^º$ {H$`m Om gH$Vm h¡:
(a) Long-term assets (a) cm±J-Q>_© AgoQ²>g
(b) Short-term assets (b) em°Q>©-Q>_© AgoQ²>g
Long-term assets give benefits in future cm±J-Q>_© AgoQ²>g go cå~o g_` VH$ cm^ àmßV hmoVm
for a long period of time. It is difficult to measure h¡ {H$ÝVw `h H$~ VH$ Am¡a {H$VZm hmoJm, BgH$m {ZpíMV ê$n
the future because future is uncertain. Due to go {ZYm©aU Zht {H$`m Om gH$Vm Š`m|{H$ ^{dî` A{ZpíMV
uncertainty of future, financial manager is hmoVm h¡Ÿ& ^{dî` H$s A{Z{íMVVm Ho$ H$maU hr \$m`ZopÝe`c
required to follow the technique of capital _¡ZoOa H¡${nQ>c ~OqQ>J H$s VH$ZrH$ AnZmVm h¡Ÿ& H¡${nQ>c
budgeting. Capital budgeting helps in taking
~OqQ>J go BÝdoñQ>_|Q> Ho$ ZE àñVmdm| Ho$ gå~ÝY _| {ZU©` coZo
decision about new investment proposals.
Similarly short-term management of assets is _| ghm`Vm {_cVr h¡Ÿ& Cgr àH$ma, em°Q>©-Q>_© AgoQ²>g H$mo
popularly known as working capital d{Hª$J H¡${nQ>c _¡ZoO_|Q> ^r H$hm OmVm h¡Ÿ& \$m`ZopÝe`c
management. The financial manager should _¡ZoOa H$mo BZ VH$ZrH$m| H$m kmZ hmoZm Amdí`H$ h¡ Vm{H$
be aware of these techniques to have a better
investment decision. BÝdoñQ>_|Q> {S>grOZ ~ohVa T>§J go {c`m Om gHo$Ÿ&
2. Finance Decision: Finance decision is 2. \$m`ZoÝg {S>[gOZ: \$m`ZopÝe`c _¡ZoOa H$m
the second important function performed by Xygam _hÎdnyU© H$m`© \$m`ZoÝg gå~ÝYr {ZU©` coZm h¡Ÿ&
financial manager. In finance decision, the Bg_| \$m`ZoÝg _¡ZoOa H$mo `h {ZpíMV H$aZm hmoVm h¡ {H$
financial manager is required to determine the Hw$c \$m`ZoÝg H$s ì`dñWm _| {H$VZm {hñgm B{ŠdQ>r H$m
proportion of debt and equity. Generally, a
company arranges its total required capital by hmoJm Am¡a {H$VZm S>oãQ> H$mŸhmoJmŸ& H$moB© ^r H$ånZr AnZr
issuing equity shares for a portion and by Q>moQ>b H¡${nQ>c H$s Amdí`H$Vm H$m Hw$N> ^mJ B{ŠdQ>r
issuing debenture or taking loan for the rest. It eo`g© Bí`y H$aHo$ d Hw$N> ^mJ S>oãQ> go AWm©V² cmoZ coH$a
is known as capital structure. It is essential to `m {S>~oÝMa Bí`y H$aHo$ AaoÝO H$aVr h¡Ÿ& Bgo hr H$ånZr
have a proper balance between debt and equity H$m H¡${nQ>c ñQ´>ŠMa H$hVo h¢Ÿ& S>oãQ> d B{ŠdQ>r _| ~¡coÝg
to ensure a trade off between risk and return. hmoZm Amdí`H$ h¡ V^r [añH$ Ed§ [aQ>Z© _| g§VwcZ ñWm{nV
When there is proper balance between debt
and equity, it is called optimum capital hmo gHo$JmŸ& `{X S>oãQ> d B{ŠdQ>r _| g§VwcZ h¡ Vmo Bgo
structure. Once the optimum capital structure Am°pßQ>__ H¡${nQ>c ñQ´>ŠMa H$hm Om`oJmŸ& EH$ ~ma Am°pßQ>__
is determined, the financial manager should H¡${nQ>c ñQ´>ŠMa {ZYm©[aV hmoZo Ho$ ~mX \$m`ZoÝg _¡ZoOa
raise the amount through best available Amdí`H$ \$m`ZoÝg H$s ì`dñWm Ho$ {c`o CncãY òmoVm| _|
sources. go loð> H$m M`Z H$aVm h¡Ÿ&

3. Dividend Decision: Dividend decision 3. {S>{dS>oÝS> {S>[gOZ: {S>{dS>oÝS> {S>[gOZ Vrgam
is the third major financial decision. The à_wI \$m`Z|{e`b {S>grOZ h¡Ÿ& \$m`ZopÝe`c _¡ZoOa H$mo
financial manager is required to decide `h V` H$aZm hmoVm h¡ {H$ H$ånZr H$m {H$gr df© H$m nyam H$m
whether the whole amount of profit should be
distributed or a portion should be distributed nyam cm^ eo`ahmoëS>g© _| {S>{dS>oÝS> Ho$ ê$n _| {dV[aV H$aZm h¡