For achieving success in cutthroat markets, efficient organizations streamline their finance functions in an organized manner. Since the financial objectives reflect in various reports that are handed over to stakeholders, a finance manager must be able to put forward financial information for the laymen as well.Companies need to organize their finance functions for a variety of other reasons as well. Some of these reasons include the profitability of the company. increasing shareholders' value and maximizing wealth. Whatever the reason of organizations, it is the duty of the finance manager to keep the process streamlined.Note − Companies organize the finance functions ... Read More

Although the finance managers found limited access to decision-making in the 1950s, the situation has changed drastically nowadays. Now, a finance manager is the person in the key role to raise and allocate funds according to the company's needs.Raising FundsThe traditional view of financial management has dominated the managers to work within the limits set by the decision-makers in the corporate organization. The finance managers only got attention in the case of promotion, reorganization, expansion, and diversification. The financial managers were called upon to express their knowledge in order to raise the funds.Note − Modern organizations pay more attention and ... Read More

Although both functions are related to finance, there are some distinctive differences between long and short-term financing decisions. Long-term decisions are made for more than a year while short-term decisions are yearly decisions. It is easier to understand when we compare some of the long and short-term decision examples.Note − There are differences between long-term and short-term financial decisions.Long-term DecisionsLong-term decisions often offer the strategy of the businesses. Some types of long term decisions include the following Capital Budgeting is an investment decision where long-term budgets are prepared by companies. There are mainly two considerations in capital budgeting −Evaluating the probable ... Read More

It is the nature of financial functions that higher-risk investments offer more returns. Similarly, low-risk investments return less. For example, if you invest in shares, the risk is more there. However, the returns will be higher too in equities in comparison to a less risky investment such as government bonds. This relation between risk and return is popularly called the risk-return trade-off in finance.In the case of mutual funds, the funds are named according to the market cap of company equities, such as small-cap, mid-cap, and large cap funds. Here, if the fund deals with only small-cap, the funds' investments ... Read More

A company's objectives and mission affect all departments of a company, such as marketing, technology, and HR. Objectives and missions broadly state the aim of an organization and financial goals. Since the major aim of a company is to produce quality goods it is imperative that the finances provide the necessary funds required for producing the goods and/or services. In such a case the financial goals are related to the firm's mission and objective.The role of finance in an organization does not stop in merely supporting the production of goods. Finance is related to all other organizational functions. For example, ... Read More

In the calculation of Required Rate of Return (RRR), if the risks are comparable, then it is called the opportunity cost of capital. The equation for calculation of RRR is given by: RRR = Risk-Free Rate + Risk PremiumHere, risk-free rate refers to the time value and risk premium adjusts the risks. The individuals choosing an investment that will pay in the future there are some risks inherent in them. The managers usually invest in investment vehicles that offer more than their cost of capital.Note − The RRR is related to the time value of money.The cost of the capital ... Read More

Organizations and individuals usually prefer to receive money on an earlier date than receiving an equal sum on a later date. It is considered that the value of money goes through erosions with passing periods of time. That is why organizations try to receive payments as soon as possible.Note − Organizations seek to receive payments now than in the future if the amount is the same.Time Value of Money refers to this philosophy and considers the value of money received now to be superior to the same amount of money on a later date. It is based on three factors ... Read More

While we discuss wealth maximization the concepts of objective and decision criteria must be differentiated. At the first sight, the two criteria look similar. However, there are some inherent differences between the two. Knowing the differences is important because the companies deal with these criteria day in and day out.What is Objective Criterion?The objective criterion is the aim or goal the company wants to achieve in the longer term. The objectives guide the overall operations and decision-making processes of the firm. Mission and vision are included in the objective criteria. The importance of objective criterion is the most for managers ... Read More

The decisions taken by financial managers on behalf of an organization for the long term are known as financing decisions. These decisions are important because every department is related to the finance department in one way or the other. Therefore, care must be taken related to the nature of financial matters of the company.The nature of financing decisions is dynamic and there are some distinct differences among the major types of decisions.Investment DecisionsInvestment decisions are related to total assets to be held, the risk composition, and the mix of the total assets of the company.The nature of investment decisions depends ... Read More

Finance functions are divided into two broad functions − Long-term decisions and Short-term decisions. Long-term decisions are applicable to a tenure of more than one year, while short-term decisions are meant for one year or less.Note − Finance functions or decisions are broadly divided into long-term and short-term decisions.Long-term DecisionsLong-term Decisions include: Investment Decision, Financing Decision, and Dividend Decision.Investment DecisionA company's investment decision must consider long-term budgeting or capital expenditure. This decision, therefore, is known as a capital budgeting decision. Capital budgeting consists of allocating the funds and investment decisions in general for future profits. The two major aspects of ... Read More