Finance FunctionsAccording to James Van Horne, the functions of finance/accounting comprise three deci- sions: the investment decision, the financing decision, and the dividend decision. Dividend decision refers to the policy that the management formulates in regard to earnings for distribution as dividends among shareholders. Dividend decision determines the division of earnings between payments to shareholders and retained earnings . The dividend decision, in corporate finance, is a decision made by the directors of a company about the amount and timing of any cash payments made to the company's stockholders. Dividend decisions concern issues such as the percentage of earnings paid to stockholders, the stability of dividends paid over time, and the repurchase or issuance of stock. Dividend decisions determine the amount of funds that are retained in a firm compared to the amount paid out to stockholders. The firm has to balance between the growth of the company and the distribution to the shareholders. It has a critical influence on the value of the firm. It has to also to strike a balance between the long term financing decision( company distributing dividend in the absence of any investment opportunity) and the wealth maximization. Retained earnings helps the firm to concentrate on the growth, expansion and modernization of the firm. The investment decision, also called capital budgeting, is the allocation and reallocation of capital and resources to projects, products, assets, and divisions of an organization. Once strategies are formulated, capital budgeting decisions are required to successfully implement strategies. Capital budgeting is also concerned with the analyzing and ranking of possible investments in fixed assets such as land, buildings, and equipment in terms of the additional outlays and additional receipts that will result from each investment. A good finance department will be able to prepare such capital budgets and to rank them on the basis of some accepted criteria or hurdle rate (for example, years to pay back investment, rate of return, or time to break-even point) for the purpose of strategic decision making. Most firms have more than one hurdle rate and vary it as a function of the type of project being considered. Projects with high strategic significance, such as entering new markets or defending market share, will often have low hurdle rates. The financing decision determines the best capital structure for the firm and includes examining various methods by which the firm can raise capital (for example, by issuing stock, increasing debt, selling assets, or using a combination of these approaches). The financing decision must consider both short-term and long-term needs for working capital. The mix of externally generated short-term and long-term funds in relation to the amount and timing of internally generated funds should be appropriate to the corporate objectives, strategies, and policies. The concept of financial leverage (the ratio of total debt to total assets) is helpful in describing how debt is used to increase the earnings available to common sharehold- ers. When the company finances its activities by sales of bonds or notes instead of through stock, the earnings per share are boosted: the interest paid on the debt reduces taxable income, but fewer shareholders share the profits than if the company had sold more stock to finance its activities.