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Notes on Role of Finance manager, Lecture notes of Finance

Ajeenkya D.Y. Patil UniversityFinance

Notes on Role of Finance manager is given which will explain the duties of Finance manager

Typology: Lecture notes

2018/2019

Uploaded on 12/21/2019

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kavitachordiya86 🇮🇳

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Role of a Financial Manager
Financial activities of a firm is one of the most important and complex activities of a firm.
Therefore in order to take care of these activities a financial manager performs all the requisite
financial activities.
A financial manger is a person who takes care of all the important financial functions of an
organization. The person in charge should maintain a far sightedness in order to ensure that the
funds are utilized in the most efficient manner. His actions directly affect the Profitability,
growth and goodwill of the firm.
Following are the main functions of a Financial Manager:
1. Raising of Funds
In order to meet the obligation of the business it is important to have enough cash and
liquidity. A firm can raise funds by the way of equity and debt. It is the responsibility of
a financial manager to decide the ratio between debt and equity. It is important to
maintain a good balance between equity and debt.
2. Allocation of Funds
Once the funds are raised through different channels the next important function is to
allocate the funds. The funds should be allocated in such a manner that they are optimally
used. In order to allocate funds in the best possible manner the following point must be
considered
The size of the firm and its growth capability
Status of assets whether they are long term or short tem
Mode by which the funds are raised.
These financial decisions directly and indirectly influence other managerial activities.
Hence formation of a good asset mix and proper allocation of funds is one of the most
important activity
3. Profit Planning
Profit earning is one of the prime functions of any business organization. Profit earning is
important for survival and sustenance of any organization. Profit planning refers to
proper usage of the profit generated by the firm. Profit arises due to many factors such as
pricing, industry competition, state of the economy, mechanism of demand and supply,
cost and output. A healthy mix of variable and fixed factors of production can lead to an
increase in the profitability of the firm. Fixed costs are incurred by the use of fixed
factors of production such as land and machinery. In order to maintain a tandem it is
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Role of a Financial Manager Financial activities of a firm is one of the most important and complex activities of a firm. Therefore in order to take care of these activities a financial manager performs all the requisite financial activities. A financial manger is a person who takes care of all the important financial functions of an organization. The person in charge should maintain a far sightedness in order to ensure that the funds are utilized in the most efficient manner. His actions directly affect the Profitability, growth and goodwill of the firm. Following are the main functions of a Financial Manager:

1. Raising of Funds In order to meet the obligation of the business it is important to have enough cash and liquidity. A firm can raise funds by the way of equity and debt. It is the responsibility of a financial manager to decide the ratio between debt and equity. It is important to maintain a good balance between equity and debt. 2. Allocation of Funds Once the funds are raised through different channels the next important function is to allocate the funds. The funds should be allocated in such a manner that they are optimally used. In order to allocate funds in the best possible manner the following point must be considered  The size of the firm and its growth capability  Status of assets whether they are long term or short tem  Mode by which the funds are raised. These financial decisions directly and indirectly influence other managerial activities. Hence formation of a good asset mix and proper allocation of funds is one of the most important activity 3. Profit Planning Profit earning is one of the prime functions of any business organization. Profit earning is important for survival and sustenance of any organization. Profit planning refers to proper usage of the profit generated by the firm. Profit arises due to many factors such as pricing, industry competition, state of the economy, mechanism of demand and supply, cost and output. A healthy mix of variable and fixed factors of production can lead to an increase in the profitability of the firm. Fixed costs are incurred by the use of fixed factors of production such as land and machinery. In order to maintain a tandem it is

important to continuously value the depreciation cost of fixed cost of production. An opportunity cost must be calculated in order to replace those factors of production which has gone thrown wear and tear. If this is not noted then these fixed cost can cause huge fluctuations in profit.

4. Understanding Capital Markets Shares of a company are traded on stock exchange and there is a continuous sale and purchase of securities. Hence a clear understanding of capital market is an important function of a financial manager. When securities are traded on stock market there involves a huge amount of risk involved. Therefore a financial manger understands and calculates the risk involved in this trading of shares and debentures. Its on the discretion of a financial manager as to how distribute the profits. Many investors do not like the firm to distribute the profits amongst share holders as dividend instead invest in the business itself to enhance growth. The practices of a financial manager directly impact the operation in capital market.  Finance Manager has to find out from where can raise the fund.• Finance Manager has to think about the investment decision.• Finance Manager has to make financial forecasting.• Finance Manager has to maintain the liquidity position of the firm.  Capital Budgeting decision.• Dividend decision• Working Capital management• Cash Management• Risk Management , Risk Diversification• Portfolio Management  Finance and Production.• Finance and HRM• Finance and Marketing• Finance and R&D• Finance and CSR  Merger and acquisition• Valuation of share and the assets• International Finance Management• Implication of Govt taxation, interest policy• Understanding the role of intermediaries in finance  Analyzing the financial health of the organization• Preparing Budget for production, marketing and finance deptt.• Managing payment and receivable.• Framing the credit policy.• Deciding regarding the source of finance• Depreciation and replacement decision  Hedging and insurance decision.• Decision regarding the risk coverage.• Decision regarding the investment and the return• Analyzing, interpreting and forecasting after going through the accounting reccord  Disinvestment and Shut down• Decision regarding the disinvestment and closure.• Liquidation• Sell off• Merger  The expansion and diversification.• Measuring investment risk versus return.• Size of the firm  Objective of the Firm and Approach• Profit maximization versus wealth maximization• Finance Manager has to think about the short term and long term objective if the firm• Finance Manager has to decide the capital structure• Finance manager think about the optimum utilization of the resource for the desired goal, or efficiency and effectiveness  Various Decision Making• Investment decision or long term asset-mix decision• Finance decision or capital-mix decision• Liquidity decision or short-term asset mix decision• Dividend decision or profit allocation decision

Controllers prepare financial reports and analyses of future earnings or expenses that summarize the organization’s financial position. Controllers are also in charge of preparing special reports required by regulatory authorities—especially important because of the Sarbanes–Oxley Act, designed in part to protect investors from fraud.  Treasurers and finance officers direct and oversee budgets, monitor the investment of funds, manage associated risks, supervise cash management activities, execute capital raising strategies, and deal with mergers and acquisitions.  Risk and insurance managers administer programs to minimize risks and losses that could arise from financial transactions and business operations.  Credit managers supervise the firm’s issuance of credit, fix credit-rating criteria, determine credit limits, and monitor the collection of past-due accounts.  Cash managers supervise and manage the flow of cash receipts and disbursements to meet business and investment needs.  The financial manager’s role, particularly in business, is changing in response to technological advances that have significantly reduced the time it takes to produce financial reports. Financial managers now perform more data analysis to offer senior management ideas on how to maximize profits. They play an increasingly significant role in mergers and acquisitions and in related financing, and in areas that require wide- ranging, focused knowledge to diminish risks and maximize profit.