What are the Main Functions of Financial Managers

The role of the financial manager

What does a financial manager do?

Generally speaking, the financial manager will be actively involved in selecting appropriate investment opportunities. They should be capable of determining how much should be paid for various investments and what investments are likely to add value to the
firm. 

 

The financial manager should also be involved in managing existing assets more efficiently, both shorter term assets like cash, debtors and inventory and, of course, the longer-term assets of property, plant and equipment. We will, however, limit our discussion to managing the longer-term assets.

The finance manager should be aware of the framework of financial institutions and financial instruments available in Australia and overseas, and the products that are available to be used by businesses.

 

The finance manager should also have an input into determining the best financial mix of debt and equity (known as capital structure) for the firm. Once the requirement of capital funds has been determined, a decision regarding the kind and proportion of various sources of funds has to be taken. For this, financial manager has to determine the proper mix of equity and debt and short-term and long-term debt ratio. This is done to achieve minimum cost of capital and maximise shareholders wealth.


In summary, the statement of duties and responsibilities of the financial manager includes overseeing the following:

  • Long-term capital investment evaluations and decisions. The funds should be used in the best possible way. The cost of acquiring them and the returns should be compared. The channels which generate higher returns should be preferred. The objective of maximising profits will be achieved only when funds are efficiently used and they do not remain idle at any time. A financial manager has to keep in mind the principles of safety, liquidity and soundness while investing funds.

  • Negotiating long-term and short-term finance. Financial managers determine how the business, and when the business should obtain funds. Every company has a capital structure that maintains the best equity to debt ratio to ensure adequate growth of the venture. It’s important for shareholders to minimize the risk while attempting to maximize profits. This is easier said than done. Sometimes financial managers have to go out on a limb and spend more money (create more debt) than desired to see a substantial return (profit). Financing is the process in which managers or shareholders decide how best to bring money into the company without assuming too much risk.

  • Managing and servicing borrowings. The finance manager needs to ensure the supply of adequate, timely and cheap fund to the various parts of the organization and that there is no excessive cash idling around.

  • Investment Opportunities. Another aspect the financial management system relates to finding opportunities that can complement or benefit the organization. A business can only exploit these opportunities if the organization efficiently and effectively finds the opportunities and has the ability to pay for the desired acquisitions. By carefully considering the different aspects of the financial management system, a business can evaluate its overall financial health and determine its ability to invest in potential opportunities.

  • Evaluating financial performance. Management control systems are  usually based on financial analysis, e.g. ROI (return on investment) system of divisional control. A finance manager has to constantly review the financial performance of various units of the organization. Analysis of the financial performance helps the management for assessing how the funds are utilized in various divisions and what can be done to improve it.

  • Dividend and equity remuneration recommendations. Effectual finance management involves analysing the funds that can be invested for proper working of the organization and distributing the rest among the shareholders. The firm’s earning must be in such a way that a large proportion can be distributed among the investors.

Note that changes in the business environment have created new demands and new challenges. Increasingly, the financial manager has been thrust into a more general management role. The financial manager is now responsible for ensuring that the firm has the most desirable level of funds and the most efficient allocation of those funds within the firm. The financial manager must also have human resources skills, not only to manage those for whom he or she is responsible, but also to ensure that financial recommendations are fully understood by others in the business.

All too complicated?

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