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
Maximization of firms value. Shareholders value maximization Dividend, retention
and re-investment decision. Liquidity and profitability are conflicting decision Risk and
returning decision.

Finance manager role in Current Time Understanding the implication of corporate social
responsibility with respect to profitability. Decision on the optimum size of the firm
Decision on stock option , perquisites and bonuses. Understanding and applying the
modern financial instruments such as factoring, derivative, credit derivative,
securitization and venture capital. Transfer pricing Understanding the Time Value of
Money
The financial manager performs the following functions:
Finance manager manages the funds in such a way to ensure their optimum utilisation
with the available resources.
He forecasts the requirement of funds for both short term and long term purposes.
He also actively takes part in budgeting, risk management and financial reporting.
He makes financial reports, have and eye on profits and losses, etc.
He decides how much of the firms profits should be invested, how much should be
given to the shareholders in the form of dividends and how much should be kept as
reserves.
He also monitors the cash flows, prepares accounts and works on financial models.
He decides what type of capital structure is required be the company and decides
whether to raise funds from loans/borrowing or from share capital.
He also ensures that adequate funds at cheap rates are supplied to various parts of the
organization at the right time.
He constantly reviews the financial performance of various units of the organization.
He also ensures that no excess cash is lying idle.
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A financial manager is responsible for providing financial advice and support to
colleagues and clients to enable them to make sound business decisions. The role of the
financial manager is more than simply accounting; it is multifunctional. Financial
managers must understand all aspects of the business so that they are able to adequately
advise and support the chief executive officer in decision-making and ensuring company
growth and profitability.
Almost every firm, government agency, or other type of organization has one or more
financial managers. Financial managers oversee the preparation of financial reports,
direct investment activities, and implement cash management strategies. They also
implement the long-term goals of their organization.

Many corporations operate multifunctional teams where the financial manager is

responsible for a particular division or function, or looks after a range of departments and
functions. Financial managers often have specific roles and titles:

Controllers prepare financial reports and analyses of future earnings or expenses that
summarize the organizations financial position. Controllers are also in charge of

preparing special reports required by regulatory authoritiesespecially important

because of the SarbanesOxley 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 firms 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 managers 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 wideranging, focused knowledge to diminish risks and maximize profit.