Role of a Financial Manager

14/07/2020 2 By indiafreenotes

Financial Manager is the executive who manages the financial matters of a business.

Financial managers have the responsibility of overseeing the finances of major companies, agencies and everything in between. Along with their teams, they coordinate accounting and produce financial reports, cash-flow statements and profit projections. To comply with various laws and regulations, they must pay attention to detail. Aside from working with numbers, financial managers must also help other members of their organization understand their complex reports, which requires significant communication skills.

Some of the major functions of a financial manager in modern age are as follows-

1. Estimating the Amount of Capital Required

This is the foremost function of the financial manager. Business firms require capital for:

(i) Purchase of fixed assets

(ii) Meeting working capital requirements, and

(iii) Modernization and expansion of business.

The financial manager makes estimates of funds required for both short-term and long-term.

2. Determining Capital Structure

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 maximize shareholders wealth.

3. Choice of Sources of Funds

Before the actual procurement of funds, the finance manager has to decide the sources from which the funds are to be raised. The management can raise finance from various sources like equity shareholders, preference shareholders, debenture- holders, banks and other financial institutions, public deposits, etc.

4. Procurement of Funds

The financial manager takes steps to procure the funds required for the business. It might require negotiation with creditors and financial institutions, issue of prospectus, etc. The procurement of funds is dependent not only upon cost of raising funds but also on other factors like general market conditions, choice of investors, government policy, etc.

5. Utilization of Funds

The funds procured by the financial manager are to be prudently invested in various assets so as to maximize the return on investment: While taking investment decisions, management should be guided by three important principles, viz., safety, profitability, and liquidity.

6. Disposal of Profits or Surplus

The financial manager has to decide how much to retain for ploughing back and how much to distribute as dividend to shareholders out of the profits of the company. The factors which influence these decisions include the trend of earnings of the company, the trend of the market price of its shares, the requirements of funds for self- financing the future programs and so on.

7. Management of Cash

Management of cash and other current assets is an important task of financial manager. It involves forecasting the cash inflows and outflows to ensure that there is neither shortage nor surplus of cash with the firm. Sufficient funds must be available for purchase of materials, payment of wages and meeting day-to-day expenses.

8. Financial Control

Evaluation of financial performance is also an important function of financial manager. The overall measure of evaluation is Return on Investment (ROI). The other techniques of financial control and evaluation include budgetary control, cost control, internal audit, break-even analysis and ratio analysis. The financial manager must lay emphasis on financial planning as well.