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Topic 4 - EC1

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22 views21 pages

Topic 4 - EC1

Uploaded by

Queenie Sarip Montañer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ROLE OF A

FINANCIAL
MANAGER
EC1
INTRODUCTION
The financial activities of a firm are
one of the most important and
complex activities of a firm.
Therefore to take care of these
activities a financial manager
performs all the requisite financial
activities.
FINANCIAL
MANAGER
A financial manager 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.
The Financial Manager must be skilled in
the technical aspects of all financial
decisions made by the company. The
Inter-American Investment Corporation
also highlights the importance of having a
professional in-depth knowledge of legal
regulations and statutory litigation.
THE KEY ELEMENTS OF FINANCIAL
MANAGEMENT FOLLOW BELOW:

1 Financial planning

2 Financial control

3 Financial decision-making
Management needs to ensure that enough funding is available at
the right time to meet the needs of the business.

In the short term, funding may be needed to invest in equipment


and stocks, pay employees and fund sales made on credit.

In the medium and long term, funding may be required for


significant additions to the productive capacity of the business or
to make acquisitions.
Financial control is a critically important
activity to help the business ensure that
Financial
the business is meeting its objectives. It is
a method designed to answer the
following financial concerns that a
CONTROL
company may have, such as:

Are assets being used efficiently?


Are the businesses assets secure?
Does management act in the best
interest of shareholders and in
accordance with business rules?
FINANCIAL CASH CONTROLS

CONTROL systems for managing


cash amounts.
TOOLS
BANK CONTROLS

systems for making sure that


the bank account cannot be
misused.
FINANCIAL BUDGETING AND
ACCOUNTING CONTROLS

CONTROL systems that provide sufficient

TOOLS information or manage the


activities of the organization.

PURCHASE AND
AUTHORIZATION CONTROLS

making sure that different


people are involved at each
stage.
FINANCIAL MANAGEMENT
CONTROLS

CONTROL extra checks made by

TOOLS management.

PHYSICAL CONTROLS

keeping property and


equipment in good order
and secure; and guidance
on the personal use of
items owned by the
organization.
Financial
Financial Planning is the process
PLANNING of estimating the capital required
and determining it’s competition.
It is the process of framing
financial policies in relation to
procurement, investment and
administration of funds of an
enterprise.
A GOOD FINANCIAL PLAN CONTAINS SEVEN
KEY COMPONENTS:
Budgeting and taxes.
Managing liquidity, or ready
access to cash.
Financing large purchases.
Managing your risk.
Investing your money.
Planning for retirement and
the transfer of your wealth.
Communication and record
keeping.
FINANCIAL DECISION-MAKING
The key aspects of financial decision-making relate to investment,
financing dividends and asset management.

For example, investments must be financed in some way, however,


there are always financing alternatives that can be considered. For
example it is possible to raise finance from selling new shares,
borrowing from banks or taking credit from suppliers.
THE MAIN FUNCTIONS OF A
FINANCIAL MANAGER
Estimating capital requirements: The company must estimate its
capital requirements (needs) very carefully. This must be done at
the promotion stage.

Determining capital structure: Capital structure is the ratio


between owned capital and borrowed capital. There must be a
balance between owned capital and borrowed capital.

Estimating cash flow : Cash flow refers to the cash which comes in
and the cash which goes out of the business. The cash comes in
mostly from sales. The cash goes out for business expenses.
Investment Decisions: The business gets cash, mainly from sales.
It also gets cash from other sources. It gets long-term cash from
equity shares, debentures, term loans from financial institutions,
etc. It gets short-term loans from banks, fixed deposits, dealer
deposits, etc.

Allocation of surplus : Surplus means profits earned by the


company. When the company has a surplus, it has three options,
viz.,
1. It can pay dividend to shareholders.
2. It can save the surplus. That is, it can have retained earnings.
3. It can give bonus to the employees.
Deciding additional finance : Sometimes, a company needs
additional finance for modernization, expansion, diversification,
etc. The finance manager has to decide on following questions.

1. When the additional finance will be needed?


2. For how long will this finance be needed?
3. From which sources to collect this finance?
4. How to repay this finance?
Negotiating for additional finance : The finance manager has to
negotiate for additional finance. That is, he has to speak to many
bank managers. He has to persuade and convince them to give
loans to his company. There are two types of loans, viz., short-
term loans and long-term loans.

Checking the financial performance : The finance manager has to


check the financial performance of the company. This is a very
important finance function. It must be done regularly. This will
improve the financial performance of the company.
Cash managers
monitor and regulate the cash flow in and out of a
business's expenditures to ensure they remain
within budget.
FINANCIAL
MANAGER JOB Controllers
prepare financial reports and oversee a business's
financial departments such as accounting and
budgeting.

Credit managers
manage credit-related businesses such as credit
ceilings, credit-rating criteria and any accounts in
collections.

Risk managers
estimate the odds that investments and market
strategies will result in financial loss and use
strategies to avoid or offset losses.
Financial managers generally oversee the
financial health of an organization and help
ensure its continued viability. They supervise
important functions, such as monitoring cash
flow, determining profitability, managing
expenses and producing accurate financial
information.

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