Role of a Financial Manager
One of a company’s most significant and difficult operations is its financial activities. As a result, a financial manager executes all of the necessary financial duties to take care of these activities.
A financial manager is someone who is in charge of an organization’s major financial activities. To guarantee that the funds are used most effectively, the person in charge should have a long-term perspective. His activities have a direct impact on the company’s profitability, growth, and goodwill.
Following are the main functions of a Financial Manager:
1. Raising of Funds
It is critical to have adequate cash and liquidity to satisfy the business’s obligations. A company can raise capital through both stock and debt financing. The decision on the debt-to-equity ratio is the duty of financial management. It’s critical to strike a solid balance between debt and equity.
2. Allocation of Funds
After the money has been obtained through various methods, the next step is to allow the monies. The money should be distributed in such a way that they are utilized to their full potential. The following aspect must be examined to distribute funds most efficiently feasible.
§ The size of the firm and its growth capability
§ Status of assets whether they are long-term or short-term
§ Mode by which the funds are raised
These financial decisions, directly and indirectly, influence other managerial activities. Hence the formation of a good asset mix and proper allocation of funds is one of the most important activity
3. Profit Planning
Profit generation is one of the most important duties of any firm. Profit is critical for every organization’s survival and sustainability. The correct use of a company’s profit is referred to as profit planning.
Many factors influence profit, including pricing, industry competition, the state of the economy, demand and supply mechanisms, cost, and output. A well-balanced blend of variable and fixed variables of production can boost a company’s profitability.
The use of permanent elements of production, such as land and machinery, incurs fixed costs. It is critical to regularly value the depreciation cost of a fixed cost of production to maintain a tandem. To replace those production variables that have deteriorated due to wear and tear, an opportunity cost must be computed. If this isn’t taken into account, these fixed costs might lead to significant earnings variations.
4. Understanding Capital Markets
The stock exchange is where a company’s shares are traded, and there is a continual selling and purchase of securities. As a result, a financial manager’s ability to grasp the capital market is critical. When securities are exchanged on the stock market, they come with a significant degree of risk. As a result, a financial manager comprehends and evaluates the risk associated with stock and bond trading.
The distribution of earnings is left to the financial manager’s discretion. Many investors prefer that earnings be reinvested in the business rather than distributed as dividends to shareholders. A financial manager’s actions have a direct influence on how the capital market operates.
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