Functions Of A Finance Manager

Functions Of A Finance Manager – Any business, whether it’s a small town bakery or General Motors, needs capital to operate. To make money, it has to spend—on inventory and supplies, equipment and facilities, and employee wages and salaries. As such, finance is critical to the success of any company. It may not be as obvious as marketing or production, but corporate financial management is just as important to a company’s success.

Financial management—the art and science of managing a company’s money to achieve its goals—is not just the responsibility of the finance department. All business decisions have financial implications. Managers from different departments must work closely with the financial staff. For example, if you are a sales representative, your company’s credit and collection policies affect your ability to sell. The head of the IT department must justify any requests for new computer systems or employee laptops.

Functions Of A Finance Manager

The income from the sale of the company’s products should be the main source of funds. However, sales revenue doesn’t always come when the bills need to be paid. Financial managers must keep track of how cash flows in and out of the company (see Exhibit 16.2). They work with other line managers in the company to determine how to spend available funds and how much is needed. Then they choose the best source to get the money they need.

Finance Manager Job Description And Duties

For example, a financial manager will track daily operational data such as cash receipts and payments to ensure that the company has enough cash to meet its obligations. In the longer time frame, the manager will thoroughly research if and when the company should open a new manufacturing facility. The manager will also advise on the most appropriate way to finance the project, raise funds and then monitor the implementation and operation of the project.

Financial management is closely related to accounting. In most companies, both areas are the responsibility of the vice president of finance or chief financial officer. But the main function of an accountant is to collect and present financial data. Financial managers use financial statements and other information prepared by accountants to make financial decisions. Financial managers are concerned with cash flow, the inflow and outflow of cash. They plan and monitor the company’s cash flow to ensure that money is available when needed.

The job of a financial manager is complex and challenging. They analyze financial data prepared by accountants, monitor a company’s financial health, and prepare and implement financial plans. One day they might come up with a better way to automatically collect payments, and the next they might be analyzing a proposed acquisition. The main activities of a financial manager are:

How can financial managers make informed planning, investment and financing decisions? A financial manager’s primary goal is to maximize the value of the company to its owners.

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The value of a public company is measured by the share price of its stock. A private company is worth what it can sell.

To maximize firm value, financial managers must consider the short- and long-term consequences of firm actions. Profit maximization is one way, but it is not the only way. This approach favors short-term gains over long-term goals. What if companies in highly technological and highly competitive industries did not conduct research and development? In the short term, profits will be high because R&D is very expensive. But in the long run, the company may lose the competition due to the lack of new products.

Exhibit 16.2 How money flows through a business (Attribution: Copyright Rice University, OpenStax, licensed under CC BY 4.0.)

This is true regardless of the size of the company or where it is in its life cycle. At Corning, a company founded more than 160 years ago, management believes in taking the long view rather than managing quarterly earnings to meet Wall Street expectations. Once known to consumers for kitchen products such as Corelle flatware and Pyrex cookware, the company is now a technology company that produces specialty glass and ceramic products. It is a leading supplier of Gorilla Glass, a special glass used in the screens of mobile devices, including iPhones, iPads and devices running Google’s Android operating system. The company is also the inventor of optical fiber and fiber optic cable for the telecommunications industry. These product lines require significant investment in their long research and development (R&D) cycles as well as in plants and equipment once they begin production. 2

Scope Of Finance Functions

It can be risky in the short term, but it pays to follow. In fact, Corning recently announced plans to create a separate corporate unit for Gorilla Glass, which currently holds more than 20 percent of the mobile phone market – with more than 200 million devices which is sold. And, as cable service providers like Verizon redouble their efforts to upgrade their fiber optic networks across the U.S., their fiber-optic cable business is back on trend and growing. Corning’s commitment to repurposing some of its technology and developing new products has helped the company turn a profit so far in 2017, with revenue up more than 16% in the most recent quarter. 3

As Corning’s case shows, financial managers often struggle to balance the opportunity for profit with the potential for loss. In finance, the chance of profit is called return; the possibility of loss, or the chance that an investment will not achieve the expected level of return, risk. A basic principle of finance is that the higher the risk, the greater the required return. This widely accepted concept is called the risk-reward trade-off. Financial managers consider many factors of risk and return when making investment and financing decisions. This includes changing market demand patterns, interest rates, general economic conditions, market conditions and social issues such as environmental impacts and equal employment opportunity policies. The function of financial management is guided by the ultimate goal of any business, which is to maximize profits and wealth. If we classify the functions of the person who manages the finance of the business, it can be procurement and use of funds. The goal of the fund procurement function is to minimize the cost of funds, while the goal of the fund use function is to maximize the benefits. Let’s learn more about the functions of financial management.

Below is a schematic diagram of the finance function. Excerpted from Prasath Saravana B, Padhuka Student’s Handbook of Cost Accounting and Financial Management.

The capital procurement function begins with estimating capital needs. It includes several forecasting exercises to determine each future project requirement and determine the required amount of fixed asset and working capital investment. He must decide on the source of funds for the purchase funds. Not only is the amount of demand sufficient, but the financial manager must also decide on the timing of that demand. The time of funds is very important in financial management because it brings the time value of money, and we know that “a dollar today is not the same as a dollar a year ago”.

Finance Manager, Accounting & Financial Jobs In Redwater

Once a reasonable funding estimate is mapped out, the capital structure decision will ultimately determine two things viz. a) Mixing long-term financing and short-term financing 2) Mixing own funds and debt funds. Long-term funds are generally used to finance long-term needs such as fixed assets, other long-term investments, and a portion of working capital that remains permanently invested at any point in time. .

Working capital management is an important daily activity for financial managers. It deals with a broader function, which is the procurement and use of funds. It mainly deals with the management of current assets and current liabilities and managing the gap between the two based on the organization’s available funds. Cash management is a major task of working capital management. The financial manager must ensure that all branches, units, etc. have enough money to cover the necessary expenses. The more smoothly you manage your money, the more smoothly your business will operate.

Dividend decisions mainly involve making decisions about paying dividends to shareholders. The main thing to deal with is determining the payment ratio, which depends on many factors, such as the capital needs of the company in their projects, the comparison of the expected return of the company’s projects, and the return that shareholders would get in a normal market, the stability of dividend payments, market expectations, revenue trends, tax considerations for shareholders, etc.

Investment decisions involve using/applying funds in the right mix of projects and fixed assets to maximize the organization’s returns. Different techniques are used such as net present value, internal rate of return, payback period, etc.

Pdf) Main Functions Of Financial Management

Financial analysis is not a function of finance, but must examine all functions performed by finance. The results of this assessment

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