Roles of a Financial Manager

Functions of a Financial Manager (Management)

Imagine the financial manager as the money manager of a company. Their job is to ensure the company has enough money to operate, grow, and make a profit. They handle everything related to the company's finances.

key functions:

1. Estimating the Amount of Capital Required

• Concept: Figuring out how much money the company needs.
• Details:
  • Fixed Assets: Money to buy big items like buildings, machinery, etc.
  • Working Capital: Money for day-to-day operations (salaries, supplies).
  • Modernization & Expansion: Money for growth and upgrades.
• Focus: Needs both short-term and long-term capital estimates.
• Analogy: Like creating a personal budget, but for a company.

2. Determining Capital Structure

• Concept: Deciding how to get the required funds.
• Details:
  • Equity vs. Debt: Should the company use its own money (equity) or borrow it (debt)?
  • Short-term vs. Long-term Debt: Choosing the right timeframe for borrowing.
• Goal: To minimize the cost of capital and maximize value for the owners (shareholders).
• Analogy: Like choosing the right loan or payment plan.

3. Choice of Sources of Funds

• Concept: Selecting where to get the money from.
• Details:
  • Equity: Issuing shares to investors.
  • Debt: Borrowing from banks or financial institutions.
  • Other Sources: Public deposits, etc.
• Analogy: Like choosing the right bank or funding source.

4. Procurement of Funds

• Concept: Actually obtaining the required money.
• Details:
  • Negotiating with lenders and financial institutions.
  • Issuing shares or bonds.
• Considerations: Cost, market conditions, investor preferences, government policies.
• Analogy: Like applying for a loan or launching a fundraising campaign.

5. Utilisation of Funds

• Concept: Investing the funds wisely.
• Details:
  • Investing in assets that maximize returns.
  • Guiding Principles: safety, profitability, and liquidity.
• Analogy: Like making smart investments in your own life.

6. Disposal of Profits or Surplus

• Concept: Deciding what to do with company profits.
• Details:
  • Reinvest: How much to put back into the company for future growth.
  • Dividends: How much to pay out to shareholders.
• Considerations: Earnings trend, market price, and future needs.
• Analogy: Like deciding how to spend or save your income.

7. Management of Cash

• Concept: Managing day-to-day cash flow.
• Details:
  • Forecasting cash inflows and outflows.
  • Ensuring there is enough cash for operations.
• Goal: Avoiding both shortages and surpluses of cash.
• Analogy: Like balancing your checkbook.

8. Financial Control

• Concept: Evaluating financial performance and planning ahead.
• Details:
  • Return on Investment (ROI): Measuring the success of investments.
  • Financial Control Techniques: Budgetary control, cost control, internal audits, break-even analysis, ratio analysis.
  • Financial Planning: Developing strategies for the future.
• Analogy: Like tracking your spending habits and planning for the future.

In Summary

The Financial Manager is responsible for:

• Planning: Figuring out how much money is needed
• Funding: Deciding how and where to get the money
• Investing: Putting the money to good use
• Managing: Keeping cash flowing and tracking performance

They are crucial for a company's financial health and long-term success.