Finance Manager role, Responsibilities, Functions
[Financial Management Notes for NEP and CBCS Pattern]
Finance Manager
In the modern enterprise, a finance manager occupies a key position, he being one of the dynamic member of corporate managerial team. His role, is becoming more and more pervasive and significant in solving complex managerial problems. Traditionally, the role of a finance manager was confined to raising funds from a number of sources, but due to recent developments in the socio-economic and political scenario throughout the world, he is placed in a central position in the organisation. He is responsible for shaping the fortunes of the enterprise and is involved in the most vital decision of allocation of capital like mergers, acquisitions, etc. A finance manager, as other members of the corporate team cannot be averse to the fast developments, around him and has to take note of the changes in order to take relevant steps in view of the dynamic changes in circumstances.
Finance Manager Role, Responsibilities and functions
The nature of job of an accountant and finance manager is different, an accountant's job is primarily to record the business transactions, prepare financial statements showing results of the organisation for a given period and its financial condition at a given point of time. He is to record various happenings in monetary terms to ensure that assets, liabilities, incomes and expenses are properly grouped, classified and disclosed in the financial statements. Accountant is not concerned with management of funds that is a specialised task and in modern times a complex one. The finance manager or controller has a task entirely different from that of an accountant, he is to manage funds. Some of the important decisions as regards finance are as follows:
1) Estimating the requirements of funds:
A
business requires funds for long term purposes i.e. investment in fixed assets
and so on. A careful estimate of such funds is required to be made. An
assessment has to be made regarding requirements of working capital involving,
estimation of amount of funds blocked in current assets and that likely to be
generated for short periods through current liabilities. Forecasting the
requirements of funds is done by use of techniques of budgetary control and
long range planning.
2) Decision regarding capital structure:
Once
the requirement of funds is estimated, a decision regarding various sources
from where the funds would be raised is to be taken. A proper mix of the
various sources is to be worked out, each source of funds involves different
issues for consideration. The finance manager has to carefully look into the
existing capital structure and see how the various proposals of raising funds
will affect it. He is to maintain a proper balance between long and short term
funds.
3) Investment decision:
Funds
procured from different sources have to be invested in various kinds of assets.
Long term funds are used in a project for fixed and also current assets. The
investment of funds in a project is to be made after careful assessment of
various projects through capital budgeting. A part of long term funds is also
to be kept for financing working capital requirements. Asset management
policies are to be laid down regarding various items of current assets,
inventory policy is to be determined by the production and finance manager,
while keeping in mind the requirement of production and future price estimates
of raw materials and availability of funds.
4) Dividend decision:
The
finance manager is concerned with the decision to pay or declare dividend. He
is to assist the top management in deciding as to what amount of dividend
should be paid to the shareholders and what amount is retained by the company,
it involves a large number of considerations. The principal function of a
finance manager relates to decisions regarding procurement, investment and
dividends.
5) Maintain Proper Liquidity:
Every concern is required to maintain some liquidity for meeting day-to-day
needs. Cash is the best source for maintaining liquidity. It is required to
purchase raw materials, pay workers, meet other expenses, etc. A finance
manager is required to determine the need for liquid assets and then arrange
liquid assets in such a way that there is no scarcity of funds.
6) Management of Cash, Receivables and Inventory:
Finance
manager is required to determine the quantum and manage the various components
of working capital such as cash, receivables and inventories. On the one hand,
he has to ensure sufficient availability of such assets as and when required,
and on the other there should be no surplus or idle investment.
7) Disposal of Surplus:
A finance manager is also expected to make
proper utilization of surplus funds. He has to make a decision as to how much
earnings are to be retained for future expansion and growth and how much to be
distributed among the shareholders.
8) Evaluating financial performance:
Management
control systems are usually based on financial analysis, e.g. ROI (return
on investment) system of divisional control. A finance manager has to
constantly review the financial performance of various units of the
organisation. Analysis of the financial performance helps the management for
assessing how the funds are utilised in various divisions and what can be done
to improve it.
9) Financial negotiations:
Finance
manager's major time is utilised in carrying out negotiations with financial
institutions, banks and public depositors. He has to furnish a lot of
information to these institutions and persons in order to ensure that raising
of funds is within the statutes. Negotiations for outside financing often
require specialised skills.
10) Helping in Valuation Decisions:
A number of mergers and consolidations
take place in the present competitive industrial world. A finance manager is
supposed to assist management in making valuation etc. For this purpose, he
should understand various methods of valuing shares and other assets so that
correct values are arrived at.
From the above discussion, we can say that a finance manager can play a key role in attaining various objectives of financial management.
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Also Read: Introduction to Financial Management Important Questions for Upcoming Exams
Q. Explain the objectives of financial management in modern era. 2012, 2013, 2014, 2015, 2016, 2021
Q. Explain the importance of financial management in modern era. 2012, 2013, 2014, 2015, 2016
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