Financial management is the most important department in every organization that is run by a financial manager, the person who takes care of all the important financial functions of an organization.
The responsible person must maintain far-sightedness in order to ensure that the funds are used in the most efficient manner. His actions directly affect the growth, profitability and goodwill of the organization.
The Main Tasks of a Financial Manager:
Raising of Funds
In order to fulfill the commitment of the business, it is important to have enough cash and liquidity. The company can raise funds through equity and debt. It is the responsibility of the financial manager to determine the ratio between debt and equity. It is so important to maintain a good balance between both equity and debt.
Allocation of Funds
Once funds are collected through various channels, the next important task is to allocate funds. Funds must be allocated in such a way that they are used optimally.
In order to allocate funds in the best possible way, these following point should be considered:
- The size of the firm and its ability to grow.
- Status of assets, whether long-term or short-term.
- The manner in which the funds are raised.
These financial decisions directly and indirectly affect other managerial activities. Hence creating a good mix of assets and proper allocation of funds is one of the most important activity.
Profit Planning
Profit earning is one of the basic functions of any business organization. Earning a profit is important for the survival and sustenance of any organization. Profit planning refers to the proper use of the profit made by the firm.
Profit arises due to many factors such as pricing, industry competition, state of the economy, mechanism of supply and demand, cost and production. The right combination of variable and fixed factors of production can increase the profitability of the firm.
Fixed costs are incurred by using fixed factors of production such as land and machinery. In order to maintain a tandem, it is important to constantly estimate the depreciation cost of the fixed cost of production. The opportunity cost must be calculated in order to replace the factors of production that have eroded. If this is not observed, this fixed cost can cause large fluctuations in profit.
Understanding Capital Markets
The company’s shares are traded on the stock exchange and there is a continuous buying and selling of securities. Hence a clear understanding of the capital market is an important task of the financial manager. When securities are traded in the stock market, there is a huge amount of risks involved. Therefore, the financial manager understands and calculates the risks involved in trading shares and debentures.
Based on the CFO’s discretion of how the profits will be distributed. Many investors do not like the company to distribute dividends among shareholders as dividends rather than investing in the business itself to promote growth. The practices of the financial manager directly affect the operation in the capital market.
Role of a Financial Manager
The role of CFO is rapidly increasing due to advance technology which has greatly significantly the amount of time that has been occupied to produce financial reports.
- analyzing market trends to find opportunities for expansion or acquisitions.
- They have to do some specific tasks to their organization or industry.
- managing the company’s credit.
- Making some dividend pay-out decisions.
- Keep in touch with the stock market if the company is listed.
- Estimation of financial performance concerning return investments.
- Maximizing the wealth of the company’s shareholders.
- Dealing with financial negotiations with banks and financial institutions.
Types of Financial Managers:
- Controllers
They direct the preparation of financial reports that summarize and forecast the financial reports of the organization such as income statements, balance sheets, etc.
- Treasures and Finance Officers
These officers direct the budgets of their organizations to achieve their financial goals to oversee the investment of funds.
- Credit Managers
They manage the credit business of the organization.
- Cash managers
They monitor the flow of cash that comes in and out of the company to meet the investment needs of the organization.
- Risk Managers
They control financial risks by using strategies to reduce the possibility of financial loss.
Now, you can get your certification from Optimus in Financial Manager Program accredited from ATHE & QUALIFI within just 48 training hours. And make a big change in your business and career.
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