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Critical analysis of the role played by the finance manager


“An Organization’s Finance Manager Plays a critical role in the financial success of a business as the financial activities of a firm is one of the most important and complex activities of a firm”

Discussion of the statement explaining the main functions of the financial manager in the Organization.

Corporate finance is defined as the finance specialization which deals with long- and short-term monetary decisions making process within an organization with a view to maximizing shareholders value and profitability of the entity. The role of the finance a manager in this is pretty critical. The primary role of a fiancé manager is to make data analysis and on the basis of the same advise the senior management and the BOD of the entity to take effective steps for enhancement of firms value and profit maximization ideas. The finance manager is also tasked with the production of all sorts of financial reports and funding related to long term investments and making strategies to plan for long term financial goals and how to achieve these goals (BERK & DEMARZO, 2016). Finance managers can be expected to take part in the following functions of an entity:

a) Preparation of the entity’s financial statements and other managerial reports suitable for decision making.

b) Monitor the progress for making sure the legal obligations are met without fail.

c) Undertake thorough supervision of employees who undertake financial reporting work and are engaged in the preparation of the annual budgets etc.

d) Undertake a periodical review of the financial reports and suggest ways to reduce the operating costs of the entity.

e) Undertake a thorough analysis of the trends prevailing in the market for finding suitable opportunities for the entity and make suitable market expansion plans through general expansion or acquisition etc.

f) Help the senior management in making suitable decisions for long term positive financial impact on the entity’s operations.

In this scenario, the general role of the fiancé manager changes every day owing to changes in the corporate sector and the business environment but the working areas of responsibilities of finance managers can be segregated as follows:

1) Estimating the Funds Required

The primary function which the fiancé manager needs to accomplish is the identification of the funding needs and estimating the same for making sure the operations run without disruptions both in the present day and in the future (long term).  The function benefits the entity immensely as the working capital is estimated in advance and aggregated, expansion opportunities are identified, and funds mobilized to form a variety of sources so that the growth of the entity remains steadfast (R P Rustagi, 2012-13).

2) Determination of the Proper Capital Structure

Even though there is no one best or optimal structure for any firm over a period of time, the role of the fiancé manager extends to devise a capital structure which not only maximizes firms value but also minimizes the firm's cost of capital. This involves the determination of the mix of the debt capital (external funds) and also the Equity capital (internal funds). Also, this can be extremely helpful in finding appropriate sources for use when required (ROSS and Westerfield, 2012).

3) Finding sources from where funds would be Raised

The next function is to indemnify the probable sources from which the entity can raise fund as and when required. For example, for short term financing some sources might be best but not so much for the long term. So different sources would be sued for different needs. Also, the finance managers must ensure that funds are mobilized from sources which are the cheapest to ensure maximization of value.

4) Utilization of funds and decisions for capital investments (long term)

The finance manager is tasked with the duty of ensuring the funds are invested in the right projects. All those projects must be chosen which ensure better returns and increases growth prospects. Also, long term projects are required to be finalized with an eye on growth potential and the ability to generate adequate returns. Advanced capital budgeting techniques must be selected to be sued by the fiancé team to effective evaluation of capital investment projects. Finance manager is the man who could be in charge to oversee the procedures and recommend the selected projects on the basis of methods like NPV and IRR etc. Scenario and sensitivity analysis must also be used for making sure the projects have the ability to withstand market fluctuations and policy changes etc (BERK & DEMARZO, 2016).

5) Management of Cash at the disposal of the Company

A finance manager is also expected to use the cash balance lying at the disposal of the entity and make sure the cash balance is not lying idle. After keeping enough cash for meeting the needs of meeting operating expenses and working capital excess cash can be invested in short term interest or income generating assets. This can increase returns of assets and also make sure funding needs in the short term is not compromised (Eugene Brigham & Michael Ehrhardt, 2010).

6) Control of Finance

Finance management often needs a proper evaluation of the performance of the specific project or an organization-wide performance in the selected time frame. Financial performance must be evaluated and compared to previous periods of performance and expected performance. Negative deviations and its cause need immediate remedial measures and the same must be taken to avoid long term adverse repercussions. For Example, return on investment and other similar criteria’s must be used by the finance manager to make sure decisions are taken based upon proper analysis and evaluation (Eugene Brigham & Michael Ehrhardt, 2010).

This means the finance manager is expected to perform a variety of activities which ultimately is directed towards maximization of shareholder’s wealth and ensuring the best use of the limited resource a firm has. This role and function, when performed well, would ensure the entity is not wasting its manpower and other resources and fully committed to create returns for the shareholders and generate growth opportunities.


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