45 45 Role of Financial Manager

ROLE OF FINANCE MANAGER

The role of financial manager is central in the flow of flow of money from investors into the firm and then back to those same investors. There are two major decisions for the financial manager to make that greatly affect this process. In fact, they are central to the success or failure of the company as a whole. The capital budgeting decision asks how much money the company should invest and into what assets should this investment be made. The financing decision determines how the cash for the investment will be raised. The company raises money by selling securities. Brealey, Myers and Marcus explain that “these pieces of paper have value because they are claims on the firm’s real assets and the cash that those assets will produce. For example, if the company borrows money from the bank, the bank has a financial asset. That financial asset gives it a claim to a stream of interest payments and to repayment of the loan. The company’s real assets need to produce enough cash to satisfy these claims.” (Fundamentals of Corporate Finance, p.18) The flow of money through the financial manager is also set up by Brealey, Myers and Marcus. “The flow starts when financial assets are sold to raise cash. The cash is employed to purchase the real assets used in the firm’s operations. Later, if the firm does well, the real assets generate enough cash inflow to more than repay the initial investment. Finally, the cash is either reinvested or returned to the investors who contributed the money in the first place.” (Fundamentals, p. 19) If the bank lends money to the firm, the firm must of course then repay the money plus any interest accrued. Investments can be made into anything from physical goods, like equipment or new products, or it can be invested into ideas like a marketing plan. An investment is made with the hope that it will provide results in the future, the financial manager must be aware of what kind, how many and how soon the benefits will start to come in from the investment. One of the most common method of raising money is to invest investors to put up the cash and offer them a share of the future benefits. The repayment can be done with stock shareholding or simple cash, maybe even a combination of the two. The big ideas are a part of the financial manager’s role, but they are also in charge of providing the cash for the week to week operations. The manager also needs to assess and diffuse all risks that may hurt the company.

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ROLE OF FINANCE MANAGER

Encyclopedia.com explains the role of an accountant as “The accountant evaluates records drawn up by the bookkeeper and shows the results of this investigation as losses and gains, leakages, economies, or changes in value, so as to reveal the progress or failures of the business and also its future limitations and possibilities. Accountants must also be able to draw up a set of financial records and prescribe the system of accounts that will most easily give the desired information; they must be capable of arriving at a comprehensive view of the economic and the legal aspects of a business, envisaging the effect of every sort of transaction on the profit-and-loss statement; and they must recognize and classify all other factors that enter into the determination of the true condition of the business (e.g., statistics or memoranda relating to production; properties and financial records representing investments, expenditures, receipts, fiscal changes, and present standing). Cost accounting shows the actual cost, over a certain period of time, of particular services rendered or of articles produced; by this system unprofitable ventures, services, departments, and methods may be discovered.” (encyclopedia.com) Role of the Financial Manager The financial manager and the accountant are very important resources for each other, providing information that the other needs and also being able to work together to make informed decisions, particularly about investment opportunities and the day-to-day operations of the organization. The main difference between the financial manager and the accountant lies in the word “comprehensive”. The accountant is required to follow the rule book to an absolute and provide the most honest and reliable financial information as possible. The financial manager is afforded the opportunity to take risks, even making decisions based on a “gut feeling”. That may be a bit extreme, as any smart financial manager would consult all sources, particularly the accountant, to decide on a feasible and strong investment opportunity. But they are allowed to take a chance. The role of maximizing shareholder value is one that can be shared by the financial manager and accountant. Both positions should be, if not focused on, at least concerned with maximizing the shareholder’s value and ultimately maximizing the value of the company.

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ROLE OF FINANCE MANAGER

The accounting procedures and statements are generally followed in the methodology that would best benefit the company. The account information will also need to provide the most accurate and helpful information to assist the finance manager in any decisions. As with any other department in the company, the accounting department plays an important part in the decision making and investment making process. The role of financial manager is central in the flow of flow of money from investors into the firm and then back to those same investors. There are two major decisions for the financial manager to make that greatly affect this process. In fact, they are central to the success or failure of the company as a whole. The capital budgeting decision asks how much money the company should invest and into what assets should this investment be made. The financing decision determines how the cash for the investment will be raised. The company raises money by selling securities. Brealey, Myers and Marcus explain that “these pieces of paper have value because they are claims on the firm’s real assets and the cash that those assets will produce. For example, if the company borrows money from the bank, the bank has a financial asset. That financial asset gives it a claim to a stream of interest payments and to repayment of the loan. The company’s real assets need to produce enough cash to satisfy these claims.” (Fundamentals of Corporate Finance, p.18) The flow of money through the financial manager is also set up by Brealey, Myers and Marcus. “The flow starts when financial assets are sold to raise cash. The cash is employed to purchase the real assets used in the firm’s operations. Later, if the firm does well, the real assets generate enough cash inflow to more than repay the initial investment. Finally, the cash is either reinvested or returned to the investors who contributed the money in the first place.” (Fundamentals, p. 19) If the bank lends money to the firm, the firm must of course then repay the money plus any interest accrued.

3

ROLE OF FINANCE MANAGER

Investments can be made into anything from physical goods, like equipment or new products, or it can be invested into ideas like a marketing plan. An investment is made with the hope that it will provide results in the future, the financial manager must be aware of what kind, how many and how soon the benefits will start to come in from the investment. One of the most common method of raising money is to invest investors to put up the cash and offer them a share of the future benefits. The repayment can be done with stock shareholding or simple cash, maybe even a combination of the two. The big ideas are a part of the financial manager’s role, but they are also in charge of providing the cash for the week to week operations. The manager also needs to assess and diffuse all risks that may hurt the company. Encyclopedia.com explains the role of an accountant as “The accountant evaluates records drawn up by the bookkeeper and shows the results of this investigation as losses and gains, leakages, economies, or changes in value, so as to reveal the progress or failures of the business and also its future limitations and possibilities. Accountants must also be able to draw up a set of financial records and prescribe the system of accounts that will most easily give the desired information; they must be capable of arriving at a comprehensive view of the economic and the legal aspects of a business, envisaging the effect of every sort of transaction on the profit-and-loss statement; and they must recognize and classify all other factors that enter into the determination of the true condition of the business (e.g., statistics or memoranda relating to production; properties and financial records representing investments, expenditures, receipts, fiscal changes, and present standing). Cost accounting shows the actual cost, over a certain period of time, of particular services rendered or of articles produced; by this system unprofitable ventures, services, departments, and methods may be discovered.” (encyclopedia.com)

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ROLE OF FINANCE MANAGER

Role of the Financial Manager The financial manager and the accountant are very important resources for each other, providing information that the other needs and also being able to work together to make informed decisions, particularly about investment opportunities and the day-to-day operations of the organization. The main difference between the financial manager and the accountant lies in the word “comprehensive”. The accountant is required to follow the rule book to an absolute and provide the most honest and reliable financial information as possible. The financial manager is afforded the opportunity to take risks, even making decisions based on a “gut feeling”.

That may be a bit extreme, as any smart financial manager would consult all sources, particularly the accountant, to decide on a feasible and strong investment opportunity. But they are allowed to take a chance. The role of maximizing shareholder value is one that can be shared by the financial manager and accountant. Both positions should be, if not focused on, at least concerned with maximizing the shareholder’s value and ultimately maximizing the value of the company. The accounting procedures and statements are generally followed in the methodology that would best benefit the company. The account information will also need to provide the most accurate and helpful information to assist the finance manager in any decisions. As with any other department in the company, the accounting department plays an important part in the decision making and investment making process.

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