MOHAMED RAUFIK TAJUDDIN | MBA PAPER | May 1, 2015

FINANCIAL MANAGEMENT As the finance manager in a company and take charge of all financial aspects of the company. Explain the financial

activities of the company that you are expected to perform and how are you going to achieve the objective of those

activities.

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Table of Contents

INTRODUCTION ......................................................................................................................................... 2

Duties of Financial Manager .................................................................................................................... 2

Types of Financial Managers ................................................................................................................... 4

Important Skills for Financial Managers .............................................................................................. 5

The main functions of a Financial Manager: ....................................................................................... 7

The Financial managers’ goals ............................................................................................................... 8

The Goal Of Financial Management ..................................................................................................... 9

The General goal of finance manager ................................................................................................... 11

Conclusion.................................................................................................................................................. 12

Lists of Figures

Figure 1. Duties of Financial Manager ......................................................................................................... 2

Figure 2 . Functions of Financial manager .................................................................................................. 3

Figure 3. Role of Financial manager ............................................................................................................ 5

Figure 4 . Definition of Financial management ....................................................................................... 10

Figure 5 . The Importance of Financial Services ....................................................................................... 11

Figure 6 . The Changing Role of Financial Manager ................................................................................ 12

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INTRODUCTION

Financial managers perform data analysis and advise senior managers on profit-maximizing ideas.

Financial managers are responsible for the financial health of an organization. They produce financial

reports, direct investment activities, and develop strategies and plans for the long-term

financial goals of their organization.

Duties of Financial Manager

Financial managers typically:

Prepare financial statements, business activity reports, and forecasts,

Monitor financial details to ensure that legal requirements are met,

Supervise employees who do financial reporting and budgeting,

Review company financial reports and seek ways to reduce costs,

Analyze market trends to find opportunities for expansion or for acquiring other companies,

Help management make financial decisions.

The role of the financial manager, particularly in business, is changing in response to technological

advances that have significantly reduced the amount of time it takes to produce financial reports.

Financial managers' main responsibility used to be monitoring a company's finances, but they now

do more data analysis and advice senior managers on ideas to maximize profits. They often work

on teams, acting as business advisors to top executives.

Figure 1. Duties of Financial Manager

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Financial managers also do tasks that are specific to their organization or industry. For example,

government financial managers must be experts on government appropriations and

budgeting processes, and healthcare financial managers must know about issues in healthcare

finance. Moreover, financial managers must be aware of special tax laws and regulations that affect

their industry.

Financial managers tasks that are specific relate to their organization corporate finance department,

like capital investment decisions.

Capital investment decisions are long-term corporate finance decisions relating to fixed assets and

capital structure. Decisions are based on several inter-related criteria. Corporate management seeks

to maximize the value of the firm by investing in projects which yield a positive net present

value when valued using an appropriate discount rate in consideration of risk.

These projects must also be financed appropriately. If no such opportunities exist,

maximizing shareholder value dictates that management must return excess cash to shareholders

(i.e., distribution via dividends). Capital investment decisions thus comprise an investment decision,

a financing decision, and a dividend decision.

Management must allocate limited resources between competing opportunities (projects) in a

process known as capital budgeting. Making this investment decision requires estimating the value

of each opportunity or project, which is a function of the size, timing and predictability of future cash

flows.

Achieving the goals of corporate finance requires that any corporate investment be financed

appropriately. The sources of financing are, generically, capital self-generated by the firm and capital

from external funders, obtained by issuing new debt or equity.

Figure 2 . Functions of Financial manager

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Types of Financial Managers

There are distinct types of financial managers, each focusing on a particular area of management.

CONTROLLERS

Controllers direct the preparation of financial reports that summarize and forecast the organization's

financial position, such as income statements, balance sheets, and analyses of future earnings

or expenses. Controllers also are in charge of preparing special reports required by governmental

agencies that regulate businesses. Often, controllers oversee the accounting, audit,

and budget departments.

TREASURERS

Treasurers and finance officers direct their organization's budgets to meet its financial goals and

oversee the investment of funds. They carry out strategies to raise capital and also develop financial

plans for mergers and acquisitions.

CREDITS MANAGERS

Credit managers oversee the firm's credit business. They set credit-rating criteria, determine credit

ceilings, and monitor the collections of past-due accounts.

CASH MANAGERS

Cash managers monitor and control the flow of cash that comes in and goes out of the company to

meet the company's business and investment needs. For example, they must project cash flow

(amounts coming in and going out ) to determine whether the company will not have enough cash

and will need a loan or will have more cash than needed and so can invest some of its money.

RISK MANAGERS

Risk managers control financial risk by using hedging and other strategies to limit or offset the

probability of a financial loss or a company's exposure to financial uncertainty. Among the risks they

try to limit are those due to currency or commodity price changes.

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INSURANCE MANAGERS

Insurance managers decide how best to limit a company's losses by obtaining insurance against risks

such as the need to make disability payments for an employee who gets hurt on the job or costs

imposed by a lawsuit against the company.

Important Skills for Financial Managers

Analytical skills. Financial managers increasingly assist executives in making decisions that affect the

organization, a task for which they need analytical ability.

Communication. Excellent communication skills are essential because financial managers must

explain and justify complex financial transactions.

Attention to detail. In preparing and analyzing reports such as balance sheets and income

statements, financial managers must pay attention to detail.

Math skills. Financial managers must be skilled in math, including algebra. An understanding of

international finance and complex financial documents also is important.

Organizational skills. Financial managers deal with a range of information and documents. They

must stay organized to do their jobs effectively.

Figure 3. Role of Financial manager

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In shorts, the finance manager will advise and carried out task related to the following:

Formulating budget estimates in support of program objectives; presenting and justifying budget

requests; development of plans for allocating resources; monitoring program execution; reviewing

and analyzing funding documents; conducting comparative analyses to examine trends; reviewing

budget policy and statutes to ensure compliance.

Reviewing and interpreting accounting and financial management policy, procedures, standards

and statutes to ensure compliance; monitoring and examining accounts, specific appropriations

or financial records for account status and reporting requirements; and verifying accounts

documentation.

Planning and conducting performance and financial reviews of major programs and entities to

evaluate the reliability, effectiveness, and efficiency of the organization; making recommendations

based on findings that identify cost savings through improved operations; and following up on

recommendations to ensure implementation.

Managerial activities which deals with planning and controlling of firms and financial sources.

Financial management is an area of financial decision making, harmonizing individual motives

and enterprise goals.

A financial manager has three main duties. They are to manage the budget of the company, keep a

report of all financial transactions and to manage the financial team.

Financial activities of a firm is one of the most important and complex activities of a firm. Therefore

in order to take care of these activities a financial manager performs all the requisite financial

activities.

A financial manager is a person who takes care of all the important financial functions of an

organization. The person in charge should maintain a far sightedness in order to ensure that the

funds are utilized in the most efficient manner. His actions directly affect the Profitability, growth

and goodwill of the firm.

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The main functions of a Financial Manager:

1. Raising of Funds

In order to meet the obligation of the business it is important to have enough cash and liquidity. A

firm can raise funds by the way of equity and debt. It is the responsibility of a financial manager to

decide the ratio between debt and equity. It is important to maintain a good balance between equity

and debt.

2. Allocation of Funds

Once the funds are raised through different channels the next important function is to allocate the

funds. The funds should be allocated in such a manner that they are optimally used. In order to

allocate funds in the best possible manner the following point must be considered

The size of the firm and its growth capability

Status of assets whether they are long term or short tem

Mode by which the funds are raised.

These financial decisions directly and indirectly influence other managerial activities. Hence

formation of a good asset mix and proper allocation of funds is one of the most important activity

3. Profit Planning

Profit earning is one of the prime functions of any business organization. Profit earning is important

for survival and sustenance of any organization. Profit planning refers to proper usage of the profit

generated by the firm. Profit arises due to many factors such as pricing, industry competition, state

of the economy, mechanism of demand and supply, cost and output. A healthy mix of variable and

fixed factors of production can lead to an increase in the profitability of the firm. Fixed costs are

incurred by the use of fixed factors of production such as land and machinery. In order to maintain

a tandem it is important to continuously value the depreciation cost of fixed cost of production. An

opportunity cost must be calculated in order to replace those factors of production which has gone

thrown wear and tear. If this is not noted then these fixed cost can cause huge fluctuations in profit.

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4. Understanding Capital Markets

Shares of a company are traded on stock exchange and there is a continuous sale and purchase of

securities. Hence a clear understanding of capital market is an important function of a financial

manager. When securities are traded on stock market there involves a huge amount of risk involved.

Therefore a financial manger understands and calculates the risk involved in this trading of shares

and debentures. It’s on the discretion of a financial manager as to how distribute the profits. Many

investors do not like the firm to distribute the profits amongst shareholders as dividend instead

invest in the business itself to enhance growth. The practices of a financial manager directly impact

the operation in capital market.To make profit in the businesses.

Assuming that we restrict ourselves to for profit businesses, the goal of financial management is to

make money or add value for the owners.

This goal is a little vague, of course, so we examine some different ways of formulating it to come up

with a more precise definition. Such a definition is important because it leads to an objective basis

for making and evaluating financial decisions.

Functions of a financial manager also include:

1) financial planning and controlling

2) deciding financial policy

3) acquisition of funds

4) investment of funds

5) helping in evaluating decisions

6) maintaining proper liquidity

7) understanding the capital market

The Financial managers’ goals

If we were to consider possible financial goals, we might come up with some ideas like the following:

*Survive.

*Avoid financial distress and bankruptcy.

*Beat the competition.

*Maximize sales or market share.

*Minimize costs.

*Maximize profits.

*Maintain steady earnings growth.

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These are only a few of the goals we could list. Furthermore, each of these possibilities presents

problems as a goal for the financial manager.

For example, it's easy to increase market share or unit sales: All we have to do is lower our prices or

relax our credit terms. Similarly, we can always cut costs simply by doing away with things such as

research and development. We can avoid bankruptcy by never borrowing any money or never taking

any risks, and so on. It's not clear that any of these actions are in the stockholders' best interests.

Profit maximization would probably be the most commonly cited goal, but even this is not a precise

objective. Do we mean profits this year? If so, we should note that actions such as deferring

maintenance, letting inventories run down, and taking other short-run cost-cutting measures will

tend to increase profits now, but these activities aren't necessarily desirable.

The goal of maximizing profits may refer to some sort of “long-run” or “average” profits, but it's still

unclear exactly what this means. First, do we mean something like accounting net income or earnings

per share? As we will see in more detail in the next chapter, these accounting numbers may have

little to do with what is good or bad for the firm. Second, what do we mean by the long run? As a

famous economist once remarked, in the long run, we're all dead! More to the point, this goal doesn't

tell us what the appropriate trade-off is between current and future profits.

The goals we've listed here are all different, but they tend to fall into two classes. The first of these

relates to profitability. The goals involving sales, market share, and cost control all relate, at least

potentially, to different ways of earning or increasing profits.

The goals in the second group, involving bankruptcy avoidance, stability, and safety, relate in some

way to controlling risk. Unfortunately, these two types of goals are somewhat contradictory. The

pursuit of profit normally involves some element of risk, so it isn't really possible to maximize both

safety and profit. What we need, therefore, is a goal that encompasses both factors.

The Goal Of Financial Management

The financial manager in a corporation makes decisions for the stockholders of the firm. Given this,

instead of listing possible goals for the financial manager, we really need to answer a more

fundamental question: From the stockholders' point of view, what is a good financial management

decision?

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If we assume that stockholders buy stock because they seek to gain financially, then the answer is

obvious: Good decisions increase the value of the stock, and poor decisions decrease the value of the

stock.

Figure 4 . Definition of Financial management

Given our observations, it follows that the financial manager acts in the shareholders' best interests

by making decisions that increase the value of the stock. The appropriate goal for the financial

manager can thus be stated quite easily. The goal of financial management is to maximize the current

value per share of the existing stock.

The goal of maximizing the value of the stock avoids the problems associated with the different goals

we listed earlier. There is no ambiguity in the criterion, and there is no short-run versus long-run

issue. We explicitly mean that our goal is to maximize the current stock value.

If this goal seems a little strong or one dimensional to you, keep in mind that the stockholders in a

firm are residual owners.

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Figure 5 . The Importance of Financial Services

By this we mean that they are entitled to only what is left after employees, suppliers, and creditors

(and anyone else with a legitimate claim) are paid their due. If any of these groups go unpaid, the

stockholders get nothing. So, if the stockholders are winning in the sense that the leftover, residual

portion is growing, it must be true that everyone else is winning also.

Because the goal of financial management is to maximize the value of the stock, we need to learn

how to identify investments and financing arrangements that favourably impact the value of the

stock. In fact, we could have defined corporate finance as the study of the relationship between

business decisions and the value of the stock in the business.

The General goal of finance manager

Given our goal as stated in the preceding section (maximize the value of the stock), an obvious

question comes up: What is the appropriate goal when the firm has no traded stock? Corporations

are certainly not the only type of business; And the stock in many corporations rarely changes hands,

so it's difficult to say what the value per share is at any given time.

As long as we are dealing with for profit businesses, only a slight modification is needed. The total

value of the stock in a corporation is simply equal to the value of the owners' equity. Therefore, a

more general way of stating our goal is as follows: Maximize the market value of the existing owners'

equity.

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Figure 6 . The Changing Role of Financial Manager

Conclusion

With this in mind, it doesn't matter whether the business is a proprietorship, a partnership, or a

corporation. For each of these, good financial decisions increase the market value of the owners'

equity and poor financial decisions decrease it. In fact, although we focus on corporations in the

chapters ahead, the principles we develop apply to all forms of business. Many of them even apply to

the not for profit sector.

Finally, our goal does not imply that the financial manager should take illegal or unethical actions in

the hope of increasing the value of the equity in the firm. What we mean is that the financial manager

best serves the owners of the business by identifying goods and services that add value to the firm

because they are desired and valued in the free marketplace.