In any business enterprise, the financial activities form the most significant as well as a complicated business operation. The financial manager of a company has to perform all the important required financial operations. He is responsible for all the significant financial functions of an enterprise. He should be far-sighted in nature so that he can ensure optimum fund utilization. All his actions will have a direct impact on the growth, goodwill, and profitability of the firm.
Roles and responsibilities of a financial manager:
- Forecasting and planning: The financial manager needs to be aware of the current market trends and should be able to assume the future too. He needs to interact with other executives and lay the business plans carefully, shaping the future of the business firm.
- Coordination and control: He should exhibit proper coordination with other departments and control the overall business enterprise financially. He needs to consider all the decisions and activities of the organization and integrate them into his financial planning.
- Raising of funds: A business will need enough cash and liquidity to meet all its obligations. It can raise funds in the form of debt or equity. A financial manager needs to tactfully decide the ratio between equity and debt. Maintaining this ratio is quite necessary.
- Allocation of funds: After raising funds through various channels, it is necessary to allocate the funds properly. While allocating the funds, the finance should be used in an optimum manner. While the allocation of funds, the following points should be kept in mind:
- Size of firm and growth capacity
- Mode of fundraising
- Long-term or short-term assets
- Planning for the profit: Making a profit is the primary objective of any business enterprise. Profit earning is necessary for the sustenance and survival of a business organization. Profit planning basically means apt usage of the profit earned.
An organization generates profit because of multiple factors, for instance, industry competition, pricing, state of the economy, cost and output, mechanism of demand and supply, and so on. There should be a healthy mix of fixed and variable factors of production. This helps in enhancing the profitability of the business organization.
Fixed costs get incurred by the usage of fixed factors, for instance, machinery and land. Continuous evaluation of the depreciation cost of the fixed cost of production is also necessary. Otherwise, all these expenses can create massive fluctuations in the overall profit of the business organization.
- Understanding the capital markets: In a company, regular and continuous sale and purchase of securities keep taking place. Therefore, it is necessary that a financial manager has a clear understanding and proper knowledge of the entire capital market. Security trading in the stock market involves a massive amount of risk. The financial manager, therefore, needs to understand as well as calculate the amount of risk involved in the trading of debentures and shares.
It is totally up to the financial manager as to how to use as well as distribute the profits. Some investors are there who do not prefer the profits to be distributed among the shareholders in the form of dividends. Rather, they want the profit to enhance the growth and development of the organization. On the other hand, the shareholders will always want profit distribution in the form of dividends. The financial manager needs to tactfully manage all these contradictions.
- Risk management: Each and every business is vulnerable to risks. Natural disasters like floods, fire, cyclone, or change in the rates of interests, uncertainties in the prices of commodities and shares, fluctuation of foreign exchange rates, etc., all lead to risks for a business. But, it is possible to cope with these risks in the form of insurance purchases or by hedging.
A financial manager has the responsibility to take care of and tackle all the business risks. He should undertake the risk management programs like identification of risks, and then hedge the risks effectively.
These are some of the most vital roles and responsibilities of a financial manager.