A financial manager plays a critical role in the planning, directing, and controlling of a company’s financial activities. Their core responsibility is to ensure that financial decisions align with the firm’s strategic goals and contribute to its overall financial health and value.
Financial Manager’s Responsibilities are:
1.) Analysis of the Financial Aspects of All Decisions:
- A financial manager must evaluate the financial impact of all major decisions taken by the company. This includes assessing how each decision affects costs, revenues, cash flows, profitability, and overall financial performance. The goal is to ensure that every decision contributes positively to the firm’s financial goals.
2.) Analysis of Investment Decisions:
- The financial manager is responsible for analyzing investment opportunities to determine which projects or assets the firm should invest in. This involves capital budgeting techniques such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period. The aim is to allocate resources to projects that offer the highest returns and align with the firm’s long-term strategy.
3.) Analysis of Financing Decisions:
- A financial manager must determine the most appropriate sources of finance—such as equity, debt, or retained earnings—and evaluate their cost and impact on the firm’s capital structure. The goal is to raise necessary funds at the lowest possible cost while maintaining financial stability and flexibility.
4.) Analysis of Dividend Policy Decisions
- The financial manager is responsible for analyzing how much profit should be distributed to shareholders as dividends and how much should be retained for reinvestment. This involves evaluating the firm’s current financial position, future investment needs, and shareholder expectations to design an appropriate dividend policy.
5.) Analysis of the Financial Condition of the Firm:
- A financial manager must continuously monitor the financial health of the company by analyzing financial statements, liquidity ratios, solvency ratios, profitability, and cash flow. This helps in identifying strengths and weaknesses and making informed strategic decisions.
6.) Analysis of Financial Markets:
- Understanding and analyzing financial markets is essential for a financial manager. This includes staying updated on market trends, interest rates, exchange rates, stock prices, and regulatory changes. Such analysis helps in timing financial decisions, such as issuing shares or bonds, to take advantage of favorable market conditions.
7.) Analysis of Risk:
- A financial manager must assess and manage various financial risks that the firm may face, including credit risk, market risk, interest rate risk, and operational risk. Risk analysis helps in implementing hedging strategies, insurance, and other risk management tools to protect the firm’s assets and ensure financial stability.
