The main roles and responsibilities of the financial manager are varied:
They can include:
investment selection and capital resource allocation
raising finance and minimising the cost of capital
distribution and retentions
communication with stakeholders
financial planning and control
efficient and effective use of resources.
Let's look at these in a bit more detail, hot pants, below..
1) Investment selection and capital resource allocation
Profit maximising may not be the only goal for a company, its stakeholders may want other things..
Therefore, other considerations are as follows:
Ethical considerations when deciding on what to invest in
What method of investment appraisal should be used?
What our stakeholders will think of the investments effects on:
2) Raising finance and minimising the cost of capital
All investments needs financing
Where should we get this financing from?
The following issues thus need to be considered:
Are the current gearing levels minimising the cost of capital for the company?
What gearing level is required?
What sources of finance are available?
The risk appetite of investors and management
Restrictions such as debt covenants
Implications for key ratios
3) Distribution and retention policy
Retained earnings is a great source of finance.. so should we give dividends away?
It depends on...
Will our investments (funded by retained earnings) increase the share price and thus shareholder wealth?
Will paying high dividends mean we need alternative finance for capital expenditure or working capital requirements?
Will paying low dividends fail to give shareholders their required income levels
What are the investor preferences for cash dividends now or capital gains in future from enhanced share value?
4) Communication with stakeholders
We need to keep stakeholders informed..
Shareholders will need information about:
– gearing levels
Suppliers and customers will need information about:
– credit policies
– pricing policies.
Mission statements and current goals and strategies is important for employees at all levels
5) Financial planning and control
The senior financial executive will need to develop policies on:
6) The management of risk
Risk management is key and so the following needs understanding:
How are risks identified, Analysed, Planned for and Monitored?
7) Use of resources
It will be important to develop a framework to ensure all resources (inventory, labour and noncurrent assets as well as cash) are used to provide value for money.
Spending must be: