Functions of a Finance Manager

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A finance manager plays a pivotal role in an organization, overseeing two crucial aspects: the procurement and effective utilization of funds.

The financial implications of every decision within the firm fall under the purview of the finance manager.

This article explores the various responsibilities and decisions that a finance manager faces to ensure the optimal utilization and procurement of funds while balancing risk, cost, and control.

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Estimating the Requirements of Funds

One of the primary tasks of a finance manager is to estimate the organization’s fund requirements. This involves carefully assessing the need for both long-term investments, such as fixed assets, and working capital for short-term needs. Techniques like budgetary control and long-range planning aid in forecasting the fund requirements by translating the organization’s physical activities into monetary terms.

Decision Regarding Capital Structure

Once the fund requirements are estimated, the finance manager must make decisions regarding the sources from which the funds will be raised. Balancing different sources of funds requires a careful evaluation of existing capital structure and how various proposals for raising funds may affect it. The finance manager strives to maintain a proper balance between long and short-term funds, ensuring that sufficient long-term funds are available to finance fixed assets and provide for the organization’s permanent working capital needs.

Investment Decision

Effectively investing funds procured from different sources is another vital responsibility of a finance manager. Projects requiring long-term funds for both fixed and current assets necessitate careful assessment through capital budgeting. Additionally, part of the long-term funds is reserved for financing working capital requirements. The finance manager must establish asset management policies, including inventory policies, keeping production requirements and future price estimates of raw materials in mind.

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Dividend Decision

The finance manager is also involved in the decision-making process regarding dividends. Collaborating with top management, the finance manager determines the appropriate amount of dividend to be paid to shareholders and the amount to be retained by the company. This decision is influenced by various considerations, such as the company’s and shareholders’ ability to make profitable use of resources, trends in earnings and share market prices, future growth requirements, cash flow situation, and tax implications for shareholders.

Supply of Funds to All Parts of the Organization or Cash Management

Ensuring that all sections, branches, factories, units, or departments of the organization have access to adequate funds is a critical aspect of the finance manager’s role. When certain sections have excess funds, they contribute to a central pool that can be utilized by other sections in need. The availability of sufficient cash at all times is vital for the smooth flow of business operations, as any shortage can jeopardize the entire business. Effective cash management and disbursement policies help maintain an optimal supply of funds without excessive cash reserves.

Evaluating Financial Performance

Financial analysis serves as the foundation for management control systems, with Return on Investment (ROI) being a common metric for divisional control. The finance manager regularly reviews the financial performance of various units within the organization. Analyzing financial performance allows management to assess how funds are utilized in different divisions and identify opportunities for improvement.

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Financial Negotiations

A significant portion of a finance manager’s time involves negotiating with financial institutions, banks, and public depositors to raise funds within legal parameters. These negotiations often require specialized skills, and the finance manager must provide the necessary information to ensure compliance with statutes and regulations.

Monitoring Stock Exchange Quotations and Share Prices

Vigilance is paramount for a finance manager, who continuously monitors stock market trends and the behavior of the company’s share prices. By analyzing major market movements, the finance manager gains insights into their potential impact on the company’s share prices. This knowledge empowers the finance manager to formulate well-informed strategies to optimize shareholder value.

Conclusion

In conclusion, the role of a finance manager encompasses a wide range of responsibilities, all aimed at efficient fund management for the organization’s optimal growth. From estimating fund requirements to making crucial financing and investment decisions, a skilled finance manager plays a key role in ensuring the financial health and success of the organization.

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