Financial Manager Essay Example | Topics and Well Written Essays - 1000 words

Financial Manager - Essay Example All the operations of the business are initiated and supported by the financial manager's evaluations and judgments. The cost/benefit analysis, the timings of the cash flows, the sources of finance and provision for liquidity are pivotal to the decision-making process of financial management. In the context of the above, a financial manager's role is three fold. He has to perform the functions of capital budgeting, capital structuring and working capital management simultaneously, providing effective risk management. Thus a financial manager best serves the owners of the business (shareholders) by identifying goods and services that add value to the firm because they are desired and valued in the free marketplace. Every business enters into long-term investments in anticipation of promising returns and higher growth. Such investments call for efficient assessments and effective decisions by the financial manager. This process of planning and managing a firm's long-term investments is better known as capital budgeting. In capital budgeting, the financial manager tries to identify investment opportunities that are worth more to the firm than they cost to acquire. This means that the value of the cash flow from generated by an asset exceeds the cost of that asset. Evaluating the size, timing, and risk of future cash flows is the essence of capital budgeting. ... In this area two main issues face the financial manager. One is that how much should the firm borrow and two is that what are least expensive sources of funds for the firm. The capital structure (or financial structure) refers to the specific mixture of long-term debt and equity the firm must use to finance its operations. In addition to deciding on the financing mix, the financial manager has to decide exactly how and where to raise the money. The expenses associated with raising long-term financing is a considerable factor. Therefore different possibilities have to be carefully evaluated. Businesses borrow money from a variety of lenders in a number of different ways. Choosing among lenders and among loan types is another job handled by the financial manager. A financial manager is also responsible for everyday financial activities and for the working capital management. Managing the firm's working capital is a day-to-day activity that ensures the firm has sufficient resources to continue its operations and avoid costly interruptions. The term working capital refers to a firm's short-term assets, such as inventory, and its short-term liabilities, such as money owed to suppliers. The working capital management involves a number of activities related to a firm's receipt and disbursement of cash. The financial manager must plan for and respond to matters as to the amount of cash and quantity of inventory to be kept on hand, should credit be allowed on sales to customers and which sources should be used for short-term financing as and when the need arises. The above three functions of financial management are very broad and only a brief overview of each category is given. By