Role of the Financial Manager The financial manager plays a variety of important roles in creating and maintaining an effective and successful financial management

University Degree Business and Administrative studies

Role of the Financial Manager

Running head: FINANCIAL MANAGER

Role of the Financial Manager

Fin 554

Role of the Financial Manager

The financial manager plays a variety of important roles in creating and maintaining an effective and successful financial management organization including :

a) Providing leadership in the cost-effective use of an organization’s financial resources by employing effective general and financial management practices;
b) Involving actively in organizational decision-making by providing timely and reliable financial and performance information and by analyzing the implications of this information in relation to the achievement of the organization’s goals and objectives
c) Ensuring that the organization’s resources are protected from waste, fraud, and abuse by improving its accounting systems and internal controls(Gitman, 1986).

The financial manager has an impact on shareholders and stakeholders of the corporation. Gregory (1998) stated, investors are willing to invest more with companies that hold management accountable to shareholders. The stakeholders include individuals who have a direct economic link to the corporation such as the employees, customers, suppliers and creditors. The stakeholders prefer that the corporation make an effort to be socially responsible to the stakeholders. The role of the financial manager assist and enables other managers with the management of assets, costs and as well as other strategic planning for new and existing products and services (Catanach, 1999).

SEC requires that financial managers, under law, are to ensure that the shareholders receive timely and accurate information related to the financial stability of the company. In terms of the shareholders, they have a need to know the value of their investments (Bushman & Smith, 2003).

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The finance manager stands between the firm’s operations and the financial markets where investors hold the financial asset issued by the firm. The financial manager’s role starts from flow of cash from investors to the firm and back to investor again.
Financial manager is a person responsible for a significant investment and financing decision. The manager as a stock holder’s agent is instructed to find and invest in all positive-NPV projects open to the firm.
The finance manager’s task is to maximize net present value. There can be other goals such as to maximize profit. But maximizing profits is an inferior concept for the firm as:
• There can be situation where manager want to increase the next year’s profit at the expense of the profit in the later years.
• A company may be able to increase future profits by cutting its dividend and investing the cash. This is not in the shareholder’s interest if the company earns only a low return on investment.
• There may be changes in policy of accounts so as to manipulate profits.
Focus on maximizing shareholder’s value is must.

COMPARISION: financial manager's viewpoint with the viewpoint of an employee or stockholder with regard to maximizing share value.
In large business separation of ownership and management is a practical necessity. Rather then attending to the wishes of shareholder manager may seek a leisurely work style or luxurious working style, they may shun unpopular decisions.
Therefore the agency costs can be reduced in two ways by monitoring the manager’s effort and actions and by giving the right incentives to maximize value. They can be paid on residual income or economic value added.
A financial manager should act in the interest of the firm‘s owners, its stockholder. Each stockholder wants FOLLOWING things:
1. To be rich as possible, that is to maximize current wealth.
2. To transform that wealth into whatever time pattern of consumption he or she desires.

Manager who focuses on the shareholder value need not neglect their wider obligation to the community. Managers should play fair by employees, customers because they know that their firm’ most valuable asset is its reputation. Employees must be rewarded appropriately when they add value to the firm. Lower level manager’s compensation depends more on accounting measures and less on stock returns, but almost all top executives of firm with publicly traded shares can have compensation packages which depend in part on their firms’ stock price performances. This will help in harmony of goal of finance manager, employees and shareholder.

References

Bushman, R. M., & Smith, A. J. (2003). Transparency, financial accounting information, and corporate goverance. Economic Policy Review - Federal Reserve Bank of New York, 9(1), 65.

Catanach Jr., A. H. (1999). The changing bank controller: From steward to financial manager. Bank Accounting and Finance, 12(3), 65.

Gregory, H. J. (1998). Get it right from the start: Global governance guidelines for the emerging company. Directorship.