Role of Financial Manager

Complied and completed by

Shahzad Asghar Arain
Shahzad.cdcu@gmail.com
Cell: 9!""#!9$%#&&#
Succ
ess
'ealth
Management
FM
Role
(o) the financial Manager can help out to increase the )ealth of sta*e holders
(o) financial manager can can +mpro,e the financial policies of any company
-efore start this topic please *eep fe) things in your mind that the FM can play ,ital role in
de,elopment of any organization because fm is basically controlling the finance her is my
model that can help you to understand

A brief history about the role of a financial manager A brief history about the role of a financial manager
Until around the first half of the 1900s, financial managers primarily raised funds and managed
their firms cash positions
As the scale of the firm is on the rising, money is always in great need.
n the 19!0s, the increasing acceptance of present "alue concept encouraged financial managers to
e#pand their responsi$ilities and to $ecome concerned with the selection of capital in"estment
pro%ects
&hy' (he se"ere competition has rendered some pro%ect to low le"el of profit, e"en spell loss to
firms
(oday, e#ternal factors ha"e an increasing impact on the financial manager. As a result, finance is
re)uired to play an e"en more "ital strategic role within the corporation
*ase+ ,elon Financial Failure+ -#pand too rapidly, e#haust all its resources with slow return
(o) the financial Manager can help out to increase the )ealth of sta*e holders
Forecasting and .lanning+ (he financial manager must interact with other e#ecuti"es as they loo/
ahead and lay the plans which will shape the firms future
Ma%or n"estment and Financing 0ecisions
A successful firm usually has rapid growth in sales, which re)uires in"estments in plant,
e)uipment, and in"entory. (he financial manager must help decide the optimal sales growth rate,
and he or she must help decide what specific assets to ac)uire and the $est way to finance those
assets
*oordination and control
(he financial manager must interact with other e#ecuti"es to ensure that the firm is operated as
efficiently as possi$le. All $usiness decisions ha"e financial implications, and all managers111
financial and otherwise111need to ta/e this into account
0ealing with the financial mar/ets
(he firms securities are traded in the financial mar/ets
Financial mar/ets offers opportunities for the firm
Useful information
Ris/ management
All $usinesses face ris/s, howe"er, many of these ris/s can $e reduced $y purchasing insurance or
$y hedging in the deri"ati"es mar/ets. (he financial manager is usually responsi$le for the firms
o"erall ris/ management program, including identifying the ris/s that should $e hedged and
hedging them in the most efficient manner
What is FM? What is FM?
&hy we need FM' (o) to use funds to ma.imize the ,alue of the firm )ith limited resource.
t is not a pro$lem of manufacturing efficiency and minimi2ing cost.
(2)FM is concerned with the ac)uisition, financing and management of assets with some o"erall
goals in mind
Ac)uisition of assets111in"estment decision
(wo pro$lems to $e sol"ed+ how much dollar of amount is needed and what is the composition
of these assets
(he in"estment decision is the most important of the firms three ma%or decisions when it comes
to "alue creation
(he "alue creation of the firm is determined to a great e#tent $y the in"estment decisions,
compared to the financing and assets management
*ase of 3iuyao *orporation
Financing decision+ concerned with the pro$lem of raising money to meet the need of
in"estment decision
Financing decision is also "ery important+ it concerns with capital cost, in"estment
opportunities, and the e#istence of a firm
Asset management decision
(he main tas/ of asset management is how to use the ac)uired assets as efficiently as
possi$le111to speed up the turno"er of the asset
4ere financial managers are concerned more with current assets than fi#ed assets, why'
Financial policies affect the turno"er of current asset, and fi#ed assets are largely determined $y
operation needs
t is also "ery important, for speeding up asset turno"er can increasing the profit le"el in a
certain period
What do others say about FM? What do others say about FM?
CPA Examination Textbook CPA Examination Textbook
FM is a management %o$ concerning the raising, using and distri$uting of funds
(he o$%ect of FM is the recycle and turno"er of cash
(he main contents of FM is financing, in"estment, and di"idend distri$ution
(he main function of FM is deciding, planning and controlling
(o) the financial Manager can help out to increase the )ealth of sta*e holders
The Goal of the Firm The Goal of the Firm
&hy do we need a goal'
5ecause %udgment as to whether or not a financial decision is efficient must $e made in light of
some standards
.rofit ma#imi2ing is chosen $y classic economist as the $est goal
4owe"er, it is not the case in the real life $ecause it is shaded $y a little flaw+ it may induce a
manager to increase profit $y issuing more stoc/ and using the proceeds to in"est in (reasury
5ills, so the earning per share will fall and this will harm the shareholders interest
Ma#imi2ing -.6 is not a fully appropriate goal either, $ecause +
t does not specify the timing or duration of e#pected returns
t does not consider the ris/ of the firm
Ma#imi2ing the mar/et "alue of the firm111the stoc/ price is $y far the $est
M78mar/et "alue9:present "alue of net cash flow;81<ris/9
&hy that' 5ecause in"estors will consider a firms current and future earnings, ris/s, and other
factors which will influence a firm $efore he decides to ma/e a in"estment decision, and the
mar/et price of the stoc/ will reflect all the information a$out these factors
&hy ma#imi2ing the M7 is the $est goal'
t ta/es into account present and future -.6, the timing, the duration, and the ris/ of these
earnings
t also considers the di"idend policy of the firm, and the other factors that $ear on the mar/et price
of the stoc/
Why should managers work hard to maximize stock rice? Why should managers work hard to maximize stock rice?
f they do not wor/ hard to ma#imi2e stoc/ price, they will $e remo"ed $y the firms $oard of
directors or $y outside forces
=thers said that managers are forced $y product and la$or mar/ets to wor/ hard for the firm,
why'
Agency Problems Agency Problems
&hat is agency pro$lem'
(he agent do not act in the interest of the principal, $ut in his own interest
8>9&hy does this happen' &e assume that people are always self1interested
(he o$%ect of the agent may differ from that of the principal, so when the $eha"ior of the agent
cannot $e closely watched, agent may choose to act in his own interest
n the case of a firm, this can also $e the case+ *hu 6hi%ian .henomenon 8a good e#ample of agent
pro$lem9
6hareholders111.rincipal, managers111agent
&olfgun said that the failure of socialist is due to too much agency pro$lems
4ow can shareholders sol"e the agent pro$lem'
Monitor
Moti"ate111surplus share
5ear loss
All these can $ring a$out contract cost, this cost is also called agency cost
(he shareholders o$%ecti"e is to minimi2e agency cost
Social Responsibility Social Responsibility
&hat is social responsi$ility'
6ome responsi$ility carried on the firm according to social ethics
8>9&hy shall the firm carry out social responsi$ility'
*arrying out social responsi$ility can create a good en"ironment for the firm
n our modern mar/et economy, social responsi$ility will $e more appreciated $y the society.
.aper industry, *oal1mining industry, food and drug industry are all the issues we watch on. For
e#ample, poisonous mil/ powder e"ent.
The goal o! the !irm"""a linear rogram The goal o! the !irm"""a linear rogram
Ma#imi2e shareholders interest
6u$%ect to+
Minimi2e agency cost
Meet social responsi$ility