Functions of Financial Manager

Functions of Financial Manager

Finance works as the lifeblood for an organization, without finance, it is not possible to run any business. Every business organization requires managing and ensuring the effective use of funds and financial resources. But the question is who will manage these funds. It is a financial manager’s responsibility to manage funds (collection and proper use of funds). Managing funds is the main function of a financial manager.

Financial Manager

Financial Managers are those who mainly deal with financial resources and make a decision about financial matters. Every decision taken by financial managers is concerning investing and financing.

Basically, the functions of a financial manager can be categorized into three main functions. These are:

1. Capital structure decision
2. Investing and Financing Decision
3. The decision about dividend policy

Capital Structure Decision

The main function of a financial manager is to form an optimal capital structure for the organization. The optimal capital structure depends on the type of company and its financial capability. Capital structure means the ratio of debt and equity. The financial manager sets the proportion of debt and equity for a company. It can be 50/50 ratio or 60/40, or 70/30, or 55/45, or others according to the decision of managers.

Investing and Financing Decision

Financial managers always concern about the cost of collecting funds and the return on the invested capital. Where cost is less, the fund should be collected from there. And where the return is maximized with a lower or moderate level of risk, funds should be invested there. So it’s a financial manager’s responsibility to make the right choice which can bring profit for the company.

Dividend Policy

When companies make a profit, a question arises there that whether profit will be distributed or not. If distributed then what proportion of profit will be distributed among the shareholders and what will be kept as retained earnings. As a function of managing funds, the financial manager makes a decision about dividend policy.

In addition to these, there are many functions/ roles that the financial manager does. Some of these functions are given below:

1. Identifying what amount of funds is required for the company.
2. Managing working capital which mainly deals with short-term asset and liabilities.
3. Cash forecasting is forecasting of cash inflow and outflows.
4. Provides required funds to every department of the company.
5. Ensuring optimal use of financial resources.
6. Ensuring substantial growth of the company.
7. Buying and selling of financial assets.
8. Valuation of a company’s stock.
9. Maximizing the wealth of the company by increasing the stock price in the market.