You cannot ignore the financial manager’s role and scope for objective quantification and its goals for economic performance. To better understand the concept, please read this article.
Regarding fiscal management, the aim is to explain the role of a finance manager, the objective and importance of cash flow and valuation and approaches to assets.
Role and Responsibilities of a Finance Manager
The primary aim of a finance manager is to manage cash flow (inflow and outflow). The finance manager is an intermediary between the investor (individual and corporation) and the firm’s operations. The finance manager is responsible for ensuring that functional needs are financed from operating sources only to avoid any mismatch.
Depending upon the agreement between the firm’s finance manager and a third-party contract, what terms or services are procured to be provided, either cash, credit, or a partial mix of both? It is essential when the finance manager accounts for expenses regarding account receivables, purchase of inventory, and account payables. The finance manager needs to consider the terms of payment or receipt, such as 30 days, 60 days, and 90 days. They are responsible for cash management, credit management, capital expenditure management, and financial planning.
Wealth Creation: The Primary Goal of Finance
The primary goal of finance is to create wealth in any business to meet the operating sources (working capital) or non-operating sources (long-term asset financing). Finance is all about profitability and the bottom line of any business concern. Since the inception or formulation of the business, it has acquired tangible and intangible assets (both natural and financial). Simply put, finance in business is deduced to the valuation of assets.
Classification of Assets in a Firm
Typically, any firm comprises two types of assets: Short-Term Assets and Long-Term Assets. Any asset with a lifespan of less than a year is a short-term asset (such as inventory and receivables), usually expensed through the Cost of Goods Sold (COGS). Any support having a lifespan of more significant than a year falls under the ambit of the long-term asset (such as plant, equipment, machinery, long-term investment in terms of shares, deposits, and equity in associated companies).
Key Categories of Finance
When firms speak of finance, they usually are domiciled into four broad categories: investments, financing, repayment or payout, and risk management. The firm wants to assess what kind of projects it intends to invest in. How will the sources be funded or financed to complete the project? What is the payout scope regarding yield, profit, or return? Is there any risk associated with the project in which the firm is about to invest? How to mitigate or minimize the element of risk. These are the four questions that the owner needs to answer and, at the same time, secure (comfortable and at ease) before a financial decision is made.
Industry-Specific Financial Decision Making
The above four categories depend on the industry in which the firm is involved, and hence, the dimension of its finance will change subsequently. For example, an organization engaged in manufacturing, trading, or services or industries such as banking, FMCG, insurance companies, brokerage houses, or automotive assemblers will have unique and distinguished financial decision-making.
Macro-Level Goals and Shareholder Value
Regarding macro goals, they are also responsible for creating value for money for the firm’s shareholders. As earlier stated, the finance manager, acting as a bridge to shareholders, must have complete knowledge and awareness concerning an investment decision, valuation of the securities corporation, and risk associated with financial contracts.
Managing Cash Flow and Business Capital
Companies must oversee emergencies and operational expenditures to make their business thrive. For this, they need better cash flow and sufficient business capital. To determine whether your cash flow is adequate, check whether your accounts are receivable or payable through your fiscal management strategies.
The Role of Financial Reporting in Economic Management
The company’s financial reporting is an integral part of your economic management. It is economic predictions and planning based on your fiscal management decisions. You can use it as a database. Such strategies also help in risk prediction and mitigation plans to efficiently manage emergencies and unknown risks. You must enroll in a professional short-term finance course to work well for financial professionals.
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