Functions of Financial Manager
The financial manager deals with two types of decisions:
1. Income or Finance Decision
2. Expenditure or Investment Decision
Income or Financing Decision
Income decision mainly means the process of fund collection. The scope of this
decision covers selection of the alternative sources of funds and taking
financial plans by analyzing the advantages and disadvantages of these
sources. Generally, to bear the current expenses fund is collected from
short-term sources, and to bear the fixed expenses fund is collected from
long-term sources. For the purpose of fund collection, it is collected through
own capital and arranging loans from different sources. Besides, large
companies may gather capital by selling shares. Shareholders are the real
owners of a company. The portion of capital which an organization collects
through loans increases the liability of the organization; again ownership
right is established on the basis of the amount of capital collected through
the owners’ fund. Thus, an institution becomes successful to create a balance
between the liability of the loan and the rights of the owners through a right
finance decision.
Expenditure or Investment Decision
The machine purchasing decision is an investment decision for a tailoring
shop. In the case of a grocery shop, the decision for furniture purchasing or
refrigerator purchasing is also an investment decision. For a production
organization, production machines purchase or factory construction is also
this type of decision. Through this decision, a plan of the expected inflow
and outflow of funds has to be calculated. For example, a production
organization decides to buy machines only when the selling of the machine-made
products is greater than before and if thus profitability and inflow of funds
are increased and if the total inflow of funds is greater than the purchase
price of the machine.
That means, if it seems that the machines can be utilized for 10 years, then,
for the purpose of investment decision, a comparison has to be made with the
10 years inflow of funds from sale proceeds for adding the new machines and
the purchase price of these machines. So, it is possible to find out the 10
years cash flow from selling only by considering the product price in 10 years
and the volume of sales. Production and other expenses are deducted from the
sales earnings to measure the profit from the cash flow.
The investment decision is very tough for an organization because measuring
the amount of selling in the future and determining the selling price is a
very difficult task.
Other Decisions
Above two decisions are very important for financial managers. Besides,
financial managers have to take some other decisions, such as:
a) Purchase of how much amount of raw materials is suitable and from which
sources this fund can be collected – this type of decision is called a current
investment decision.
b) How much amount of cash reserve should be kept for daily expenses is
another important decision too.
c) Dues payment for the sources of funds is another decision.
If the fund is collected through a bank loan and other loans like- bonds,
debenture, etc., then payment of a certain amount of interest at the right
time is an important responsibility for the financial manager. In the same
way, if a fund is collected through selling shares, then earning profit at the
expected rate and distributing dividends is another important thing to be
considered by the financial manager.
