1A Project of Corporate Law

On

Financial Manager: Status, Role& Scope

Submitted to:

Mr. Shyamtanu Paul

Submitted on:

8th October 2015

Submitted by:

Akhil Gangesh

Semester V

Section C

Roll No. 14

HIDAYATULLAH NATIONAL LAW UNIVERSITY, RAIPUR

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 Financial Manager: Status, Role & Scope

Acknowledgements
With a deep sense of gratitude, I acknowledge the help of all those people who have made the
completion of this project possible. I would like to thank my Corporate Law faculty Mr.
Shyamtanu Paul for his help and guidance and also for putting her faith on me by giving me such
a topic to work on. Sir, thanks for the opportunity which helped me grow.

My gratitude also goes out to the staff and administration of HNLU for the infrastructure in the
form of our library and IT Lab that was a source of great help for the completion of this project.

Akhil Gangesh

Semester V

Section C

Roll No. 14

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 Financial Manager: Status, Role & Scope

Table of contents

List of Abbreviation and Acronyms………………………………………………………………4

Introduction……………………………………………………………………………………………….5
Chapterisation…………………………………………………………………………………………….6
Chapter 1……………………………………………………………………………………………………7
Research problem ………………………………………………………………………………………7
Scope and objectives…………………………………………………………………………………...7
Review of literature…………………………………………………………………………………….8
Hypothesis…………………………………………………………………………………………………9
Research questions…………………………………………………………………………………….9
Nature and source of study…………………………………………………………………………9
chapter2…………………………………………………………………………………………………...10
Financial management………………………………………………………………………………10
Importance of financial management…………………………………………………………11
Chapter 3………………………………………………………………………………………………….12
Role of financial manager…………………………………………………………………………12
Advantages……………………………………………………………………………………………….13
Disadvantages…………………………………………………………………………………………..14
Changing role of financial manager……………………………………………………………15
Scope of financial manager……………………………………………………………………….16
Conclusion……..…………………………………………………………………………………………17
Reference…………………………………………………………………………………………………18

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 Financial Manager: Status, Role & Scope

List of Abbreviations and Acronyms

 & and
 / or
 AIR All India Reporter
 CIT Commissioner of Income Tax
 Co. Company
 Etc. Et Cetra
 http Hyper text transfer protocol
 Ltd Limited
 No. Number
 p. Page
 Pvt. Private
 Reg Regulation
 v. Versus
 Vol. Volume
 www World Wide Web

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 Financial Manager: Status, Role & Scope

Introduction

Financial management refers to the efficient and effective management of money (funds) in such
a manner as to accomplish the objectives of the organization. It is the specialized function
directly associated with the top management. The significance of this function is not seen in the
'Line' but also in the capacity of 'Staff' in overall of a company. It has been defined differently by
different experts in the field.

The term typically applies to an organization or company's financial strategy, while personal
finance or financial life management refers to an individual's management strategy. It includes
how to raise the capital and how to allocate capital, i.e. capital budgeting. Not only for long term
budgeting, but also how to allocate the short term resources like current liabilities. It also deals
with the dividend policies of the shareholders

Financial activities of a firm is one of the most important and complex activities of a firm.
Therefore in order to take care of these activities a financial manager performs all the requisite
financial activities.

A financial manager is a person who takes care of all the important financial functions of an
organization. The person in charge should maintain a far sightedness in order to ensure that the
funds are utilized in the most efficient manner. His actions directly affect the Profitability,
growth and goodwill of the firm

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 Financial Manager: Status, Role & Scope

Chapterization

Chapter 1 of the study is the Introduction to research methodology. It enunciates on various

aspects of research method used in the study of this topic. It contains the rationale or research
problem, research scope and objectives, research questions, hypothesis, overview of literature,
and nature and sources of the study

Chapter 2 of the study namely “financial management” mainly contains the conceptual analysis
of what is financial management. It contains the objectives of the fianacial management also.

Chapter 3 of the study is titled as “financial manager”. In this chapter the researcher has
elaborated on who is a financial manager and what are the advantages and disadvantages of
having financial managers in the organisation. Scope and roles of financial manager has been
further elaborated.

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 Financial Manager: Status, Role & Scope

Chapter 1

Introduction to Research methodology

Research Problem

Financial manager play a very vital role in the financial management of any organization. The
history of failure of organisation is interesting. Many firms have failed not because of the
inefficiency of production, inability in the marketing or non-availability of the funds but because
of the absence of competent financial manager. Thus the researcher seeks to analyze the role of
position of financial manager.

Scope and Objective

The study is limited to the understanding of concept of financial manager. Further the study also
deals with the role and status of financial manager in financial management.

The main objectives of the study are:

I. Briefly understanding the concept of financial management.

II. To analyze the concept financial manager
III. To study the role and status of financial manager in the financial management of any
organization.

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 Financial Manager: Status, Role & Scope

Review of Literature

 A. Ramaiya, Guide to Companies Act, (Vol.1) 46th Ed., 2008, Lexis Nexis Butterworths,
Wadhwa – The book helped the researcher in finding the details of the relevant
provisions of the previous Act. The scope of various provision along with the functions
of the financial managers and their scope in the organsiation, have been taken from this
book. Also, it helped in understanding the changes in the role of financial manager.

 Dr. G.K. Kapoor, Company Law and Practice, 20th Ed.,2015, Taxmann Publication –
This book helped in the conceptual clarity of researcher in understanding the concept of
financial manager and financial management

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 Financial Manager: Status, Role & Scope

Hypothesis

With the change in the legislation governing the companies, the significance and role of the
financial manager of the company is also altered.

Research Questions
The research questions of the present research work are:

(1) What is financial management?

(2) Who is financial manager?
(3) Role of Financial manager?

Nature and Source of Study

The present study is a descriptive and analytical study based on the critical review of both
primary and secondary sources. Secondary and Electronic resources have been largely used to
gather information and data about the topic. Books and other reference have been primarily
helpful in giving this project a firm structure. Websites, dictionaries and articles have also been
referred. Footnotes have been provided wherever needed, to acknowledge the sources.

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 Financial Manager: Status, Role & Scope

Chapter 2

Financial Management

Financial management is that managerial activity which is concerned with planning and
controlling of the firm’s financial resources. In other words it is concerned with acquiring,
financing and managing assets to accomplish the overall goal of a business enterprise (mainly to
maximise the shareholder’s wealth). In today’s world where positive cash flow is more important
than book profit, Financial Management can also be defined as planning for the future of a
business enterprise to ensure a positive cash flow. Some experts also refer to financial
management as the science of money management. “Financial Management comprises the
forecasting, planning, organizing, directing, coordinating and controlling of all activities relating
to acquisition and application of the financial resources of an undertaking in keeping with its
financial objective.” Raymond Chambers
Another very elaborate definition given by Phillippatus is “Financial Management is concerned
with the managerial decisions that result in the acquisition and financing of short term and long
term credits for the firm.” As such it deals with the situations that require selection of specific
assets (or combination of assets), the selection of specific problem of size and growth of an
enterprise. The analysis of these decisions is based on the expected inflows and outflows of
funds and their effect on managerial objectives. There are two basic aspects of financial
management viz., procurement of funds and a effective use of these funds to achieve business
objectives.

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 Financial Manager: Status, Role & Scope

Importance of financial management

Importance of Financial Management cannot be over-emphasized. It is, indeed, the key to

successful business operations. Without proper administration of finance, no business enterprise
can reach its full potentials for growth and success. Money is to an enterprise, what oil is to an
engine. Financial management is all about planning investment, funding the investment,
monitoring expenses against budget and managing gains from the investments. Financial
management means management of all matters related to an organization’s finances. The best
way to demonstrate the importance of good financial management is to describe some of the
tasks that it involves:-
1. Taking care not to overinvest in fixed assets.
2. Balancing cash outflow with cash inflows.
3. Ensuring that there is a sufficient level of short-term working capital.
4. Setting sales revenue targets that will deliver growth.
5. Increasing gross profit by setting the correct pricing for products or services.
6. Controlling the level of general and administrative expenses by finding more cost-
efficient ways of running the day-to-day business operations, and
7. Tax planning that will minimize the taxes a business has to pay.

Let us understand this better by taking an example of a company, Cotton Textiles Limited. The
company earns money by selling textiles. Let us assume that it earns 10 lakhs every month. This
is known as revenue. A company has many expenses. Some of the major expenses of the
company can be listed as wages to workers, raw materials for making the textile, electricity and
water bills and purchase and repair of machines that are used to manufacture the textile. All these
expenses are paid out of the revenues. If the revenues are more than the expenses, then the
company will make profit. But, if the expenses are more than revenues, then it will face losses. If
it continues like that, eventually, it will lose all its assets. In other words it will lose its property
and all that it owns. In that case, even the workers may be asked to leave the company. To avoid
this situation, the company has to manage the cash inflows (cash coming into the company) and
outflows (various expenses that the company has to meet). This is one of the tasks within the
ambit of Financial Management.

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 Financial Manager: Status, Role & Scope

Chapter 3

Role of financial manager

A financial manager is responsible for providing financial advice and support to colleagues and
clients to enable them to make sound business decisions. The role of the financial manager is
more than simply accounting; it is multifunctional. Financial managers must understand all
aspects of the business so that they are able to adequately advise and support the chief executive
officer in decision-making and ensuring company growth and profitability.

Almost every firm, government agency, or other type of organization has one or more financial
managers. Financial managers oversee the preparation of financial reports, direct investment
activities, and implement cash management strategies. They also implement the long-term goals
of their organization.

Many corporations operate multifunctional teams where the financial manager is responsible for
a particular division or function, or looks after a range of departments and functions. Financial
managers often have specific roles and titles:

Controllers prepare financial reports and analyses of future earnings or expenses that summarize
the organization’s financial position. Controllers are also in charge of preparing special reports
required by regulatory authorities—especially important because of the Sarbanes–Oxley Act,
designed in part to protect investors from fraud.

Treasurers and finance officers direct and oversee budgets, monitor the investment of funds,
manage associated risks, supervise cash management activities, execute capital raising strategies,
and deal with mergers and acquisitions.

Risk and insurance managers administer programs to minimize risks and losses that could arise
from financial transactions and business operations.

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 Financial Manager: Status, Role & Scope

Credit managers supervise the firm’s issuance of credit, fix credit-rating criteria, determine
credit limits, and monitor the collection of past-due accounts.

Cash managers supervise and manage the flow of cash receipts and disbursements to meet
business and investment needs.

The financial manager’s role, particularly in business, is changing in response to technological

advances that have significantly reduced the time it takes to produce financial reports. Financial
managers now perform more data analysis to offer senior management ideas on how to maximize
profits. They play an increasingly significant role in mergers and acquisitions and in related
financing, and in areas that require wide-ranging, focused knowledge to diminish risks and
maximize profit

Advantages
 Financial managers improve business organization and risk management by providing
reassurance on the effectiveness and efficiency of operations, financial reporting, and
compliance with applicable laws and regulations.
 Financial managers provide management with an in-depth and unbiased understanding of
risks that the organization may be facing, allowing for preemptive planning.
 Financial managers give company officers and directors forewarning of ethical and legal
issues that may affect the organization.

Disadvantages

 Although they are meant to be independent and impartial, financial managers are paid by
the company and are an integral part of the company management; this can lead to
conflicts of interest when advising senior management on, for example, investment risk.
 Financial managers’ judgments, estimates, and interpretations are not always objective
because of their close relationship with the organization for which they work.

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 Financial Manager: Status, Role & Scope

Changing role of financial manager

In the last few years especially when liberalization took place in 1991, the financial environment
has been changes drastically and has altered in many ways. And so the role of finance manager
has also been changed.

The important changes that were took place are:

 The industrial licensing has been considerably relaxed.

 The monopolies and Restrictive Trade Policies (MRTP) Act has been virtually abolished.
 The Foreign Exchange Regulation Act (FERA) has been liberalized substantially and has
been renamed as Foreign Exchange Regulation Act.
 Considerably freedom has been given to the companies in pricing their equity issues.
 The investors have become more demanding and analytical.
 The system of cash credit has been largely replaced by the system of working loan.
 A number of new investment opportunities in the money market.

The above changes in the role of financial manager made this concept more demanding
important and complex.

Thus today the key challenges of the financial manager cover the following areas:

 Investment planning
 Financial structure planning
 Treasury operation
 Foreign exchange
 Investors communication
 Management control

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 Financial Manager: Status, Role & Scope

Scope of financial manager

 Investment Decision:

The investment decision involves the evaluation of risk, measurement of cost of capital and
estimation of expected benefits from a project. Capital budgeting and liquidity are the two major
components of investment decision. Capital budgeting is concerned with the allocation of capital
and commitment of funds in permanent assets which would yield earnings in future.

Capital budgeting also involves decisions with respect to replacement and renovation of old
assets. The finance manager must maintain an appropriate balance between fixed and current
assets in order to maximise profitability and to maintain desired liquidity in the firm.

Capital budgeting is a very important decision as it affects the long-term success and growth of a
firm. At the same time it is a very difficult decision because it involves the estimation of costs
and benefits which are uncertain and unknown.

 Financing Decision:

While the investment decision involves decision with respect to composition or mix of assets,
financing decision is concerned with the financing mix or financial structure of the firm. The
raising of funds requires decisions regarding the methods and sources of finance, relative
proportion and choice between alternative sources, time of floatation of securities, etc. In order
to meet its investment needs, a firm can raise funds from various sources.

The finance manager must develop the best finance mix or optimum capital structure for the
enterprise so as to maximise the long- term market price of the company’s shares. A proper
balance between debt and equity is required so that the return to equity shareholders is high and
their risk is low.

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 Financial Manager: Status, Role & Scope

Use of debt or financial leverage effects both the return and risk to the equity shareholders. The
market value per share is maximised when risk and return are properly matched. The finance
department has also to decide the appropriate time to raise the funds and the method of issuing
securities.

 Dividend Decision:

In order to achieve the wealth maximisation objective, an appropriate dividend policy must be
developed. One aspect of dividend policy is to decide whether to distribute all the profits in the
form of dividends or to distribute a part of the profits and retain the balance. While deciding the
optimum dividend payout ratio (proportion of net profits to be paid out to shareholders).

The finance manager should consider the investment opportunities available to the firm, plans for
expansion and growth, etc. Decisions must also be made with respect to dividend stability, form
of dividends, i.e., cash dividends or stock dividends, etc.

 Working Capital Decision:

Working capital decision is related to the investment in current assets and current liabilities.
Current assets include cash, receivables, inventory, short-term securities, etc. Current liabilities
consist of creditors, bills payable, outstanding expenses, bank overdraft, etc. Current assets are
those assets which are convertible into cash within a year. Similarly, current liabilities are those
liabilities, which are likely to mature for payment within an accounting year.

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 Financial Manager: Status, Role & Scope

Conclusion
A finance manager plays a very important role in the organisation. As all the decisions of
the finance are to be declared from the table of the financial manager and finance is the
basic thing of the company or organization. It is a basic need for the survival of the
organisation and function of a finance manager are step by which organisation would
grow and yield more and more profit. the role of financial manager is very important as it
helps an organisation in determining the sources of the funds, financial analysis, optimal
capital structure, profit planning and control, management of cash, disposal of surplus,
investments of funds, choice of sources of funds, estimation of capital requirements.
Other than this the financia manager also help company in maximizing of firms value.

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 Financial Manager: Status, Role & Scope

References

BOOKS:
 A.RAMAIYA, GUIDE TO COMPANIES ACT, (VOL.1) 46TH ED., 2008, LEXIS
NEXIS BUTTERWORTHS, WADHWA
 DR. G.K. KAPOOR, COMPANY LAW AND PRACTICE, 20TH ED.,2015,
TAXMANN PUBLICATION

WEBSITES:

 HTTP://WWW.MANAGEMENTSTUDYGUIDE.COM/FINANCIAL-MANAGEMENT.HTM

 HTTP://WWW.FINANCEPRACTITIONER.COM/BALANCE-SHEETS-CHECKLISTS/DEFINING-

THE-FINANCIAL-MANAGERS-ROLE

 HTTP://WWW.SLIDESHARE.NET/MAHAJANRISHAV/ROLE-FUNCTIONS-OF-FINANCE-

MANAGER

 HTTP://WWW.FREEMBANOTES.IN/FINANCE/FINANCIAL-MANAGEMENT/15-SCOPE-OF-

FINANCIAL-MANAGEMENT

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