BES’s Institute of Management Studies and

Research

Presents

Role of Finance Manager

Group
Members
Nilesh Jagtap(14) Sunil Kamble(18) Vikas Kharat(26)

Sagar Lawte (28) Pritesh Save(44) Sudhir Singh(50)

Premdeep Singh(51)
 What is Financial Management?

Concerns the acquisition, financing,

and management of assets with some
overall goal in mind.
Focus of Finance Manager in different areas

Finance is a set of tools that helps FM (Finance Manager) to

answer the following questions…
Firms:
• What projects do FM invest in?
• How to raise money?
• How much money should be return to investors?
• What’s the best way to return that money?
Contd…
Investment Function:
• How much is a corporation worth?
• How should a company raise money?
• How should corporations structure and pay for
acquisitions?
Commercial Function:
• From whom should the Company borrow?
• At what interest rate should be borrowed from market?
• How does it manage the risk of its loan portfolio?
Trading functions:
• What stocks to buy?
• When/how best to trade?
The Role of the Financial Manager
• Caretaker of the shareholder’s money
• Determines which projects the firm should invest in
• Decides how to pay for these projects (debt vs. equity) and
what firm’s mix of debt and equity should be
– Debt is tax advantaged but introduces possibility of
bankruptcy and may distort investment decisions
• Also ensures that is there the firm has enough cash to meet its
obligations and invest in profitable projects
Cont…
Principal Decisions in Financial Management
1. Capital Budgeting Decisions (real assets)
• Which projects should company invest in?
• Should company expand, shutdown or diversify?
2. Financing Decisions (financial assets)
• How should company raise cash?
• What types of financial claims should company issue?
– Common stock? Preferred stock? Convertible
bonds?
• How much cash should company return to investors?
 Areas of Financial Manager’s Decision

Financial
Analysis Financing

Profit Source
planning Dividend identification
Financial policy Determine
Forecasting Financing mix
Financial Method of
Control Raising funds

Management of Capital Management of

Current Assets Budgeting Mergers, reorganisation
Cash
Marketable Inventory Identification
Securities Management Selection
Receivables
Implementation
Organization of the Financial
Management Function

Finance Manager
Treasurer Controller
Capital Budgeting Cost Management
Cash Management General Ledger
Credit Management Preparing Budgets
Fin Analysis/Planning Preparing Fin Stmts
Insurance/Risk Mngmt Preparing Forecasts
Tax Analysis/Planning Government Reporting
 Responsibilities of Finance Manager

Responsible for entire finance department

Finance manager has to deal with 4 A’s
 Anticipation of funds

 Acquisition of funds

 Allocation of funds

 Assessment of funds

Focus on cost minimization & profit

maximization
Wealth maximization of the shareholders of the
company
 Financing Decisions

Determine how the assets (LHS of balance

sheet) will be financed (RHS of balance
sheet).
What is the best type of financing?
What is the best financing mix?
What is the best dividend policy (e.g., dividend-
payout ratio)?
How will the funds be physically acquired?
 Asset Management Decisions

How do we manage existing assets efficiently?

Financial Manager has varying degrees of operating
responsibility over assets.
Greater emphasis on current asset management than
fixed asset management.
Investment Decisions
 What is the optimal firm size?
 What specific assets should be acquired?
 What assets (if any) should be reduced or
eliminated?
How do we manage existing assets efficiently?
Financial Manager has varying degrees of
operating responsibility over assets.
Greater emphasis on current asset management
than fixed asset management.
 Possible Alternative Objectives

• Maximize accounting profits

– Which year’s profits? Cutting R&D will increase
stated profits today at the expense of profits tomorrow.
• Maximize growth or increase market share
– Growth and increased market share are only desirable
to the extent that current (or future) sales are profitable
• Survive or avoid financial distress
– While managers may be content to just keep their jobs,
investors will prefer to earn higher returns elsewhere
– Attempting to avoid financial distress may make
matters worse (e.g., Enron)
 Goal of Financial Decision-Making
• Maximize shareholder wealth
Shareholder Wealth = Current stock price  Number
of Shares Outstanding
– Therefore, maximizing shareholders wealth is
equivalent to maximizing today’s stock price

– An increase in shareholder wealth means that firm’s
assets have created value for its shareholders (and
possibly that the wealth of society has increased)
• Equivalent (or nearly equivalent) objectives
– Maximize the market value of assets
– Maximize the market value of financial claims
– Maximize the present value of free cash flows
 Social Responsibility

 Wealth maximization does not preclude the firm

from being socially responsible.
 Assume we view the firm as producing both private

and social goods.

 Then shareholder wealth maximization remains the

appropriate goal in governing the firm.

Risk to Handle in Foreign operation
Default Risk
Political Risk
Economic Risk
Piracy, sea pirates, accidents insurance
Financial Risk
Business Risk
Foreign Exchange Risk
International Finance Manager
Forecasting
Applicationof Derivative in Risk minimization
Understanding international market trend
Understanding the competition
Managing the subsidy
Role of International Finance Manager

Fund Raising
Investment Decision
Dividend Decision
Minimizing risk
Thank You
Thank You

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