| The job of a finance manager is a huge balancing act | | | | managers must be aware of special tax laws and |
| that requires a vast pool of knowledge. Knowing | | | | regulations that affect |
| about stocks, dividends, bonds and maturity levels is | | | | their industry.Although the stockholders own the |
| the just the beginning of the job requirements. A | | | | corporation, they do not manage it. |
| company and organization wants to make sure that | | | | Instead, they vote to elect a board of directors. In |
| anyone who holds shares in the company will be able | | | | theory, when the |
| to profit considerably from the success of the | | | | financial manager acts in accord with maximizing |
| company. The financial manager is in charge of | | | | shareholder wealth, |
| making all this happen.Financial managers oversee the | | | | the shareholders benefit through cash dividends and |
| preparation of financial reports, | | | | share price gains. |
| direct investment activities, and implement cash | | | | With respect to employees, however, maximizing |
| management | | | | shareholder wealth is |
| strategies. Their duties vary with their specific titles, | | | | not always in their best, personal interest. For |
| which | | | | example, when a |
| include controller, treasurer, credit manager, and cash | | | | company announces a layoff to cut costs, stock |
| manager.The role of the financial manager, particularly | | | | share price often increases, as the secondary |
| in business, is | | | | market reacts to the |
| changing in response to technological advances that | | | | news as an appropriate and proactive approach to |
| have significantly | | | | reducing costs and |
| reduced the amount of time it takes to produce | | | | increasing cash flow for other priority projects. From |
| financial reports. | | | | an employee's |
| Financial managers now perform more data analysis | | | | perspective, it's a loss of job and income.However, it |
| and use it to offer | | | | is also in the best interest of the company to attract |
| senior managers ideas on how to maximize profits. | | | | and |
| They often work on | | | | retain a skilled workforce. If a company has a |
| teams, acting as business advisors to top | | | | reputation for paying |
| management. Financial | | | | poorly, implementing excessive rounds of layoffs, or |
| managers need to keep abreast of the latest | | | | other |
| computer technology in | | | | unattractive human resource policies, retaining a |
| order to increase the efficiency of their firm's | | | | skilled workforce |
| financial operations.The financial manager stands | | | | will be difficult, and will have a negative effect on |
| between the firm's operations and the | | | | shareholder |
| financial (or capital) markets, where investors hold | | | | value as operational efficiencies, product quality, and |
| the financial | | | | speed to |
| assets issued by the firm. The financial manager's | | | | market decline. Here, financial managers |
| role is illustrated | | | | may consider benefits such as employee stock |
| in the next figure, which traces the flow of cash | | | | grants and discount |
| from investors to | | | | stock purchase plans (or stock options) (Online, |
| the firm and back to investors again. The flow | | | | Financial Managers). |
| starts when the firm | | | | In this way, the organization can align the priorities |
| sells securities to raise cash. The cash is | | | | of the |
| used to purchase real assets used in the firm's | | | | employees more closely with those of the |
| operations. | | | | stockholders.Most of the responsibilities of the |
| Later, if the firm does well, the real assets generate | | | | financial manager are not |
| cash inflows | | | | straightforward decisions with respect to maximizing |
| which more than repay the initial investment. Finally, | | | | shareholder |
| the | | | | wealth. Beyond maximizing shareholder wealth, |
| cash is either reinvested or returned to the | | | | financial managers also |
| investors who | | | | have the responsibility of acting ethically, particularly |
| bought the securities.The duties of financial | | | | in today's |
| managers vary with their specific titles. A | | | | financial markets with increasing media coverage and |
| financial planner works under the direction of a | | | | regulatory |
| manager, performing | | | | scrutiny over corporate financial scandals, like ENRON |
| various financial or budget analyses. The senior | | | | and MCI |
| financial planner | | | | WorldCom. When Enron and WorldCom went |
| supervises the staff in performing financial/economic | | | | belly-up in 2002 (two of the |
| analyses of new | | | | largest bankruptcies ever) no one demanded that |
| projects and analyses of merger and corporate | | | | their stockholders put |
| growth policies. The | | | | up more money to cover the companies' debts. |
| manager of financial planning directs the staff | | | | Stockholders can lose |
| responsible for | | | | their entire investment, but no more.In summary, |
| performing analyses in several functional areas | | | | the task of the financial manager can be broken |
| including profit | | | | down into the investment, or capital budgeting, |
| planning, capital expenditures, acquisitions, and | | | | decision and the |
| budgeting. The Chief | | | | financing decision. In other words, the firm has to |
| Financial Officer (CFO) advises the president of the | | | | decide what |
| organization with | | | | real assets to buy and how to raise the necessary |
| respect to financial reporting, financial stability and | | | | cash. |
| liquidity, and | | | | Shareholders want managers to increase the value |
| financial growth. The CFO also directs and supervises | | | | of the company's |
| the work of the | | | | stock, they are the owners of the corporation; the |
| Controller, Treasurer, and sometimes the Internal | | | | managers work for |
| Auditing Manager. | | | | the owners.The goal for the financial managers is to |
| Other duties may include strengthening relationships | | | | maximize shareholders |
| with | | | | (owners) wealth, not just increasing it or not just |
| stockholders, financial institutions, and the | | | | profit. How?: by |
| investment community. | | | | surviving, avoiding distress and bankruptcy, beating |
| Frequently, the CFO is a member of the Board of | | | | the competition, |
| Directors and/or the | | | | maximizing sales or market share, minimizing costs, |
| Executive Committee and as such, contributes to | | | | maximizing |
| overall organization | | | | profits, and maintaining steady earnings growth.The |
| planning, policy development, and implementation.In | | | | usual method of maximizing the wealth of the |
| addition, financial managers perform tasks unique to | | | | stockholders is to |
| their | | | | maximize the price of the corporation's common |
| organization or industry. For example, government | | | | stock. However, neither |
| financial managers | | | | managers nor stockholders can set the price of the |
| must be experts on the government appropriations | | | | common stock; the |
| and budgeting | | | | market determines the price.Mary Anne Winslow is a |
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