Question

Discuss any four functions of financial manager in detail.

Hint:

The four core functions of a financial manager are financial planning, investment decision, financing decision, and dividend decision.

Answer 1

A financial manager plays a very important role in the efficient management of finances of an organisation.
The main functions of a financial manager are related to planning, procurement, utilisation, and control of financial resources.
Any four important functions of a financial manager are discussed below in detail:
1. Financial Planning:
Financial planning is one of the most important functions of a financial manager.
It involves estimating the financial requirements of the business for both short-term and long-term needs.
The financial manager prepares plans regarding how much capital is required, when it is required, and from which sources it should be obtained.
Proper financial planning ensures availability of adequate funds and avoids both shortage and excess of funds in the organisation.
2. Investment Decision:
Investment decision relates to the proper utilisation of funds in different assets and projects.
The financial manager decides where and how the funds should be invested to earn maximum returns.
This includes decisions regarding investment in fixed assets like land, building, machinery, and also in current assets such as inventory and receivables.
Sound investment decisions help in increasing profitability and long-term growth of the organisation.
3. Financing Decision:
Financing decision refers to the decision regarding the sources of finance to be used by the business.
The financial manager decides the appropriate mix of owned funds (equity) and borrowed funds (debt), known as capital structure.
The aim is to raise funds at minimum cost while maintaining financial stability and control of the organisation.
A balanced financing decision reduces financial risk and increases the value of the firm.
4. Dividend Decision:
Dividend decision involves deciding how much profit should be distributed among shareholders as dividend and how much should be retained in the business.
The financial manager has to strike a balance between shareholders’ expectations and the future financial needs of the organisation.
A sound dividend policy helps in maintaining goodwill of the company and ensuring steady growth.
Thus, the financial manager performs crucial functions that help in the efficient use of financial resources and achievement of organisational objectives.