Answer 1(a):

“Roles of Financial Managers”

Mangers are responsible for every type of management in an organization. There are different
types and levels of managers. Managers can be upper level, middle level and lower level. Every
field has its own managers like Human Resource manager, finance manager, marketing manager
etc. finance managers are very important part of an organization. [ CITATION Usl17 \l 2057 ]
Following are the roles of financial managers:

1. Funds Raising:

Major role of financial managers are to raise funds for his organization. Business need to
maintain liquidity and cash for meeting daily requirements. There are two ways for rising of
funds. It could be through equity and debt. It is the duty of financial managers to maintain
balance between equity ratio and debt ratio. These two ratios play important role for investors
while doing investments in an organization.

2. Funds Allocation:

Second most important role after funds rising is funds allocation. Allocation should be perfect
that funds are using in most appropriate way. For allocation of funds in best way, financial
managers must consider following points:

 What is firm’s size and what is the capability of growth of firm?

 What is the status of firm’s assets that if most assets are long term or short term.
 Through which ways funds of an organization can be raised?

Decision taking after considering these points will help financial managers to allocate assets in
best and proper way.

3. Planning of Profit:

Earning of profit is the prime objective of business organizations. It is very necessary so that
organization can survive in a market. This is not the rule for non-profit organizations. All these
steps are linked together in a chain. After proper allocation it is necessary that profit is using
properly in a well organized manner. Profit can be made through pricing of products,
competition of industry, economy state, demand supply mechanism, cost of product being
manufactured and output we get. If factors of production that are, fixed and variable, are blended
in best way it will result in enhanced profitability.

Fixed cost is caused by factors of production that are fixed. These factors are land and
machinery. Financial managers must calculate opportunity cost so that factors of production can
be replaced which have depreciation values. If these fixed costs are not considered then profit
will fluctuate more than expected.[ CITATION Abdie \l 2057 ]

4. Understanding of capital Markets:

Financial managers of an organization must have knowledge of what is happening in market.

Every company trades its shares on stock exchange where continuous trading of shares is taking
place. So it is very important for financial mangers to have best knowledge of stock exchange.
Risk factor is very important while selling and purchasing of shares. Financial managers should
be able to calculate risk to know whether he should do this investment or not.

This is also duty of financial managers on how to distribute profit. Some financial managers
distribute in shareholders as dividends and some not. [ CITATION Pra15 \l 1033 ]

Examples:

Taking example of profit planning role of financial manager, in an organization it is necessary to

enhance headcount in specific areas. This means now this increase in headcounts will lead to
increase in area of office and more equipment are needed. This all decisions will be taken by
financial managers. [ CITATION Ste20 \l 1033 ]

Another example of allocation of funds is presented. Financial managers, by calculating facts

and figures, can make decision whether organization should invest funds in previous products or
doing expansion for business.

Answer 1(b):

“Challenges for financial Managers in changing Economic Environment”

Organizations operations are changing due to globalization. Globalization cannot be ignored at
this time. This is the need of time that organizations should restructure themselves with changes
in environment. [ CITATION Ili15 \l 2057 ]This topic would explain all the challenges face by
finance managers today. Some of the challenges faced by finance managers are as follows:

1. Regulations:

If economic environment of a system is changing rapidly, organization working in that system

must respond fast. Organization’s speed of regulatory changes should not less than changes in
economic environment. Finance managers are needed to cope with changes in economic
environment. This is the biggest issue they are facing today. They should have the ability to have
some influence on policy that changes with change in economic environment.

2. Technology:

Another issue is everyday changing new technology. Finance managers have to cope with new
technology and must learn that technology to keep up pace with the rest of the world. Talking
about one side, due to technology availability of information level is more and advanced. On the
other side, for accessing available data software is complicated to use. If finance managers are
doing using right tool and technique for technology then organization will give advanced results.

3. Globalization:

If the business is also working in other parts of world then there is a need for finance managers
to have global perspective and point of view. Manager must have information of global market
instead of only local market. Finance manager must have information about culture and religion
of the country in which company is operating business. He has to deal with totally different
cultures so that company can perform well.

4. Risk:

It is important to have risk management. Finance manager have to compete with everyday
changing risk. Specially while doing investment, finance managers must have knowledge of risk
prevailing in market. He has to calculate risk of all portfolios and decide which investment
should be done.
5. Transformation:

Finance managers can do Transformation at two levels. Talking about first level which is
outsourcing, this need diversified managers so that they have versatility in their decisions. In this
case risk is high which is to be managed by finance manager. Second level is remaining finance
manager role. This focuses on effective analysis of company’s performance.

6. Technology:

The function of finance should be at the mid of data revolution. Talking about one side
information available due to high technology is more and easily accessible. On the other hand,
use of advanced technology made it easy to handle and manager software to access that data. If
the technology which is being used is properly managed and collect and organized data in
standard way then business will perform better than before. Technology will help finance
manager to work in less time but coping with today’s technology is also a skill. Finance
managers are needed to learn about everyday changing technology so that they can compete in
market.

7. Risk:

The most complex challenge for financial officer is saving of cost and reduction of risk factor
skill of risk management is very necessary for financial managers. He must know the amount of
risk involved in investments. Calculation of risk is considered to be the most important function
of finance manager. Finance managers face many challenges in this case. It is also the duty of
finance managers to divide portfolio in such a way that risk is lesser.

8. Transformation:

The alteration of function of can be done at two levels. First level is linked to outsourcing. This
level explains that how much help finance managers need from outside the organization. Finance
managers should be skillful enough to go through this challenge. Other level relates with other
finance functions that are not considered under outsourcing.

9. Management of Stakeholder:
The finance manager works to do leadership and take full control of financial matters of a
company. Other than this basic task finance manager should behave as an agent of its chief
executive officer. Finance office are part of top management and they are needed to manage and
discuss all affairs related to finance so that all other managers should know what type of
decisions they should made. Finance managers must have great communication skills so that
they can communicate well with the stakeholders of company and also with external clients of
company.
10. Strategy:
The finance manager is needed to join the activities of finance and examination outputs to the
facts of the firm helping in formulation of strategy formulation and process of implementation.
They should balance equally numbers and plan. The manager of finance is needed to come
forward from forecasting past performance with short term point of view to long term point of
view.
11. Reporting:
Financial managers are responsible for achievement of financial goals other than sustainability
parameters. It means that financial managers not only responsible for financial gains but also do
things for the betterment of environment and society. A bottom line called as triple bottom line.
It means to measure performance of a company socially, financially and environmentally.
12. Talent and capability:
There are many challenges for financial managers in this everyday changing economic
environment. Financial managers should be talent enough to cope with everything. Managers
must have diversity in their skills so that they can respond to daily challenges they face. This
respond will give experience to financial officer and his view for markets and this field will grow
much broader than before.

Answer 2(a):

i. “Current Ratio = Current Assets / Current Liabilities”

For 2018:
Current Ratio = 45000+8000+42000+50000/ 48000+ 16000+ 6000
Current Ratio = 145000/ 70000
Current Ratio = 2.071:1
 For 2019:
Current Ratio = 70000+ 16000 + 34000 + 60000/ 50000 + 10000+ 5000
Current Ratio = 180000/ 65000
Current Ratio = 2.769:1

ii. “Quick Ratio = Current Assets – inventory / Current Liabilities”

For 2018:
Quick Ratio = 45000 + 8000 + 42000/ 48000+ 16000+ 6000
Quick Ratio = 95000/ 70000
Quick Ratio = 1.357:1
For 2019:
Quick Ratio = 70000+ 16000 + 34000/ 50000 + 10000+ 5000
Quick Ratio =120000/ 65000
Quick Ratio = 1.846:1
iii. “Debt Ratio = Liabilities / Assets”
For 2018:
Debt Ratio = 160000+16000+6000+48000/430000
Debt Ratio = 230000/430000
Debt Ratio = 0.5348
For 2019:
Debt Ratio = 150000+5000+10000+ 50000/ 450000
Debt Ratio = 215000/ 450000
Debt Ratio = 0.477
iv. “Inventory Turnover = Cost of goods sold / average inventory”
For 2018:
Inventory Turnover = 360000/ 50000
Inventory Turnover = 7.2 times
For 2019:
Inventory Turnover = 460000/ 60000
Inventory Turnover = 7.666 times
v. “Times Interest Earned = Earnings before tax and interest / Interest Expense”
For 2018:
Times Interest earned = 44000/ 10000
Times Interest earned = 4.4 times
For 2019:
Times Interest earned = 80000/8000
Times Interest earned = 10 times
vi. “Non Current Asset Turnover = Sales/ non-current assets”
For 2018:
Non-current asset turnover = 450000/ 285000
Non-current asset turnover = 1.5789
For 2019:
Non-current asset turnover = 600000/ 270000
Non-current asset turnover = 2.22

vii. “Net profit Margin = Net profit / Revenue”

For 2018:
Net Profit Margin = 25000/ 450000 x 100
Net Profit Margin = 5.55%
For 2019:
Net Profit Margin = 54000/ 600000 x 100
Net Profit Margin = 9%
viii. “Return on Equity = Net Income / Equity”
For 2018:
Return on Equity = 25000/ 200000 x100
Return on Equity = 12.5%
For 2019:
Return on Equity = 54000/ 235000 x 100
Return on Equity = 22.97%
Answer 2(b):

Current ratio means if business is able to pay its debts within the time limit of one year with
current assets. The current ratio for 2019 is more than 2018. This shows that business is more
efficient in paying short term debts by suing assets. This shows the increase in performance of
the company.

Quick ratio is also a form of cover ratio. It is calculated to check the liquidity of business. The
quick ratio for 2018 is less than 2019. This indicates that company is more able to finance its
liabilities by its liquid assets and company’s liquidity has been increased form previous year.

Debt ratio shows that how much portion of assets of company is being finance by debts. Debt
ratio is more in 2018 than in 2019. It shows the company has now financing its assets with less
debt and more equity as compared to 2018.

Inventory turnover in 2018 is low as compared to inventory turnover in 2019. It shows inventory
is more selling in 2019 and sale and restocking system has gotten better than 2018.

Times interest earned shows that how much a company is capable to serve its debts. In 2018 this
ratio is very low which indicated that interest liabilities are more than earnings but this ratio has
increased very much in 2019. This shows that company’s performance gets better in 2019.

In 2018, business was not using its current assets in a very right way or utilization of current
assets can be improved. In 2019 utilization of current assets has been improved.

Net profit margin is less in 2018 and more in 2019. It shows that company is earning more
income on its sales in 2019. Company must have cleared his mistake that’s why such a high
increase in net income has occurred.

Firm is more able to generate profit from shareholder’s investment in 2019 than in 2018. Change
in return on equity is very large that means company is generating almost double profit in 2019.
This shows that company must have worked hard on its weak points and came to market with
full preparation.
Answer 2(c):

“Weaknesses of financial Ratios in Evaluating Company’s Performance”

Financial ratios help companies in many ways. The most important contribution is that it makes
it easy to know about company’s performance. Investors who want to invest in company can go
through financial ratios for taking decisions. By calculating ratios company’s can make
comparison between current year performance and previous year performance to know how
much performance gets better or gets worst. Through calculation of ratios person can make
comparison between two companies. This is also very helpful for companies to know about
performance of company.

Every company has its own way of keeping records and making books of accounts. Ratios make
it easy for everyone to understand financial condition of company rather than searching in books
of accounts. [ CITATION Suh19 \l 2057 ]

With all these advantages there are also some limitations and weaknesses for financial ratios in
evaluation of performance of a company.

1. Doesn’t forecast future performance:

Ratios can help in comparison among past and current year performances but it doesn’t talk
about future performance. It misses the factor of forecasting when calculation of ratio occurs.
Ratios would have been more accurate and are promoted to use it some ratios calculate expected
returns for coming financial years for investors so that they can have better understanding and
take decision about investment.
2. Inflation Effects:

The most important weakness for ratio analysis is that inflation occurs at different years. Prices
will never be same today and tomorrow. Ratio ignores the concept of time value of money. It
doesn’t consider that at previous year net income was some dollars which were worth more than
today’s earned dollar less. So it is considered that ratios calculated for current year cannot be
compared with ratios calculated for previous years as there must be some adjustment for inflation
rate. [ CITATION Moh19 \l 2057 ]

3. Accounting Policies:

It is also possible that accounting policy has been changed for current year. A year back there
was some different policies for accounting and book keeping. So the ratios for previous years
cannot be comparable with the ratios for current years. This is because change in accounting
policies also effect ratios. This will lead to wrong results and cannot be compared.

4. Changes in operations:

Company can make changes in operations. With the passage of time every company go for
changing operations to better ones. Company can make change in supply chain strategy or in the
product they offer for selling. So the comparisons before changes in operations and after changes
are not accurately compared. These results are wronged and cannot help in evaluating company’s
performance.

5. Seasonal effects:

If the people who are analyzing ratios are not aware of seasonal effects then they cannot do
analysis in a proper way. They must have the capability to adjust ratios according to seasonal
demand. It happens that product has more demand in one season and less in other then ratios
calculated for both seasons cannot be compared and lead to wrong results.

6. Manipulation in statements:

Ratios are calculated on data that is recorded in books of accounts and financial statements. It
can happen that financial statements can be manipulated by managers or any book keeper.
Company can also order its management to change records so that ratios show better
performance of company and investors are ready to do large investments. Analyst would never
be able to know that financial statements have been manipulated. [ CITATION Omr19 \l 2057 ]

7. Other circumstances:

Correctly value for calculating ratios is hardly available. Analyst may not analyze ratio of they
are not capable of blending these results with company’s economic state and other circumstances
like environment of company. He should consider the product of company, the product of
competitor of company, strategy of company and its competitors etc.

8. Analyst capability:

Only two years analysis cannot give accurate results. Performance should be looked up to five
years so that seasonal changes can also be seen. Analyst must be capable of looking deep into
everything. There are different ways for evaluation and analysis for ratios. Best method that
gives the most accurate results should be adopted by analyst.
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Abdullah, M. A. (Analysis On Malaysian Small Business. Academic Journal of Interdisciplinary
Studie). 2015.

Bragg, S. (21 june 2020).

Ilie, L. (2015). Procedia Economics and Finance,.

Juneja, P. (2015).

Mohammed, N. F. (2019). International Journal of Financial Research.

Omrani, S. (2019). Independent Journal of Management & Production.

Suhadak, S., Kurniaty, K. (2019). Asian Journal of Accounting Research.

Uslu, T. (2017). Risk Management, Strategic Thinking and Leadership in the Financial Services
Industry .