Big Picture in Focus: ULOd.

Describe the role of financial manager in

achieving the primary goal of the firm.

Metalanguage
Theirs is no essential terms to be defined in this ULO. Please proceed immediately
to essential knowledge.

Essential Knowledge
As the firm’s organizational structure becomes complex, it is very important to know
the basic role of the financial managers. Figure d-1 shows the basic role of the
financial manager in the firm’s management.
In striving to maximize the shareholder’s wealth, the financial manager makes
decision involving planning, acquiring, and utilizing funds which involve set of risk-
return trade off. These financial decisions affect the market value of the firms stock
which lead to wealth maximization.
It is responsibility of financial management to allocate funds to current and fixed
asset, to obtain the best mix of financing alternatives, and to develop an appropriate
dividend policy within the context of the firm’s objectives. The daily activities of
financial management include credit management, inventory control, and the receipt
and disbursement of funds.
The appropriate risk-return trade-off must be determined to maximize the market
value of the firm for its shareholders.
 Financial Manager Makes

Decision Involving

Acquisition of
Analyst and Funds Utilization of
Planning funds

Impact on Risk and

Return

Affect the Market

Price of Common
Stock

Lead to Shareholder’s
Wealth Maximization

Figure 1. The financial manager’s role in achieving the firm’s goal.

Self-Help: You can also refer to the sources below to help you
further
*Cabrera, E. B. (2016). Financial management: Principles and application (Vol. 1).
Manila: GIC Enterprises & Co., Inc.
*Brigham, E., & Houston, J.(2013). Fundamentals of financial management (13th
ed.). Singapore: Cengage Learning Asia Pte Ltd.
Let’s Check
Questions
Part I:
1. Give an idea on the how financial managers works in the planning and analysis.
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2. Give an idea how important the role of financial manager is in the acquisition.
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3. Describe how financial managers utilize the resources of the firm in terms of
investments.
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4. In a large corporations, what are the two distinct groups that report to the Chief
Financial Officer? Which group is the focus of corporate finance?
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5. Would our goal of maximizing the value of the equity shares be different if we were
thinking about financial management in a foreign country? Why or why not?
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Let’s Analyze
Critics have charged that compensation in the United States is simply too high and
should be cut back. For example, focusing on large corporations, Ray Irani of
Occidental Petroleum has been one of the best – compensated CEOs in the US,
earnings about $54.4 million in 2007 alone and %550 million over 2003 – 2007 period.
Are such amount excessive? In answering, it might be helpful to recognize that
superstar athletes such as Manny Pacquiao and many other at the top of their
respective fields earns at least as much, if not a great deal more.
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In a Nutshell
Can our goal of maximizing the value of the equity shares conflict with other goals,
such as avoiding unethical or illegal behaviour? In particular, do you think subjects like
customer and employee safety, environment and general good of society fit in this
framework, or are they essentially ignored? Think of some scenarios to illustrate your
answer.
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