CORPORATE FINANCIAL MANAGEMENT

BY

MUSTAPHA MUHAMMAD BAWA

1. Roles of a financial manager; Before highlighting the roles and importance of a

financial manager, let’s start by understanding who a financial manager is. A
financial manager is the person responsible for all the important financial functions
and decisions of an organization. His/her actions and decisions directly affect the
financial structure of the organization in terms of profitability and growth. Hence, a
financial manager can make or break an organization’s finances. The roles and
functions of a financial manager cannot be overemphasized, however some of the
important roles are as follows;
i. Raising funds: An organization is obliged to have enough cash and liquidity to
run optimally, it is the role of the financial manager to decide the ratio between
debt and equity. He/she must ensure that a good balance is maintained between
equity and debt to keep the company running at optimal financial capacity thereby
satisfying the need for a company to have enough cash and liquidity.
ii. Allocation of funds: After raising funds through different means, the next big
thing is allotment and allocation of those funds appropriately to ensure judicious
utilization of the funds for maximum productivity. This is another role of the
financial manager and he/she must ensure that the funds are optimally used after
considering the status of assets of the organization (long or short term), mode of
raising funds and the size of the organization and its growth index.
iii. Profit planning: Financial gain is a primary function of any profit driven
organization. It is important for survival and sustenance. Profit planning is another
role of a financial manager which necessitates him/her to ensure proper usage of
the profit generated by the organization. Profit is a dynamic financial condition
and is subject to change depending on state of the economy, demand and supply,
cost and output, pricing and industry competition. He/she must ensure that a
healthy combination of fixed and variable factors of production is obtained so as
to increase productivity of the organization.
iv. Understanding capital markets: A financial manager must understand the stock
market where the shares of the organization are traded in a continuous manner.
He/she must be able to calculate the risk involved in trading of shares and
debentures and make appropriate decisions in order to minimize the huge risks
involved in trading securities on the stock exchange.

2. Financial ratios; despite all its advantages and merits have certain limitations that
cannot be overlooked. Some of those limitations are highlighted below.
i. Ratios are heavily dependent on figures obtained from financial statements which
are subject to deficiencies, approximation and even manipulation to an extent.
This dents the reliability of ratios in terms of drawing conclusions.
ii. Historical cost based financial statements do not reflect the current value figures
(inflation or deflation), especially in case of assets purchased at different dates by
different organizations. This has made accounting ratios calculated using varying
costs vastly inaccurate and deceptive thereby rendering them unreliable.
iii. The issue of comparability is an inherent problem of financial ratios, different
accounting methods used by organizations limit the usability of financial ratios
because of the differences in methodology adopted which affects factors such as
estimates of the life of assets, depreciation, treatment of extraordinary items etc.
3. Corporate financial information basically refers to the financial reports and analysis
of an organization which usually come in or as income statement, balance sheet,
financial policies explanation etc. These reports and/or statements aid an organization
in understanding its financial position, profits and/or losses, debt and equity ratio,
financial capacity and every single thing it needs to know about its financial situation
which the organization in turn considers when making decisions that will directly or
indirectly affect the profitability and growth of the organization. An organization must
have every financial information of itself to understand its growth and profitability
index so as to implement key decisions across board to address its challenges where
necessary, these decisions cannot be made without understanding the finances of
which financial information or statements give an in-depth review of.