II.

ROLE OF THE FINANCE MANAGER

LEARNING OBJECTIVES
1. Explain the role of the Finance Manager in
achieving the primary goal of the business
firm
2. Describe the typical organization of the
finance Department and its relationship with
other key functional Managers
3. Explain briefly the major types of decisions
that the Finance Manager makes
 ROLE OF THE FINANCE MANAGER
Financial Manager Makes Decisions involving

Analysis Acquisition Utilization

& Planning of Funds of Funds

Impact on Risk and Return

Affect the Market Value of the Business Firm

Lead to Shareholder’s Wealth Maximization

 The Finance Organization
BOD
Chairman of the Board and Chief Executive Officer
President and Chief Operations Officer (COO)
VP Marketing VP Finance CFO VP Production

Treasurer Controller
Cash Credit Tax Cost
Mgr. Mgr. Mgr. Acctg.

Capital Financial Fin. Acctg. Data

Proc
Exp. Planning Mgr. Mgr.
 Finance Organization
 In a SMALL BUSINESS – the head of the firm
(President or General Manager) often assumes
direct responsibility for marketing, production,
finance and other functions such as human
resource, management, security., etc.
 In a MEDIUM-SIZE – a separate department
headed by an officer with the title as Finance
Manager may assigned primary responsibility for
the narrower funds supply aspects of the finance
function.
 Finance Organization
 In a LARGE COMPANY – both the treasurer and
the controller report to a Chief Financial Officer
(CFO) who often has the title, Vice-President –
Finance.
The CFO usually is one of the senior officers of
the firm reporting directly to the President or
Executive Vice President or Chief Operating
Officer and is an important member of the “top-
management team”
MSME
 Finance Organization
The top-management team of the company usually
consists of the ff:
a. Board of Directors
b. President
c. Vice President
d. Vice Presidents and Top Management
Committees.
 Finance Organization
The financial management function is usually associated
with a top officer of the firm such as a Vice President
of Finance or the Chief Financial Officer.
VP for Finance – coordinates the activities of the
Treasurer and the Controller.
 Controller ‘s office – handles cost and financial
accounting, tax payments, and management
information systems.
 Treasurer’s office – responsible for managing the
firm’s cash and credit, its financial planning and its
capital expenditures.
 Relationship with other Key Functional
Managers in the Organization
Finance is one of the major functional areas of a
business.
The functional areas of business operations for a
typical manufacturing firm are:
a. Manufacturing – deals with the design and
production of product.
b. Marketing – involves the selling, promotion and
distribution of product.
*Manufacturing and marketing are critical for the
survival of a firm. What will be produced and how
products will be sold.
 Relationship with other Key Functional
Managers in the Organization
However, these other functional areal could not
operate without funds.
Finance is concerned with all of the monetary aspects
of a business.
The financial manager must interact with other
managers to ascertain the goals that must be met,
when and how to meet them.
Thus, finance is an integral part of total management
and cuts across functional boundaries.
 TYPES OF FINANCIAL DECISIONS

Four major types of decisions that the Finance

Manager of a modern business firm will be
involved:
1. Investment Decisions
2. Financing Decisions
3. Operating Decisions
4. Return of Capital Decisions

*All these decisions aim to maximize the owner’s

wealth though maximization of the firms wealth.
 1. Investments Decisions
- are those which determine how scarce or limited
resources in terms of funds of the business firms
are committed to projects. It deals with managing
the firm’s assets.
Asset Mix – refers to the amount of money invested
in current and fixed assets.
The investment decision should aim at investments in
assets only when they are expected to earn a
return greater than a minimum acceptable return
which is also called as Hurdle Rate.
 2. Financing Decisions
Financing decisions assert that the mix of debt and
equity chosen to finance investments should
maximize the value of investments made.
These decisions should consider the cost of finance
available in different forms and the risks
attached to it.

3. Operating Decisions
This third responsibility area of the finance
manager concerns working capital
management.
 Cont. – Operating decisions
The term WORKING CAPITAL – refers to a firm
short-term assets (i.e., inventory, receivables
and short-term investments) and its short-term
liabilities (i.e., accounts payable, short-term
loans).
Managing the firm’s working capital is a day-to-day
responsibility that ensures that the firm has
sufficient resources to continue its operations
and avoid costly interruptions.
It also involves a number of activities related to the
firm’s receipts and disbursements of cash.
Issues on managing a firm’s Working Capital
a. The level of cash, securities and inventory that
should be kept on hand.
b. The credit policy (i.e., should the firm sell on
credit? If so, what terms should be extended?)
c. Source of short-term financing (i.e., if the firm
would borrow in the short-term, how and where
should it borrow?)
d. Financing purchases of goods (i.e., should the
firm purchase its raw materials or merchandise
on credit or should it borrow in the short-term
and pay cash?)
4. Return of Capital Decisions
The return of capital (or dividend distribution to
corporate owners) decisions is concerned with
the determination of quantum of profits to be
distributed to the owners, the frequency of such
payments and the amounts to be retained by
the firm.

*The basic objective of the investment, financing,

operating and return of capital (or dividend
distribution) is to maximize firms’ wealth.