Finance

Finance consists of three interrelated areas: (1) money and credit markets, which deals with the securities markets and
financial institutions; (2) investments, which focuses on the decisions made by both individuals and institutional investors;
and (3) financial management, which involves decisions made within the firm regarding the acquisition and use of funds.

Career opportunities in finance include positions in retail bank management, commercial lending, securities analysis,
securities brokerage, commercial credit, consumer credit, and corporate financial management. Detailed information about
these and other career opportunities in finance can be found on a CD-ROM entitled Discovering Your Finance Career,
which is available in the department office.

Finance positions require not only knowledge of the three areas of finance, but also good analytical, quantitative, computer,
communication and collaborative work skills. Departmental and finance concentration goals seek to enhance these skills.

Concentration in Finance

In addition to the business core and collateral courses, a concentration in finance includes:

BUS 368 Intermediate Corporate Finance

BUS 346 Investment Analysis
ECO 332 Money and Banking

For students entering the college in Fall 2009 or later, one elective course from departmental offerings is also required. For
students enrolling prior to Fall 2009, two departmental electives are required. The following courses represent a
recommended pool of courses from which to choose.

BUS 324 Managerial Accounting

BUS 364 Production and Operations Management
BUS 240 Business Law (Included in core requirements for students entering after Spring 2009)
BUS 326 Intermediate Accounting I
ECO 347 International Economics
BUS 323 Income Tax

Other courses that would be useful include:

ENG 201 Exposition

ECO 350 Econometrics
MAT 135 Calculus 1
 Understanding the Primary Areas of Business
Finance
Corporate Finance, Investments, and Financial Markets and Institutions
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By Rosemary Peavler

Updated April 07, 2017

Finance is one of the most important functional areas of business and within a firm. It joins other
functional areas like marketing, operations technology, and management as key areas of
business. Business owners and business managers have to have at least a basic understanding of
finance even if they outsource certain areas of their financial operations. The goal of this article
is to help you understand the three areas of finance and their relationship to your company.

Primary Areas of Business Finance

There are three primary areas of business finance, which include:

1. Corporate Finance
2. Investments
3. Financial Markets and Institutions

While there is some overlap, each of these areas also cover distinct aspects of managing the
financials of a business.

1. Corporate Finance

Corporate finance is the area of finance that incorporates the actions of the company when it
comes to making decisions about financing. In other words, every time a business owner buys
something, they have to figure out how to pay for it. For instance, when a company buys
inventory, the company has to figure out a way to pay for that inventory.

Other areas of corporate finance include budgeting, managing working capital, financial analysis,
financial statement development, and more.

2. Investments

Another area of finance is investments. Within a business, particularly a large business, the firm
may invest in assets ranging from short-term securities to long-term securities like stocks and
bonds.

The business invests for the same reason individuals invest - to earn a return.
Companies invest in both financial assets such as stocks of other firms and in physical assets
such as buying a new building or new equipment.

3. Financial Markets and Institutions

Financial markets and financial institutions comprise the third area of business finance.

Financial markets include everything from the stock and bond markets, the primary and second
markets, and the money and capital markets.

Financial markets, such as the stock market, help facilitate the transfer of funds between savers
of funds and users of funds. Savers are usually households and users are generally businesses and
the government. The stock market, for instance, provides a seamless exchange of ownership of a
company between one person or business and another.

The financial institutions work hand in hand with the financial markets. Financial institutions
generally act as intermediaries that help make transfers of funds between businesses and savers
(working as a broker or agent for the trade). For example, an individual might deposit money
into a savings account. Then, the financial institution would take that money and loan it out to a
business.

Studying Finance in School

These three areas of finance are taught in colleges and universities and are typically the areas in
which finance graduates look for finance jobs post-graduation. Business owners and their
employees may work in each of these areas for the good of the company.
3 Major Areas of Finance (Job Opportunities)

Finance is comprised of 3 interrelated major areas: (1) money and capital markets, which deals with securities markets and financial institutions; (2) investments,
which focuses on the decisions made by both individual and institutional investors as they choose securities for their investment portfolios; and (3) financial
management, or "business finance, which involves decisions within firms. The career/job opportunities within each field are many and varied, but financial managers
must have a knowledge of all three areas if they are to do their jobs well.

(Picture) Areas of Finance

MONEY AND CAPITAL MARKETS

Many finance majors go to work for financial institutions, including banks, insurance companies, mutual funds, and investment banking firms. For success here, one
needs a knowledge of valuation techniques, the factors that cause interest rates to rise and fall, the regulations to which financial institutions are subject, and the
various types of financial instruments (mortgages, auto loans, certificates of deposit, and so on). One also needs a general knowledge of all aspects of business
administration, because the management of a financial institution involves accounting, marketing, personnel, and computer systems, as well as financial management.
An ability to communicate, both orally and in writing, is important, and "people skills, or the ability to get others to do their jobs well, are critical.

INVESTMENTS

Finance graduates who go into investments often work for a brokerage house such as Merrill Lynch, either in sales or as a security analyst. Others work for banks,
mutual funds, or insurance companies in the management of their investment portfolios; for financial consulting firms advising individual investors or pension funds on
how to invest their capital; for investment banks whose primary function is to help businesses raise new capital; or as financial planners whose job is to help individuals
develop long-term financial goals andportfolios. The three main functions in the investments area are sales, analyzing individual securities, and determining the optimal
mix of securities for a given investor.

FINANCIAL MANAGEMENT

Financial management is the broadest of the three areas, and the one with the most job opportunities. Financial management is important in all types of businesses,
including banks and other financial institutions, as well as industrial and retail firms. Financial management is also important in governmental operations, from schools
to hospitals to highway departments. The job opportunities in financial management range from making decisions regarding plant expansions to choosing what types of
securities to issue when financing expansion. Financial managers also have the responsibility for deciding the credit terms under which customers may buy, how much
inventory the firm should carry, how much cash to keep on hand, whether to acquire other firms (merger analy-
sis), and how much of the firms earnings to plow back into the business versus pay out as dividends.

Regardless of which area a finance major enters, he or she will need a knowledge of all three areas. For example, a bank lending officer cannot do his or her job well
without a good understanding of financial management, because he or she must be able to judge how well a business is being operated. The same thing holds true for
Merrill Lynch's security analysts and stockbrokers, who must have an understanding of general financial principles if they are to give their customers intelligent advice.
Similarly, corporate financial managers need to know what their bankers are thinking about, and they also need to know how investors judge a firm's performance and
thus determine its stock price. So, if you decide to make finance your career, you will need to know something about all three areas.

But suppose you do not plan to major in finance. Is the subject still important to you? Absolutely, for two reasons: (1) You need a knowledge of finance to make
personal decisions, ranging from investing for your retirement to deciding whether to lease versus buy a car. (2) Virtually all important business decisions have financial
implications, so important decisions are generally made by teams from the accounting, finance, legal, marketing, personnel, and production departments. Therefore, if
you want to succeed in the business arena, you must be highly competent in your own area, say, marketing, but you must also have a familiarity with the other
business disciplines, including finance.

Thus, there are financial implications in virtually all business decisions, and non-financial executives simply must know enough finance to work these implications into
their own specialized analyses. Because of this, every student of business, regardless of his or her major, should be concerned with financial management.

Read more: http://www.affordablecebu.com/load/finance_wealth/3_major_areas_of_finance_job_opportunities/34-1-0-945#ixzz4lSwFF700

 The three major areas of finance
Finance can be divided into three areas:

1. Financial Management is the study of ways in which managers obtain funds, manage working capital, and allocate funds to long-term investments. Every firm,
no matter how small, needs someone to manage funds. A manager also uses financial information to assess the strategies of the firm and to assess whether the
firm is achieving its objectives.
2. Financial Markets and Institutions is the study of money markets (short-term debt) and capital markets (long-term debt and equity). Attention is given to the
manner in which financial traders behave in a global market; the role played in the financial market by different financial institutions (commercial banks, credit
unions, investment banks); and the effects upon the financial system of national and international policymakers.
3. Investment is the study of techniques used by individuals to manage portfolios and provide financial planning.
St. Scholastica's finance program prepares students to enter jobs in any of the three areas of finance.

More information for . .

Financial Management Relationship With Other Functional Areas

The relationship between financial management and other functional areas can be defined as
follows:

1. Financial Management and Production Department: The financial management and the
production department are interrelated. The production department of any firm is concerned with
the production cycle, skilled and unskilled labour, storage of finished goods, capacity utilisation,
etc. and the cost of production assumes a substantial portion of the total cost. The production
department has to take various decisions like replacing machinery, installation of safety devices,
etc. and all the decisions have financial implications.
2. Financial Management and Material Department: The financial management and the
material department are also interrelated. Material department covers the areas such as
storage, maintenance and supply of materials and stores, procurement etc. The finance
manager and material manager in a firm may come together while determining Economic Order
Quantity, safety level, storing place requirement, stores personnel requirement, etc. The costs
of all these aspects are to be evaluated so the finance manager may come forward to help the
material manager.
3. Financial Management and Personnel Department: The personnel department is
entrusted with the responsibility of recruitment, training and placement of the staff. This
department is also concerned with the welfare of the employees and their families. This
department works with finance manager to evaluate employees welfare, revision of their pay
scale, incentive schemes, etc.
4. Financial Management and Marketing Department: The marketing department is
concerned with the selling of goods and services to the customers. It is entrusted with framing
marketing, selling, advertising and other related policies to achieve the sales target. It is also
required to frame policies to maintain and increase the market share, to create a brand name
etc. For all this finance is required, so the finance manager has to play an active role for
interacting with the marketing department.

Please explain how financial markets may

affect economic performance.

January 2005

Great question. The simple response is that well-developed, smoothly operating financial markets play an important
role in contributing to the health and efficiency of an economy. There is a strong positive relationship between
financial market development and economic growth. For example, in Chapter 1 of their 2001 book, Financial
Structure and Economic Growth, editors Demirg-Kunt and Levine concluded:

In particular, researchers have provided additional findings on the finance-growth nexus and have offered a much
bolder appraisal of the causal relationship; firm-level, industry-level, and cross-country studies all suggest that the
level of financial development exerts a large, positive impact on economic growth.

Financial markets help to efficiently direct the flow of savings and investment in the economy in ways that facilitate
the accumulation of capital and the production of goods and services. The combination of well-developed financial
markets and institutions, as well as a diverse array of financial products and instruments, suits the needs of
borrowers and lenders and therefore the overall economy.

What are financial markets and institutions?

Financial markets (such as those that trade stocks or bonds), instruments (from bank CDs to futures and derivatives),
and institutions (from banks to insurance companies to mutual funds and pension funds) provide opportunities for
investors to specialize in particular markets or services, diversify risks, or both. As noted by Demirg-Kunt and
Levine, together financial markets and financial institutions contribute to economic growth; the relative mix of the two
does not appear to be an important factor in growth.

Large financial markets with lots of trading activity provide more liquidity for market participants than thinner markets
with few available securities and participants and thus limited trading opportunities. The U.S. financial system is
generally considered to be the most well developed in the world. Daily transactions in the financial marketsboth the
money (short term, a year or less) and capital (over a year) marketsare huge. Many financial assets are liquid;
some may have secondary markets to facilitate the transfer of existing financial assets at a low cost. Table I provides
a list of several well-known U.S. financial markets, ranked by outstanding assets or liabilities as of 2004.
The U.S. also has a well-developed financial services industry. It includes such familiar types of financial institutions
as banks, pension funds, mutual funds, and insurance companies. Table II provides a list of several categories of
U.S. financial institutions, ranked by outstanding assets as of 2004.

TABLE I

Selected U.S. Financial Markets, Outstanding Assets or Liabilities as of 1999 and 2004.
(Federal Reserve System, Flow of Funds, June 9, 2005)

(Billions of U.S. Dollars) 2004:Q4 1999 %Change

Corporate Equities Outstanding 17,254.5 19,522.8 -11.6%

Home Mortgage Assets & Loans Outstanding 8,096.4 4,715.6 71.7%

All Sectors Corporate and Foreign Bond Liabilities 7,006.1 4,435.6 58.0%

U.S. Govt Agency Securities Liabilities 6,246.5 3,916.0 59.5%

Federal Govt Total Treasury Securities Liability

(ex. Savings bonds) 4,166.3 3,466.2

20.2%
Federal Funds and Security Repurchase Agreements, Total Liabilities 1,650.3 1,082.8 52.4%
Open Market Paper, All Sectors Commercial Paper Liability 1,406.7 1,402.4 0.3%

TABLE II

Selected U.S. Financial Institutions and Funds, Assets Outstanding as of 1999 and 2004.
(Federal Reserve System, Flow of Funds, June 9, 2005)

(Billions of U.S. Dollars) 2004:Q4 1999 %Change

U.S.-Chartered Commercial Banks 6,398.1 4,434.3 44.3%

Mutual Funds 5,436.0 4,538.5 19.8%

Private Pension Funds 4,472.9 4,571.2 -2.2%

Life Insurance Companies 4,132.6 3,067.9 34.7%

State and Local Government Employee Retirement Funds 2,072.4 2,247.0

-7.8%

Money Market Mutual Funds 1,879.9 1,578.8 19.1%

Security Brokers and Dealers 1,844.9 1,001.0 84.3%
Savings Institutions 1,691.2 1,150.5 47.0%
Finance Companies 1,455.7 1,003.5 45.1%
Other Insurance Companies (including property and casualty) 1,196.9 872.7 37.1%
Federal Government Retirement Funds 1,024.0 774.0 32.3%
Credit Unions 654.7 414.5 57.9%
Foreign Banking Offices in the U.S. 569.7 750.9 -24.1%

For comparison purposes: U.S. GDP in current dollars in 2004 was $11,735 billion.

Why are financial markets and institutions important?

Financial markets play a critical role in the accumulation of capital and the production of goods and services. The
price of credit and returns on investment provide signals to producers and consumersfinancial market participants.
Those signals help direct funds (from savers, mainly households and businesses) to the consumers, businesses,
governments, and investors that would like to borrow money by connecting those who value the funds most highly
(i.e., are willing to pay a higher price, or interest rate), to willing lenders. In a similar way, the existence of robust
financial markets and institutions also facilitates the international flow of funds between countries.

In addition, efficient financial markets and institutions tend to lower search and transactions costs in the economy. By
providing a large array of financial products, with varying risk and pricing structures as well as maturity, a well-
developed financial system offers products to participants that provide borrowers and lenders with a close match for
their needs. Individuals, businesses, and governments in need of funds can easily discover which financial institutions
or which financial markets may provide funding and what the cost will be for the borrower. This allows investors to
compare the cost of financing to their expected return on investment, thus making the investment choice that best
suits their needs. In this way, financial markets direct the allocation of credit throughout the economyand facilitate
the production of goods and services.

A recent example: Integrating existing EU financial markets

The European Union, with its single banking market and single currency, the Euro, has created Europe-wide financial
markets and institutions. These markets use the Euro to facilitate saving, investment, borrowing, and lending. Euro-
denominated stock, bond, and derivative markets serve all of the EU countries that use the Euroreplacing smaller,
less-liquid, offerings and products that previously were available mostly on a country-by-country basis.

In addition, the Euro likely increases the attractiveness of Euro-based financial markets and instruments to the rest of
the world. Within the EU, the Euro eliminates the cross-border exchange rate risks that are part of transactions
between countries with different currencies. The Euro and integrated Euro-based financial markets and institutions
should make the credit allocation process in Europe more competitive and more efficient in the long run.

What happens without well-developed financial markets?

In many developing nations, limited financial markets, instruments, and financial institutions, as well as poorly defined
legal systems, may make it more costly to raise capital and may lower the return on savings or investments. Limited
information or lack of financial transparency mean that information is not as readily available to market participants
and risks may be higher than in economies with more fully-developed financial systems. In addition, it is more difficult
to hold a diversified portfolio in small markets with only a limited selection of financial assets or savings and
investment products. In such thin financial markets with little trading activity and few alternatives, it may be more
difficult and costly to find the right product, maturity, or risk profile to satisfy the needs of borrowers and lenders.

More evidence that financial development matters

For further research on the topic, you may wish to review a 2002 study of financial structure and macroeconomic
performance by Lopez and Spiegel, economists at the Federal Reserve Bank of San Francisco. With respect to the
long-run relationship between financial systems and the economy, they reached the following conclusion:

We examine the relationship between indicators of financial development and economic performance for a cross-
country panel over long and short periods. Our long-term results are consistent with much of the literature in that we
find a positive relationship between financial development and economic growth.

Their findings also shed light on why financial development affects growth:

These results therefore indicate that the primary channel for financial development to facilitate growth over the long
run is through physical and human capital accumulation.
The role of financial markets for economic growth
Speech delivered by Dr. Willem F. Duisenberg, President of the European Central Bank, at the
Economics Conference "The Single Financial Market: Two Years into EMU" organised by the
Oesterreichische Nationalbank in Vienna on 31 May 2001

Introduction
It is a great pleasure and honour for me to join the Oesterreichische Nationalbank for its 2001 Economics Conference on "The Single Financial Market: Two Years into EMU". I
would like to take the opportunity today to talk about the role of financial markets for economic growth. I shall first consider whether the design of the financial system matters for
economic growth. Secondly, I shall say a few words about where the euro area financial system is heading, two years after the introduction of the euro. After this I shall discuss the
role of monetary policy in the interplay between financial markets and economic growth. Towards the end, I shall address, as just mentioned by Governor Liebscher, the role of
central banks in prudential supervision.

Does the financial system matter for economic growth?

In the financial system funds flow from those who have surplus funds to those who have a shortage of funds, either by direct, market-based financing or by indirect, bank-based
finance. The former British Prime Minister William Gladstone expressed the importance of finance for the economy in 1858 as follows: "Finance is, as it were, the stomach of the
country, from which all the other organs take their tone."

The financial system comprises all financial markets, instruments and institutions. Today I would like to address the issue of whether the design of the financial system matters for
economic growth. My view is that the answer to this question is yes. According to cross-country comparisons, individual country studies as well as industry and firm level
analyses, a positive link exists between the sophistication of the financial system and economic growth. While some gaps remain, I would say that the financial system is vitally
linked to economic performance. Nevertheless, economists still hold conflicting views regarding the underlying mechanisms that explain the positive relation between the degree
of development of the financial system and economic development.
Some economists just do not believe that the finance-growth relationship is important. For instance, Robert Lucas asserted in 1988 that economists badly over-stress the role of
financial factors in economic growth. Moreover, Joan Robertson declared in 1952 that "where enterprise leads, finance follows". According to this view, economic development
creates demands for particular types of financial arrangements, and the financial system responds automatically to these demands.

Other economists strongly believe in the importance of the financial system for economic growth. They address the issue of what the optimal financial system should look like.
Overall, the notion seems to develop that the optimal financial system, in combination with a well-developed legal system, should incorporate elements of both direct, market and
indirect, bank-based finance. A well-developed financial system should improve the efficiency of financing decisions, favouring a better allocation of resources and thereby
economic growth.

Both market and bank-based financial systems have their own comparative advantages. For some industries at certain times of their development, market-based financing is
advantageous. For example, financing through stock markets is optimal for industries where there are continuous technological advances and where there is little consensus on how
firms should be managed. The stock market checks whether the manager's view of the firm's production is a sensible one. For other industries, bank-based financing is preferable.
This holds in particular for industries which face strong information asymmetries. Financing through financial intermediaries is an effective solution to adverse selection and moral
hazard problems that exist between lenders and borrowers. Banks in particular have developed expertise to distinguish between good and bad borrowers. Economies that have both
well-developed banking sectors and capital markets thus have an advantage. Furthermore, in times of crisis in either system, the other system can perform the function of the
famous spare wheel.
The financial system is also particularly important in reallocating capital and thus providing the basis for the continuous restructuring of the economy that is needed to support
growth. In countries with a highly developed financial system, we observe that a greater share of investment is allocated to relatively fast growing sectors. When we look back
more than one century ago, during the Industrial Revolution, we see that England's financial system did a better job in identifying and funding profitable ventures than other
countries in the mid-1800s. This helped England enjoy comparatively greater economic success. The banker and former editor of "The Economist" Walter Bagehot expressed this
in 1873 as follows. "In England, however, ... capital runs as surely and instantly where it is most wanted, and where there is most to be made of it, as water runs to find its level".

Nowadays, the lack of a well-developed stock market would be a particularly serious disadvantage for any economy. Equity is essential for the emergence and growth of
innovative firms. Today's young innovative high-technology firms will be the main drivers of future structural change essential for maintaining a country's long-term growth
potential. The contribution of financial markets in this area is a necessity for maintaining the competitiveness of an economy today given the strongly increased international
competition, rapid technological progress and the increased role of innovation for growth performance.

In recent years, "new markets", for stocks of young and growing companies, have become a growing market segment in the euro area. Equity financing is particularly
advantageous for these companies and their investors given the uncertainties of the economic return. As the term "shares" suggests, with equity financing you get your share of the
outcome, whether it is positive or negative. Banks, on the other hand, may be reluctant to provide loans owing to the risk profile of these firms, and the greater exposure to a
negative result in a loan contract.

Total market capitalisation of the new markets in five euro area countries grew from EUR 7 billion at the beginning of 1998 to EUR 167 billion in December 2000. While some of
this increase can be attributed to the overall rise in share prices during this period, it is important to note that the number of listed companies continued to increase in almost every
month. The total number of companies listed on these new markets in the euro area increased from 63 at the beginning of January 1998 to 564 at the end of 2000. Developments
over the last year have admittedly been dismal. However, it is the nature of new markets, given the uncertainties attached to future developments for the companies listed on these
markets, to exhibit more volatility than established markets.

Bank-based finance has a special role to play for many companies in need of funds, and thus helps to ensure a well-balanced growth process. The economic literature on
"relationship banking" has demonstrated that banks can contribute to alleviating the impact of sudden economic shocks on their clients. Banks stand ready to provide many
customers with funds even in adverse circumstances, e.g. when the liquidity of financial markets dries up.

The banking sector also has an essential role to play with respect to the allocation of funds to the most profitable investment opportunities. Banks are, as mentioned before,
financial intermediaries that by nature add cost to the allocation of capital. Thus in order for banks to survive in a market economy they need to provide added benefits. It is
difficult to compete with the debt securities market, if a bank loan is of a size where the fixed costs of accessing debt markets become negligible. However, securities markets are
not always sufficiently liquid and some, especially small and medium, enterprises cannot cover their liquidity needs via securities markets owing to significant fixed costs of
access. An additional benefit of bank-based finance relates to the intrinsic nature of the banking business: some projects cannot be financed directly by the market on account of
significant information asymmetries between the borrowers and potential lenders. Banks can bridge this gap thanks to their comparative advantages in the assessment and
monitoring of investment projects, which contributes to overcoming information asymmetries.

The financial system of the euro area after two years with the euro
Let me now turn to the major changes of the financial system in the euro area after two years with the euro.
Financial market integration

The launch of the euro on 1 January 1999 was a historic event. Eleven national currencies were converted into one single currency overnight. Greece became the twelfth EU
Member State to adopt the single currency on 1 January 2001. The newly created currency area of the twelve participating European Union Member States has a considerable
weight in the world economy. It accounts for around 20% of world GDP and world exports. The successful launch of the euro, which is a key element in the creation of a stable
and prosperous Europe, has boosted the integration of financial markets in the euro area. This process of integration in European financial markets coincided with the trends
towards globalisation and securitisation. Other factors, among a wide range, which shape the financial system are historically determined characteristics, technological innovations,
monetary and fiscal policies and specific legal and accounting systems that differ from country to country.

Evidence of integration can be found, to varying degrees, in all parts of the financial system. The euro area money market is among the most integrated parts of the financial
system. The conduct of one common monetary policy in the euro area brought about immediate integration of the unsecured segments of the money market, mainly the interbank
market and the short-term derivatives market. The secured segments of the money market, that is the repo market and the markets for short-term securities, are also increasingly
integrated, but they still suffer from underlying problems with the management of collateral. Nonetheless, the outlook is promising. The euro area bond market has also developed
rapidly. Notably, the private segments of the euro area bond market have flourished since the introduction of the euro. The amount outstanding of long-term debt securities issued
by the private sector was 22% higher at the end of 2000 compared with the end of 1998. Probably the most significant development has been the rapid growth in the euro-
denominated corporate bond market, which has increased several-fold in size since the launch of the euro and is now characterised by issues of above EUR 1 billion. EMU has also
stimulated integration in the stock markets in the euro area, where structural developments have been dominated by a series of high-profile mergers and attempted mergers.
Regulatory framework

The rapid growth achieved by European securities markets has taken place notwithstanding remaining regulatory obstacles to their integration. The European authorities are fully
aware of the need to address this problem. Several obstacles have been identified in the recent Report of the Committee of Wise Men, chaired by Alexandre Lamfalussy. The
Committee proposes to speed up the removal of impediments through the institutionalisation of two new regulatory committees for securities markets, which should allow for an
increased harmonisation of securities regulation and less burdensome procedures for adapting Community rules to rapidly changing financial markets.

Another essential European initiative was the adoption by the Commission, in May 1999, of a programme for the completion of the Single Market for financial services. This
programme, the Financial Services Action Plan, lists a series of measures with indicative priorities and timetables. The project considered as a whole and its inherent philosophy
are capable of enhancing economic growth. In this perspective, a handful of specific initiatives deserve a particular mention. A first initiative is the adoption of the European
Company Statutes, which is essential to enhance the level-playing field between European firms and to provide a suitable legal framework for transnational conglomerates. A
second important aspect is the Risk Capital Action Plan, which would help redirect financial flows towards fast-growing small and medium-sized enterprises. Let me also mention
the last four initiatives, namely the e-commerce policy for financial services; the harmonisation of rules on the accounting requirements for European companies; the takeover bids
Directive; and finally the removal of accounting, legal and fiscal discrepancies hindering the cross-border use of collateral. A European Directive on this subject should be adopted
in 2003.

Many of these initiatives may appear to be unimportant and somewhat "esoteric" regulatory changes. However, they can provide a real boost to the smooth operation of markets
and, therefore, to economic growth. For example, obstacles to the cross-border use of collateral prevent the further cross-border integration and consolidation of clearing and
settlement infrastructures, thus hindering the integration of European money, bond and equity markets. A smooth electronic integration of trading, clearing and settlement
operations would help reduce transaction costs substantially. The gradual dismantling of regulatory obstacles to remaining market integration in Europe will contribute to
enhancing their depth and efficiency, in turn contributing to an improved allocation of funds to the most profitable investment opportunities, and thus supporting economic growth.

What is the role of monetary policy and central banks?

Price stability

The interaction between financial markets, economic growth and monetary policy is by no means a new issue for central bankers. However, financial market developments have
brought the question to the forefront of the policy debate. The continued integration and deepening of financial markets is a significant issue for policy-makers, and particularly for
central bankers, since smoothly functioning and efficient financial markets are crucial in ensuring a smooth transmission of monetary impulses.

The best contribution that monetary policy can make to the smooth functioning and integration of European financial markets and to economic growth is to maintain a steady
medium-term price stability orientation. Such a policy will be beneficial, as it will minimise the adverse effects of inflation and high inflation uncertainty. As we all know, price
stability is beneficial in numerous ways. It not only creates a climate for higher economic activity over the medium term, but also reduces the economic and social inequalities
caused by the asymmetric distribution of the costs of inflation among the various economic agents. In addition, in an environment of low inflationary expectations, inflation risk
premia become relatively less important as a determinant of financial prices. As a result, other factors such as credit risk can play a larger role in the price formation mechanism.
Ultimately, this results in a more efficient allocation of financial resources.

The approach of focusing on price stability is by now the conventional wisdom in industrialised countries. In the case of Europe, this consensus on the contribution of price
stability in the medium term to promoting long-term growth is explicitly enshrined in the Statute of the ESCB, which states unambiguously that "the primary objective of the
ESCB shall be to maintain price stability in the medium term." The ECB is convinced that by rigorously fulfilling this mandate, monetary policy is making its most effective
contribution to the realisation of strong output growth and satisfactory employment prospects.
Financial stability and the role of central banks in banking supervision

Also the design of prudential regulation plays an important role from a growth perspective. Supervision is the guardian of financial stability, which in turn crucially determines the
capability of the financial system to allocate resources efficiently and absorb liquidity shocks. Financial crises can have a deep and protracted impact on economic growth, as
illustrated by several episodes of financial instability that occurred in many countries. The contribution of prudential supervision to economic growth proceeds along two
dimensions. From a preventive perspective, supervision has to ensure a continuous and comprehensive monitoring of all the potential threats to financial stability. The role of
supervision is also crucial after the emergence of a crisis, in order to provide for a swift and ordered resolution. Supervisors can only be effective in these two respects if they are
able to pay sufficient attention to systemic issues, namely the risk of contagion effects. In order to address this issue in an effective way, they should be able to bridge the gap
between information of a micro-prudential nature, namely information on the safety and soundness of individual institutions, and macro-prudential analysis, which encompasses all
activities aimed at monitoring the exposure to systemic risk and at identifying potential threats to financial stability arising from macroeconomic or financial developments.

This line of argument would support a large role for central banks in supervision, since they have traditionally played a large role in macro-prudential analysis and the preservation
of financial stability and they have acquired a strong expertise in this field. Furthermore, smooth access of central banks to micro-prudential information would also be profitable
from the perspective of another traditional central banking task, namely the oversight of payment systems.

In spite of these arguments supporting a large role of central banks in supervision, the debate has remained broadly inconclusive in the economic literature so far, owing to the
existence of opposite considerations. The first important argument against a large role for central banks is the so-called "conglomeration argument", which crucially relies on the
idea of a blurring of distinction between banking, insurance and securities firms. In order to preserve the level-playing field, all segments of the financial industry would have to be
supervised under the aegis of a common supervisor. According to this line of reasoning, this "umbrella" could not be the central bank, since the latter is traditionally in charge of
supervising monetary organisations. I will not embark upon a thorough analysis of this issue now. Let me just say that I am convinced that this argument has lost relevance in the
current context characterised by a more market-based conduct of supervision - which alleviates the level-playing field concern - and by an increased relevance of systemic risk
issues.

The second major argument against a large involvement of central banks in supervision is the alleged conflict of interest between monetary policy and prudential supervision.
Many authors have argued that the institution in charge of monetary policy cannot be entrusted with supervision, because the monetary policy stance would be "contaminated" by
supervisory issues, for instance the need to safeguard the liquidity of individual banks.
The advent of the euro, however, has shifted the balance of arguments decisively in favour of a large involvement of national central banks (NCBs) in supervision, for two main
reasons. First, the argument of a conflict of interest between monetary policy and prudential supervision becomes irrelevant within the euro area, where supervisory responsibilities
are at the national level. Since the geographical jurisdictions of monetary policy and prudential supervision no longer coincide, NCBs in charge of prudential supervision are
shielded from the traditional conflict of interest.
The second key factor is the increased relevance of systemic risk since the advent of the euro. The nature and scope of systemic risk have changed in a decisive way. A first
decisive evolution is the growing integration of European financial markets in the euro area. As I have already mentioned, the interbank market, especially the unsecured segment,
is already fully unified across the area owing to the disappearance of the currency risk and the connection of national real-time gross settlement systems via TARGET, the large-
value cross-border payment system of the Eurosystem. A second key evolution from the perspective of systemic risk is the growing merger and acquisition activity and the trend
towards the emergence of financial conglomerates in Europe,which has, for instance, been identified in a recent G10 report on consolidation in the financial sector. In this new
environment, financial institutions are increasingly involved in intricate networks of counterparties in the interbank market and via payment and settlement systems, and the impact
an unwinding of their positions could have on asset prices becomes even more ambiguous. These interrelations have a more international character than before the advent of the
euro, which implies that supervision has to pay much more attention to euro area-wide developments. The national central banks of the euro area have a comparative advantage in
this field owing to their responsibilities over payment and settlement systems, their traditional focus on systemic risk and their role as components of the Eurosystem.
My conclusion is that the successful pursuance of financial stability in Europe, which is a prerequisite for economic growth, could benefit considerably if NCBs maintain and even
reinforce their role in prudential supervision. The debate on the organisation of banking supervision seems to be taking a different course for the moment at least in a few euro area
countries. Institutional arrangements based on a single supervisory authority for the financial systems as a whole seem to have gained momentum over the past months in some
euro area countries like Ireland and Finland, and also in your country, Austria, where a single supervisor for banking, insurance, securities and staff pension funds
(Pensionskassen) should be established early 2002 according to the recent draft Financial Market Supervisory Authority Act ("Finanzmarktaufsichtgesetz").

At first sight, this evolution runs counter to the need for a larger involvement of NCBs in prudential supervision. However, in this field implementation details are crucial. In
particular, it is crucial that effective provisions for a close co-operation and a smooth exchange of information between the separate supervisory authority and the NCB are laid
down. NCBs should in any case be entrusted with the task of safeguarding financial stability of the system as a whole and endowed with the instruments needed to pursue such an
objective effectively. In this respect, an extensive operational involvement of NCBs in the conduct of prudential supervision is a key factor.

Conclusions
In concluding, I believe it is fair to say that EMU has already had a profound impact on the process of EU financial integration. The impact of the introduction of the euro as a
single currency of twelve Member States has created the potential for large, deep and liquid euro-denominated financial markets, which should help to deliver high rates of output
and employment growth in the euro area economy. This transformation in the financial and economic landscape entails certain potential risks, but it will provide many
opportunities for enhanced efficiency and growth in the financial markets and economies in the euro area. I am convinced that the latter will prevail.

Thank you very much for your kind attention.

European Central Bank
financial management

Definition

Related Terms
The planning, directing, monitoring, organizing, and controlling of the monetary resources of an organization.

Financial Management - Meaning, Objectives and Functions

Meaning of Financial Management

Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles
to financial resources of the enterprise.

Scope/Elements

1. Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current assets are also a part of investment decisions called as working capital decisions.
2. Financial decisions - They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.
3. Dividend decision - The finance manager has to take decision with regards to the net profit distribution. Net profits are generally divided into two:
a. Dividend for shareholders- Dividend and the rate of it has to be decided.
b. Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.

Objectives of Financial Management

The financial management is generally concerned with procurement, allocation and control of financial resources of a concern. The objectives can be-

1. To ensure regular and adequate supply of funds to the concern.

2. To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders.
3. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost.
4. To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved.
5. To plan a sound capital structure-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital.

Functions of Financial Management

1. Estimation of capital requirements: A finance manager has to make estimation with regards to capital requirements of the company. This will depend upon expected costs and profits and future
programmes and policies of a concern. Estimations have to be made in an adequate manner which increases earning capacity of enterprise.
2. Determination of capital composition: Once the estimation have been made, the capital structure have to be decided. This involves short- term and long- term debt equity analysis. This will
depend upon the proportion of equity capital a company is possessing and additional funds which have to be raised from outside parties.
3. Choice of sources of funds: For additional funds to be procured, a company has many choices like-
a. Issue of shares and debentures
b. Loans to be taken from banks and financial institutions
c. Public deposits to be drawn like in form of bonds.

Choice of factor will depend on relative merits and demerits of each source and period of financing.

4. Investment of funds: The finance manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible.
5. Disposal of surplus: The net profits decision have to be made by the finance manager. This can be done in two ways:
a. Dividend declaration - It includes identifying the rate of dividends and other benefits like bonus.
b. Retained profits - The volume has to be decided which will depend upon expansional, innovational, diversification plans of the company.
6. Management of cash: Finance manager has to make decisions with regards to cash management. Cash is required for many purposes like payment of wages and salaries, payment of electricity
and water bills, payment to creditors, meeting current liabilities, maintainance of enough stock, purchase of raw materials, etc.
7. Financial controls: The finance manager has not only to plan, procure and utilize the funds but he also has to exercise control over finances. This can be done through many techniques like ratio
analysis, financial forecasting, cost and profit control, etc.

Financial Planning - Definition, Objectives and Importance

Definition of Financial Planning
Financial Planning is the process of estimating the capital required and determining its competition. It is the process of f raming financial policies in relation to procurement, investment and
administration of funds of an enterprise.

Objectives of Financial Planning

Financial Planning has got many objectives to look forward to:

a. Determining capital requirements- This will depend upon factors like cost of current and fixed assets, promotional expenses and long- range planning. Capital requirements
have to be looked with both aspects: short- term and long- term requirements.
b. Determining capital structure- The capital structure is the composition of capital, i.e., the relative kind and proportion of capital required in the business. This includes decisions
of debt- equity ratio- both short-term and long- term.
c. Framing financial policies with regards to cash control, lending, borrowings, etc.
d. A finance manager ensures that the scarce financial resources are maximally utilized in the best possible manner at least cost in order to get maximum returns on
investment.

Importance of Financial Planning

Financial Planning is process of framing objectives, policies, procedures, programmes and budgets regarding the financial activities of a concern. This ensures effective and adequate financial
and investment policies. The importance can be outlined as-

1. Adequate funds have to be ensured.

 2. Financial Planning helps in ensuring a reasonable balance between outflow and inflow of funds so that stability is maintained.
3. Financial Planning ensures that the suppliers of funds are easily investing in companies which exercise financial planning.
4. Financial Planning helps in making growth and expansion programmes which helps in long-run survival of the company.
5. Financial Planning reduces uncertainties with regards to changing market trends which can be faced easily through enough funds.
6. Financial Planning helps in reducing the uncertainties which can be a hindrance to growth of the company. This helps in ensuring stability an d profitability in concern.

Why Financial Innovation can be both a Force for Good and Bad ?

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5. Finance Functions

Finance Functions
The following explanation will help in understanding each finance function in detail

Investment Decision

One of the most important finance functions is to intelligently allocate capital to long term assets. This activity is also known as capital budgeting. It is important to allocate capital in those long
term assets so as to get maximum yield in future. Following are the two aspects of investment decision

a. Evaluation of new investment in terms of profitability

b. Comparison of cut off rate against new investment and prevailing investment.

Since the future is uncertain therefore there are difficulties in calculation of expected return. Along with uncertainty comes the risk factor which has to be taken into consideration. This risk factor
plays a very significant role in calculating the expected return of the prospective investment. Therefore while considering investment proposal it is important to take into consideration both
expected return and the risk involved.

Investment decision not only involves allocating capital to long term assets but also involves decisions of using funds which are obtained by selling those assets which become less profitable
and less productive. It wise decisions to decompose depreciated assets which are not adding value and utilize those funds in securing other beneficial assets. An opportunity cost of capital
needs to be calculating while dissolving such assets. The correct cut off rate is calculated by using this opportunity cost of the required rate of return (RRR)

Financial Decision
Financial decision is yet another important function which a financial manger must perform. It is important to make wise decisions about when, where and how should a business acquire funds.
Funds can be acquired through many ways and channels. Broadly speaking a correct ratio of an equity and debt has to be maintained. This mix of equity capital and debt is known as a firms
capital structure.

A firm tends to benefit most when the market value of a companys share maximizes this not only is a sign of growth for the firm but also maximizes shareholders wealth. On the other hand the
use of debt affects the risk and return of a shareholder. It is more risky though it may increase the return on equity funds.

A sound financial structure is said to be one which aims at maximizing shareholders return with minimum risk. In such a scenario the market value of the firm will maximize and hence an
optimum capital structure would be achieved. Other than equity and debt there are several other tools which are used in deciding a firm capital structure.

Dividend Decision

Earning profit or a positive return is a common aim of all the businesses. But the key function a financial manger performs in case of profitability is to decide whether to distribute all the profits to
the shareholder or retain all the profits or distribute part of the profits to the shareholder and retain the other half in the business.

Its the financial managers responsibility to decide a optimum dividend policy which maximizes the market value of the firm. Hence an optimum dividend payout ratio is calculated. It is a
common practice to pay regular dividends in case of profitability Another way is to issue bonus shares to existing shareholders.

Liquidity Decision
It is very important to maintain a liquidity position of a firm to avoid insolvency. Firms profitability, liquidity and risk all are associated with the investment in current assets. In order to maintain a
tradeoff between profitability and liquidity it is important to invest sufficient funds in current assets. But since current assets do not earn anything for business therefore a proper calculation must
be done before investing in current assets.

Current assets should properly be valued and disposed of from time to time once they become non profitable. Currents assets must be used in times of liquidity problems and times of
insolvency.
1. The Role of the Finance Function in Organizational Processes

The Role of the Finance Function in Organizational Processes

The Finance Function and the Project Office

Contemporary organizations need to practice cost control if they are to survive the recessionary times. Given the fact that many top tier companies are currently mired in low growth and less
activity situations, it is imperative that they control their costs as much as possible. This can happen only when the finance function in these companies is diligent and has a hawk eye towards
the costs being incurred. Apart from this, companies also have to introduce efficiencies in the way their processes operate and this is another role for the finance function in modern day
organizations.

There must be synergies between the various processes and this is where the finance function can play a critical role. Lest one thinks that the finance function, which is essentially a support
function, has to do this all by themselves, it is useful to note that, many contemporary organizations have dedicated project office teams for each division, which perform this function.

In other words, whereas the finance function oversees the organizational processes at a macro level, the project office teams indulge in the same at the micro level. This is the reason why
finance and project budgeting and cost control have assumed significance because after all, companies exist to make profits and finance is the lifeblood that determines whether organizations
are profitable or failures.

The Pension Fund Management and Tax Activities of the Finance Function
The next role of the finance function is in payroll, claims processing, and acting as the repository of pension schemes and gratuity. If the US follow the 401(k) rule and the finance function
manages the defined benefit and defined contribution schemes, in India it is the EPF or the Employee Provident Funds that are managed by the finance function. Of course, only large
organizations have dedicated EPF trusts to take care of these aspects and the norm in most other organizations is to act as facilitators for the EPF scheme with the local or regional PF
(Provident Fund) commissioner.

The third aspect of the role of the finance function is to manage the taxes and their collection at source from the employees. Whereas in the US, TDS or Tax Deduction at Source works
differently from other countries, in India and much of the Western world, it is mandatory for organizations to deduct tax at source from the employees commensurate with their pay and benefits.

The finance function also has to coordinate with the tax authorities and hand out the annual tax statements that form the basis of the employees tax returns. Often, this is a sensitive and critical
process since the tax rules mandate very strict principles for generating the tax statements.

Payroll, Claims Processing, and Automation

We have discussed the pension fund management and the tax deduction. The other role of the finance function is to process payroll and associated benefits in time and in tune with the
regulatory requirements.

Claims made by the employees with respect to medical, and transport allowances have to be processed by the finance function. Often, many organizations automate this routine activity
wherein the use of ERP (Enterprise Resource Planning) software and financial workflow automation software make the job and the task of claims processing easier. Having said that, it must be
remembered that the finance function has to do its due diligence on the claims being submitted to ensure that bogus claims and suspicious activities are found out and stopped. This is the
reason why many organizations have experienced chartered accountants and financial professionals in charge of the finance function so that these aspects can be managed professionally and
in a trustworthy manner.

The key aspect here is that the finance function must be headed by persons of high integrity and trust that the management reposes in them must not be misused. In conclusion, the finance
function though a non-core process in many organizations has come to occupy a place of prominence because of these aspects.
Strategic Financial Management
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What is 'Strategic Financial Management '

Strategic financial management refers to specific planning of the usage and management of a company's financial resources to

attain its objectives as a business concern and return maximum value to shareholders. Strategic financial management involves

precisely defining a company's business objectives, identifying and quantifying its resources, devising a plan for

utilizing finances and other resources to achieve its goals, and establishing procedures for collecting and analyzing data, making

financial decisions, and tracking and analyzing variance between budgeted and actual results to identify problems and take

appropriate corrective actions.

BREAKING DOWN 'Strategic Financial Management '

The term "strategic" essentially refers to financial management that is focused on long-term success.

Financial management involves managing all of a company's assets and liabilities, including monitoring operational financing items

such as expenditures, revenues, accounts receivable and accounts payable, cash flow, and profitability. Strategic financial

management encompasses all of the above, along with ongoing evaluation and planning to keep company focused and on track to

attain short-term and long-term goals with an overarching focus on maximizing the company's profitability and value.

Part of strategic financial management may involve sacrificing or re-adjusting short-term goals in to attain the company's long-term

objectives more efficiently. For example, if a company suffers a net loss for the year, then it may choose to reduce its asset

base through facility closures or staff reductions, thereby decreasing its necessary operating expenses. Taking such steps may

result in restructuring costs or other one-time items that negatively impact the company's finances further in the short term, but they

put the company in a better overall position to move toward its long-term goals.

Elements of Strategic Financial Management

Strategic financial management is applied throughout a company's organizational operations and involves elements designed to

make the maximum efficient use of the company's financial resources. Key elements of strategic financial management include

budgeting, risk management, and review and evaluation.

Careful budgeting of a company's financial resources and operating expenses is essential in strategic financial planning. Budgeting

helps a company function with general financial efficiency, and it aids in identifying areas of the company that incur the largest

amount of operating costs or that regularly exceed budgeted cost. Budgeting includes ensuring sufficient liquidity to cover day-to-
 day operating expenses without accessing outside financial resources. Budgeting also addresses the question of how a company

can invest earnings to achieve long-term goals more effectively.

Strategic financial management also involves risk assessment and risk management, evaluating the potential financial exposure a

company incurs by making capital expenditures (CAPEX) or by instituting certain workplace policies.

Since strategic financial management is all about maintaining focus on attaining a company's long-term business goals, it

necessarily includes developing and putting in place regular procedures for review and evaluation of how well the company is doing

in terms of staying on track.

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Strategic Management
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Strategic management is the management of an organizations resources to achieve its goals and objectives. Strategic

management involves setting objectives, analyzing the competitive environment, analyzing the internal organization, evaluating

strategies and ensuring that management rolls out the strategies across the organization. At its heart, strategic management

involves identifying how the organization stacks up compared to its competitors and recognizing opportunities and threats facing an

organization, whether they come from within the organization or from competitors.

BREAKING DOWN 'Strategic Management'

Strategic management is divided into several schools of thought. A prescriptive approach to strategic management outlines how

strategies should be developed, while a descriptive approach focuses on how strategies should be put into practice. These schools

differ over whether strategies are developed through an analytic process in which all threats and opportunities are accounted for, or

are more like general guiding principles to be applied.

Business culture, the skills and competencies of employees, and organizational structure are important factors that influence how an

organization can achieve its stated objectives. Inflexible companies may find it difficult to succeed in a changing business

environment. Creating a barrier between the development of strategies and their implementation can make it difficult for managers

to determine whether objectives were efficiently met.

Read more: Strategic Financial Management http://www.investopedia.com/terms/s/strategic-financial-management.asp#ixzz4lSzQcQwB
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financial management (fnnl mndmnt)

noun

business

supervision and handling of the financial affairs of an organization

An understanding of why exchange rates move up and down is essential for successful financial management in an international environment.Failure was due mainly to poor
financial management.

Collins English Dictionary. Copyright HarperCollins Publishers

Example sentences containing 'financial management'

Such an understanding is essential for successful financial management in the international environment.Maurice D. Levi INTERNATIONAL FINANCE: THE MARKETS AND FINANCIAL MANAGEMENT OF
MULTINATIONAL BUSINESS. (1983)Of course your objectives in international financial management are still the same.Charles A. D'Ambrosio & Stewart D. Hodges & Richard Brealey & Stewart

Myers PRINCIPLES OF CORPORATE FINANCE (1991)The unique feature of international financial management is that you need to deal with more than one currency.Charles A. D'Ambrosio &
Stewart D. Hodges & Richard Brealey & Stewart Myers PRINCIPLES OF CORPORATE FINANCE (1991)Then we consider international financial management.Charles A. D'Ambrosio & Stewart D. Hodges &
Richard Brealey & Stewart Myers PRINCIPLES OF CORPORATE FINANCE (1991)The administrators refused to divulge details of why the charity collapsed so suddenly, but sources spoke
of poor financial management and a lack of strong leadership.TIMES, SUNDAY TIMES (2015)

Trends of 'financial management'

Financial Management: its Definition, Meaning and

Objectives Discussed!
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Financial Management: its Definition, Meaning and Objectives!

Definition:
One needs money to make money. Finance is the life-blood of business and there must be a continuous flow of funds in and out of a
business enterprise. Money makes the wheels of business run smoothly. Sound plans, efficient production system and excellent marketing
network are all hampered in the absence of an adequate and timely supply of funds.

Sound financial management is as important in business as production and marketing. A business firm requires finance to commence its
operations, to continue operations and for expansion or growth. Finance is, therefore, an important operative function of business.

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A large business firm has to raise funds from several sources and has to utilise those funds in alternative investment opportunities. In order
to ensure the most judicious utilisation of funds and to provide a reasonable rate of return on the investment, sound financial policies and
programmes are required. Unwise financing can drive a business into bankruptcy just as easily as a poor product, inept marketing or high
production costs.

On the other hand, adequate and economical financing can provide the firm a differential advantage in the market place. The success of a
business enterprise is largely determined by the way its capital funds are raised, utilised and disbursed. In the modern money-using
economy, the importance of finance has increased further due to increasing scale of operations and capital intensive techniques of
production and distribution.

In fact, finance is the bright thread running through all business activity. It influences and limits the activities of marketing, production,
purchasing and personnel management. The success of a business is measured largely in financial terms. The efficient organisation and
administration of the finance function is thus vital to the successful functioning of every business enterprise.

Meaning of Financial Management:

Financial management may be defined as planning, organising, directing and controlling the financial activities of an organisation. According
to Guthman and Dougal, financial management means, the activity concerned with the planning, raising, controlling and administering of
funds used in the business. It is concerned with the procurement and utilisation of funds in the proper manner.

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Financial activities deal with not only the procurement and utilisation of funds but also with the assessing of needs for funds, raising required
finance, capital budgeting, distribution of surplus, financial controls, etc.

Ezra Solomon has described the nature of financial management as follows: Financial management is properly viewed as an integral part of
overall management rather than as a staff specially concerned with funds raising operations.

In this broader view, the central issue of financial policy is the wise use of funds and the central process involved is a rational matching of the
advantage of potential uses against the cost of alternative potential sources so as to achieve the broad financial goals which an enterprise
sets for itself.

In addition to raising funds, financial management is directly concerned with production, marketing and other functions within an enterprise
whenever decisions are made about the acquisition or distribution of funds.

Objectives of Financial Management:

Financial management is one of the functional areas of business. Therefore, its objectives must be consistent with the overall objectives of
business. The overall objective of financial management is to provide maximum return to the owners on their investment in the long- term.

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This is known as wealth maximisation. Maximisation of owners wealth is possible when the capital invested initially increases over a period
of time. Wealth maximisation means maximising the market value of investment in shares of the company.

Wealth of shareholders = Number of shares held Market price per share.

In order to maximise wealth, financial management must achieve the following specific objectives:
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(a) To ensure availability of sufficient funds at reasonable cost (liquidity).

(b) To ensure effective utilisation of funds (financial control).

(c) To ensure safety of funds by creating reserves, re-investing profits, etc. (minimisation of risk).

(d) To ensure adequate return on investment (profitability).

(e) To generate and build-up surplus for expansion and growth (growth).

(f) To minimise cost of capital by developing a sound and economical combination of corporate securities (economy).

(g) To coordinate the activities of the finance department with the activities of other departments of the firm (cooperation).

Profit Maximisation:
Very often maximisation of profits is considered to be the main objective of financial management. Profitability is an operational concept that
signifies economic efficiency. Some writers on finance believe that it leads to efficient allocation of resources and optimum use of capital.

It is said that profit maximisation is a simple and straightforward objective. It also ensures the survival and growth of a business firm. But
modern authors on financial management have criticised the goal of profit maximisation.

Ezra Solomon has raised the following objections against the profit maximisation objective:
Objections against the Profit Maximisation Objectives:
(i) The concept is ambiguous or vague. It is amenable to different interpretations, e.g., long run profits, short run profits, volume of profits,
rate of profit, etc.

(ii) It ignores the timing of returns. It is based on the assumption of bigger the better and does not take into account the time value of money.
The value of benefits received today and those received a year later are not the same.

(iii) It ignores the quality of the expected benefits or the risk involved in prospective earnings stream. The streams of benefits may have
varying degrees of uncertainty. Two projects may have same total expected earnings but if the earnings of one fluctuate less widely than
those of the other it will be less risky and more preferable. More uncertain or fluctuating the expected earnings, lower is their quality.

(iv) It does not consider the effect of dividend policy on the market price of the share. The goal of profit maximisation implies maximising
earnings per share which is not necessarily the same as maximising market-price share. According to Solomon, to the extent payment of
dividends can affect the market price of the stock (or share), the maximisation of earnings per share will not be a satisfactory objective by
itself.

(v) Profit maximisation objective does not take into consideration the social responsibilities of business. It ignores the interests of workers,
consumers, government and the public in general. The exclusive attention on profit maximisation may misguide managers to the point where
they may endanger the survival of the firm by ignoring research, executive development and other intangible investments.
Wealth Maximisation:
Prof. Ezra Solomon has advocated wealth maximisation as the goal of financial decision-making. Wealth maximisation or net present worth
maximisation is defined as follows: The gross present worth of a course of action is equal to the capitalised value of the flow of future
expected benefits, discounted (or as capitalised) at a rate which reflects their certainty or uncertainty.

Wealth or net present worth is the difference between gross present worth and the amount of capital investment required to achieve the
benefits being discussed. Any financial action which creates wealth or which has a net present worth above zero is a desirable one and
should be undertaken.

Any financial action which does not meet this test should be rejected. If two or more desirable courses of action are mutually exclusive (i.e., if
only one can be undertaken), then the decision should be to do that which creates most wealth or shows the greatest amount of net present
worth. In short, the operating objective for financial management is to maximise wealth or net present worth.

Wealth maximisation is more operationally viable and valid criterion because of the following reasons:
(a) It is a precise and unambiguous concept. The wealth maximisation means maximising the market value of shares.

(b) It takes into account both the quantity and quality of the expected steam of future benefits. Adjustments are made for risk (uncertainty of
expected returns) and timing (time value of money) by discounting the cash flows,

(c) As a decision criterion, wealth maximisation involves a comparison of value of cost. It is a long-term strategy emphasising the use of
resources to yield economic values higher than joint values of inputs.

(d) Wealth maximisation is not in conflict with the other motives like maximisation of sales or market share. It rather helps in the achievement
of these other objectives. In fact, achievement of wealth maximisation also maximises the achievement of the other objectives. Therefore,
maximisation of wealth is the operating objective by which financial decisions should be guided.

The above description reveals that wealth maximisation is more useful if objective than profit maximisation. It views profits from the long-term
perspective. The true index of the value of a firm is the market price of its shares as it reflects the influence of all such factors as earnings per
share, timing of earnings, risk involved, etc.

Thus, the wealth maximisation objective implies that the objective of financial management should be to maximise the market price of the
companys shares in the long-term. It is a true indicator of the companys progress and the shareholders wealth.

However, profit maximisation can be part of a wealth maximisation strategy. Quite often the two objectives can be pursued simultaneously
but the maximisation of profits should never be permitted to overshadow the broader objectives of wealth maximisation.

What is Financial Management? Meaning Definition Scope Articles

Post: Gaurav Akrani. Date: 9/21/2011. Comments (3). Label: Finance, Management.

What is Financial Management? Meaning

The financial management means:

To collect finance for the company at a low cost and

To use this collected finance for earning maximum profits.

Thus, financial management means to plan and control the finance of the company. It is done to achieve
the objectives of the company.

Image credits Shyam.

Definition of Financial Management

According to Dr. S. N. Maheshwari,

"Financial management is concerned with raising financial resources and their effective utilisation
towards achieving the organisational goals."

According to Richard A. Brealey,

"Financial management is the process of putting the available funds to the best advantage from the long
term point of view of business objectives."
 Scope of Financial Management

Financial management has a wide scope. According to Dr. S. C. Saxena, the scope of financial
management includes the following five A's.

Anticipation: Financial management estimates the financial needs of the company. That is, it finds out
how much finance is required by the company.

Acquisition: It collects finance for the company from different sources.

Allocation: It uses this collected finance to purchase fixed and current assets for the company.

Appropriation: It divides the company's profits among the shareholders, debenture holders, etc. It keeps
a part of the profits as reserves.

Assessment: It also controls all the financial activities of the company. Financial management is the most
important functional area of management. All other functional areas such as production management,
marketing management, personnel management, etc. depends on Financial management. Efficient
financial management is required for survival, growth and success of the company or firm.

Articles on Financial Management

Articles on objectives and functions of financial management:

Objectives of financial management.

Functions of financial management.

Executive and Routine Functions of Financial Management

Post: Gaurav Akrani. Date: 9/21/2011. No Comments. Label: Finance, Management.

Functions of financial management

Functions of financial management can be broadly divided into two groups:

Image credits Sameer Akrani.

Executive functions of financial management, and

Routine functions of financial management.

Following image depicts eight executive functions of financial management.

Image credits Sameer Akrani.

Estimating capital requirements,

Determining capital structure,

Estimating cash flow,

Investment decisions,

Allocation of surplus,

Deciding additional finance,

Negotiating for additional finance and

Checking the financial performance.

These executive functions of financial management (FM) are explained below.

Estimating capital requirements : The company must estimate its capital requirements (needs) very
carefully. This must be done at the promotion stage. The company must estimate its fixed capital needs
and working capital need. If not, the company will become over-capitalized or under-capitalized.

Determining capital structure : Capital structure is the ratio between owned capital and borrowed
capital. There must be a balance between owned capital and borrowed capital. If the company has too
much owned capital, then the shareholders will get fewer dividends. Whereas, if the company has too
much of borrowed capital, it has to pay a lot of interest. It also has to repay the borrowed capital after
some time. So the finance managers must prepare a balanced capital structure.
Estimating cash flow : Cash flow refers to the cash which comes in and the cash which goes out of
the business. The cash comes in mostly from sales. The cash goes out for business expenses. So, the
finance manager must estimate the future sales of the business. This is called Sales forecasting. He also
has to estimate the future business expenses.

Investment Decisions : The business gets cash, mainly from sales. It also gets cash from other sources. It
gets long-term cash from equity shares, debentures, term loans from financial institutions, etc. It gets
short-term loans from banks, fixed deposits, dealer deposits, etc. The finance manager must invest the
cash properly. Long-term cash must be used for purchasing fixed assets. Short-term cash must be used
as a working capital.

Allocation of surplus : Surplus means profits earned by the company. When the company has a surplus,
it has three options, viz.,

It can pay dividend to shareholders.

It can save the surplus. That is, it can have retained earnings.

It can give bonus to the employees.

Deciding additional finance : Sometimes, a company needs additional finance for modernization,
expansion, diversification, etc. The finance manager has to decide on following questions.

When the additional finance will be needed?

For how long will this finance be needed?

From which sources to collect this finance?

How to repay this finance?

Additional finance can be collected from shares, debentures, loans from financial institutions, fixed
deposits from public, etc.

Negotiating for additional finance : The finance manager has to negotiate for additional finance. That is,
he has to speak to many bank managers. He has to persuade and convince them to give loans to his
company. There are two types of loans, viz., short-term loans and long-term loans. It is easy to get short-
term loans from banks. However, it is very difficult to get long-term loans.

Checking the financial performance : The finance manager has to check the financial performance of the
company. This is a very important finance function. It must be done regularly. This will improve the
financial performance of the company. Investors will invest their money in the company only if the
financial performance is good. The finance manager must compare the financial performance of the
company with the established standards. He must find ways for improving the financial performance of
the company.

The routine functions are also called as Incidental Functions.

Routine functions are clerical functions. They help to perform the Executive functions of financial
management.

The six routine functions of financial management are listed below.

Image credits Sameer Akrani.

Supervision of cash receipts and payments.

Safeguarding of cash balances.

Safeguarding of securities, insurance policies and other valuable papers.

Taking proper care of mechanical details of financing.

Record keeping and reporting.

Credit Management.
Objectives of Financial Management

Post: Gaurav Akrani. Date: 9/20/2011. No Comments. Label: Finance, Management.

Objectives of Financial Management

The objectives of financial management are depicted and discussed below.

Image Credits Sameer Akrani.

The main objectives of financial management are:-

Profit maximization : The main objective of financial management is profit maximization. The finance
manager tries to earn maximum profits for the company in the short-term and the long-term. He cannot
guarantee profits in the long term because of business uncertainties. However, a company can earn
maximum profits even in the long-term, if:-

The Finance manager takes proper financial decisions.

He uses the finance of the company properly.

Wealth maximization : Wealth maximization (shareholders' value maximization) is also a main objective
of financial management. Wealth maximization means to earn maximum wealth for the shareholders.
So, the finance manager tries to give a maximum dividend to the shareholders. He also tries to increase
the market value of the shares. The market value of the shares is directly related to the performance of
the company. Better the performance, higher is the market value of shares and vice-versa. So, the
finance manager must try to maximise shareholder's value.

Proper estimation of total financial requirements : Proper estimation of total financial requirements is a
very important objective of financial management. The finance manager must estimate the total
financial requirements of the company. He must find out how much finance is required to start and run
the company. He must find out the fixed capital and working capital requirements of the company. His
estimation must be correct. If not, there will be shortage or surplus of finance. Estimating the financial
requirements is a very difficult job. The finance manager must consider many factors, such as the type of
technology used by company, number of employees employed, scale of operations, legal requirements,
etc.

Proper mobilisation : Mobilisation (collection) of finance is an important objective of financial

management. After estimating the financial requirements, the finance manager must decide about the
sources of finance. He can collect finance from many sources such as shares, debentures, bank loans,
etc. There must be a proper balance between owned finance and borrowed finance. The company must
borrow money at a low rate of interest.

Proper utilisation of finance : Proper utilisation of finance is an important objective of financial

management. The finance manager must make optimum utilisation of finance. He must use the finance
profitable. He must not waste the finance of the company. He must not invest the company's finance in
unprofitable projects. He must not block the company's finance in inventories. He must have a short
credit period.

Maintaining proper cash flow : Maintaining proper cash flow is a short-term objective of financial
management. The company must have a proper cash flow to pay the day-to-day expenses such as
purchase of raw materials, payment of wages and salaries, rent, electricity bills, etc. If the company has
a good cash flow, it can take advantage of many opportunities such as getting cash discounts on
purchases, large-scale purchasing, giving credit to customers, etc. A healthy cash flow improves the
chances of survival and success of the company.

Survival of company : Survival is the most important objective of financial management. The company
must survive in this competitive business world. The finance manager must be very careful while making
financial decisions. One wrong decision can make the company sick, and it will close down.

Creating reserves : One of the objectives of financial management is to create reserves. The company
must not distribute the full profit as a dividend to the shareholders. It must keep a part of it profit as
reserves. Reserves can be used for future growth and expansion. It can also be used to face
contingencies in the future.
Proper coordination : Financial management must try to have proper coordination between the finance
department and other departments of the company.

Create goodwill : Financial management must try to create goodwill for the company. It must improve
the image and reputation of the company. Goodwill helps the company to survive in the short-term and
succeed in the long-term. It also helps the company during bad times.

Increase efficiency : Financial management also tries to increase the efficiency of all the departments of
the company. Proper distribution of finance to all the departments will increase the efficiency of the
entire company.

Financial discipline : Financial management also tries to create a financial discipline. Financial discipline
means:-

To invest finance only in productive areas. This will bring high returns (profits) to the company.

To avoid wastage and misuse of finance.

Reduce cost of capital : Financial management tries to reduce the cost of capital. That is, it tries to
borrow money at a low rate of interest. The finance manager must plan the capital structure in such a
way that the cost of capital it minimised.

Reduce operating risks : Financial management also tries to reduce the operating risks. There are many
risks and uncertainties in a business. The finance manager must take steps to reduce these risks. He
must avoid high-risk projects. He must also take proper insurance.

Prepare capital structure : Financial management also prepares the capital structure. It decides the ratio
between owned finance and borrowed finance. It brings a proper balance between the different sources
of. capital. This balance is necessary for liquidity, economy, flexibility and stability.
 financial management

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noun
Financial management is defined as dealing with and analyzing money and investments for a person or a business to help make business decisions.

An example of financial management is the work done by an accounting department for a company.
YourDictionary definition and usage example. Copyright 2017 by LoveToKnow Corp

Read more at http://www.yourdictionary.com/financial-management#ad9ey4TO9fG5fTzL.99

DEFINITION

financial management system

This definition is part of our Essential Guide: A guide to using Excel as financial accounting software

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A financial management system is the methodology and software that an organization uses to oversee and

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An effective financial management system improves short- and long-term business performance by

streamlining invoicing and bill collection, eliminating accounting errors, minimizing record-keeping redundancy,

ensuring compliance with tax and accounting regulations, helping personnel to quantify budget planning, and

offering flexibility and expandability to accommodate change and growth.

Other significant features of a good financial management system include:

Keeping all payments and receivables transparent.

Amortizing prepaid expenses.

Depreciating assets according to accepted schedules.

Keeping track of liabilities.

Coordinating income statements, expense statements, and balance sheets.

Balancing multiple bank accounts.

Ensuring data integrity and security.

Keeping all records up to date.

Maintaining a complete and accurate audit trail.

Minimizing overall paperwork.

 ERP financial management software should include features that support creation of ad hoc reporting as well

as month-end closing, quarter closings and year-end reporting.

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8 Functions of a Financial Manager (Management)
Article shared by

Some of the major functions of a financial manager are as follows: 1. Estimating the Amount of Capital Required 2.
Determining Capital Structure 3. Choice of Sources of Funds 4. Procurement of Funds 5. Utilisation of Funds 6. Disposal of
Profits or Surplus 7. Management of Cash 8. Financial Control.

Financial Manager is the executive who manages the financial matters of a business.

The functions of Financial Manager are discussed below:

1. Estimating the Amount of Capital Required:

This is the foremost function of the financial manager. Business firms require capital for:

ADVERTISEMENTS:

(i) purchase of fixed assets,

(ii) meeting working capital requirements, and

(iii) modernisation and expansion of business.

ADVERTISEMENTS:

The financial manager makes estimates of funds required for both short-term and long-term.

2. Determining Capital Structure:

Once the requirement of capital funds has been determined, a decision regarding the kind and proportion of various sources
of funds has to be taken. For this, financial manager has to determine the proper mix of equity and debt and short-term and
long-term debt ratio. This is done to achieve minimum cost of capital and maximise shareholders wealth.

3. Choice of Sources of Funds:

Before the actual procurement of funds, the finance manager has to decide the sources from which the funds are to be
raised. The management can raise finance from various sources like equity shareholders, preference shareholders,
debenture- holders, banks and other financial institutions, public deposits, etc.
4. Procurement of Funds:
The financial manager takes steps to procure the funds required for the business. It might require negotiation with creditors
and financial institutions, issue of prospectus, etc. The procurement of funds is dependent not only upon cost of raising
funds but also on other factors like general market conditions, choice of investors, government policy, etc.

5. Utilisation of Funds:
The funds procured by the financial manager are to be prudently invested in various assets so as to maximise the return on
investment: While taking investment decisions, management should be guided by three important principles, viz., safety,
profitability, and liquidity.

6. Disposal of Profits or Surplus:

The financial manager has to decide how much to retain for ploughing back and how much to distribute as dividend to
shareholders out of the profits of the company. The factors which influence these decisions include the trend of earnings of
the company, the trend of the market price of its shares, the requirements of funds for self- financing the future programmes
and so on.

7. Management of Cash:
Management of cash and other current assets is an important task of financial manager. It involves forecasting the cash
inflows and outflows to ensure that there is neither shortage nor surplus of cash with the firm. Sufficient funds must be
available for purchase of materials, payment of wages and meeting day-to-day expenses.

8. Financial Control:
Evaluation of financial performance is also an important function of financial manager. The overall measure of evaluation is
Return on Investment (ROI). The other techniques of financial control and evaluation include budgetary control, cost control,
internal audit, break-even analysis and ratio analysis. The financial manager must lay emphasis on financial planning as
well.
Home

Financial Management

Functions of Financial Management

The functions of financial management are guided by the ultimate aim of any business i.e. profit and wealth maximization. If we broadly classify the functions of a finance head of the business, it can be the
procurement of funds and utilization of funds. The objective underlying the function of procurement of funds is to minimize the cost of funds whereas the objective behind the utilization of funds is to maximize
the returns.
Following is a diagrammatic representation of the Functions of Finance. Extracted from Prasath Saravana B, Padhukas Students Handbook on Cost Accounting And Financial Management.
PROCUREMENT/SOURCING OF FUNDS
ASSESSING THE REQUIREMENT OF FUNDS
The function of procurement of funds starts from estimating the requirement of funds. It involves a lot of forecasting exercises to identify each and every future requirement of the project and find o

ut the sum required for investment in fixed assets and working capital. Not only the quantum of a
requirement is enough, the finance manager has also to decide the timing of that requirement. The timing of funds is very important in financial management because it carries time value of money and we know a
dollar today is the same as a dollar 1 year later.
FINANCING DECISIONS/CAPITAL STRUCTURE DECISIONS
Once a reasonable estimate of funds is charted out, the capital structure decisions would finalize two things viz. a) the mix of long-term finance and short term finance 2) the mix of own funds and debt funds.
Longs term funds are normally used to finance long-term requirements such as fixed assets, other long-term investments and a part of working capital that remains permanently invested at any point of time.
UTILIZATION/APPLICATION OF FUNDS

WORKING CAPITAL MANAGEMENT DECISIONS:

Working capital management is a very important day to day activity for a finance manager. It spreads over both the broader functions i.e. procurement as well as utilization of funds. It mainly involves
management of current assets and current liabilities and keeps the gap between two managed as per the available funds with the organization. Cash management is a big task in working capital management. The
finance manager has to ensure that all the branches, units etc has the sufficient cash to address the necessary expenses. The smoother the management of cash, the smoother is the flow of operations of the
business.

DIVIDEND DECISIONS:
Dividend decisions mainly involve taking decisions in relation to the payment of dividend to the shareholders. The main concerns to handle is to decide the dividend payout ratio which is dependent on a lot of
things like requirement of funds to the company in their projects, the comparison of returns expected in companys projects and the return available to the shareholder in the normal market, stability of the
dividend payment, market expectations, trend of earnings, tax considerations to the shareholders etc.
INVESTMENT DECISIONS/CAPITAL BUDGETING
Investment decisions involve utilization/application of funds in the right mix of projects and fixed assets to maximize the returns for the organization. There are various techniques used like Net Present
Value, Internal Rate of Return, and Payback Period etc.
FINANCIAL ANALYSIS/PERFORMANCE APPRAISAL
The financial analysis is neither included in the functions of the finance but it is necessary to evaluate all the functions of finance which are performed. This evaluation results in the findings for improvements etc.
Performance appraisal assesses the effectiveness of procurement of funds and their respective utilization.

There are other functions like dealing with day to day transactions and negotiating with the creditors, debtors, bankers etc.

SHARE THIS:
 Financial managers ensure the financial health of an organization through investment activities and long-
term financing strategies.
LEARNING OBJECTIVE

Outline the various roles played by financial managers

KEY POINTS

Financial managers perform data analysis and advise senior managers on profit-maximizing ideas.
The role of the financial manager, particularly in business, is changing in response to technological advances that have significantly reduced the amount of
time it takes to produce financial reports.

Types of financial managers include controllers, treasurers, credit managers, cash managers, risk managers and insurance managers.

TERM

net present value

The present value of a project or an investment decision determined by summing the discounted incoming and outgoing future cash flows resulting from the
decision.
FULL TEXT

The Role of Financial Managers

Overview
Financial managers perform data analysis and advise senior managers on profit-maximizing ideas. Financial managers are responsible for

the financial health of an organization. They produce financial reports, direct investment activities, and develop strategies and plans for the

long-term financial goals of their organization. Financial managers typically:

Prepare financial statements, business activity reports, and forecasts,

Monitor financial details to ensure that legal requirements are met,

Supervise employees who do financial reporting and budgeting,

Review company financial reports and seek ways to reduce costs,

Analyze market trends to find opportunities for expansion or for acquiring other companies,

Help management make financial decisions.

The role of the financial manager, particularly in business, is changing in response to technological advances that have significantly reduced

the amount of time it takes to produce financial reports. Financial managers' main responsibility used to be monitoring a company's finances,

but they now do more data analysis and advise senior managers on ideas to maximize profits. They often work on teams, acting as business

advisors to top executives.

Financial Statements

This is an example of a financial statement that financial managers are responsible for preparing and interpreting.

Financial managers also do tasks that are specific to their organization or industry. For example, government financial managers must be

experts on government appropriations and budgeting processes, and healthcare financial managers must know about issues in healthcare

finance. Moreover, financial managers must be aware of special tax laws and regulations that affect their industry.

Capital Investment Decisions

Capital investment decisions are long-term corporate finance decisions relating to fixed assets and capital structure. Decisions are based on

several inter-related criteria. Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net

present value when valued using an appropriate discount rate in consideration of risk. These projects must also be financed appropriately. If no

such opportunities exist, maximizing shareholder value dictates that management must return excess cash to shareholders

(i.e., distribution via dividends). Capital investment decisions thus comprise an investment decision, a financing decision, and a dividend

decision.

Management must allocate limited resources between competing opportunities (projects) in a process known as capital budgeting. Making

this investment decision requires estimating the value of each opportunity or project, which is a function of the size, timing and predictability

of future cash flows.

Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. The sources of financing are,

generically, capital self-generated by the firm and capital from external funders, obtained by issuing new debt or equity.

Types of Financial Managers

There are distinct types of financial managers, each focusing on a particular area of management.
Controllers direct the preparation of financial reports that summarize and forecast the organization's financial position, such as income

statements, balance sheets, and analyses of future earnings or expenses. Controllers also are in charge of preparing special reports required by

governmental agencies that regulate businesses. Often, controllers oversee the accounting, audit, and budget departments. Treasurers and

finance officers direct their organization's budgets to meet its financial goals and oversee the investment of funds. They carry out strategies to

raise capital and also develop financial plans for mergers and acquisitions.

Credit managers oversee the firm's credit business. They set credit-rating criteria, determine credit ceilings, and monitor the collections of

past-due accounts. Cash managers monitor and control the flow of cash that comes in and goes out of the company to meet the company's

business and investment needs. Risk managers control financial risk by using hedging and other strategies to limit or offset the probability of

a financial loss or a company's exposure to financial uncertainty. Insurance managers decide how best to limit a company's losses by

obtaining insurance against risks such as the need to make disability payments for an employee who gets hurt on the job or costs imposed by a

lawsuit against the company.

Important Skills for Financial Managers

Analytical skills. Financial managers increasingly assist executives in making decisions that affect the organization, a task for which they need

analytical ability.

Communication. Excellent communication skills are essential because financial managers must explain and justify complex financial

transactions.

Attention to detail. In preparing and analyzing reports such as balance sheets and income statements, financial managers must pay attention to

detail.

Math skills. Financial managers must be skilled in math, including algebra. An understanding of international finance and complex financial

documents also is important.

Organizational skills. Financial managers deal with a range of information and documents. They must stay organized to do their jobs

effectively.
Managing finances is at the root of all major business decisions and the role of a financial
manager is crucial to the success of any type of organisation
A financial manager is responsible for providing financial guidance and support to clients and
colleagues so they can make sound business decisions.
As a financial manager, you will need a good head for figures and for dealing with complex
modelling and analysis, as well as a sound grasp of financial systems and procedures.
You may be employed in many different environments including both public and private sector
organisations, such as:

charities
financial institutions
general businesses
manufacturing companies
multinational corporations
NHS trusts
retailers
universities.

Clear budgetary planning is essential for both the short and long term, and companies need to
know the financial implications of any decision before proceeding.
In addition, care must be taken to ensure that financial practices are in line with all statutory
legislation and regulations.
Financial managers may also be known as financial analysts or business analysts.
Responsibilities
The roles of financial managers can vary enormously. In larger companies for instance, the role
is more concerned with strategic analysis, while in smaller organisations, a financial manager
may be responsible for the collection and preparation of accounts.
In general, tasks across roles may include:

providing and interpreting financial information

monitoring and interpreting cash flows and predicting future trends
analysing change and advising accordingly
formulating strategic and long-term business plans
researching and reporting on factors influencing business performance
analysing competitors and market trends
developing financial management mechanisms that minimise financial risk
conducting reviews and evaluations for cost-reduction opportunities
managing a company's financial accounting, monitoring and reporting systems
liaising with auditors to ensure annual monitoring is carried out
developing external relationships with appropriate contacts, e.g. auditors, solicitors, bankers
and statutory organisations such as the Inland Revenue
producing accurate financial reports to specific deadlines
managing budgets
arranging new sources of finance for a company's debt facilities
 supervising staff
keeping abreast of changes in financial regulations and legislation.

Salary

You can expect starting salaries in the region of 24,000 to 35,000. Average starting salaries in
the banking and finance sector can be as high as 35,000, rising to 45,000 in the investment
banking sector.
Typical salaries for newly qualified accountants in public service and not-for-profit agencies are
between 35,000 and 40,000.
Salaries for experienced financial managers (ten years plus) in commerce and industry can range
from 65,000 to 100,000+.

Some companies may pay higher salaries while others offer a lower basic pay with additional
high bonuses.
Salaries vary widely according to the type, sector, size and location of the employing
organisation. The highest salaries tend to be in London and the surrounding areas. The private
sector, most notably the banking and capital markets sector and particularly organisations based
in the City, pays more than the public sector.
Income figures are intended as a guide only.
Working hours
Working hours are generally 9am to 5pm, five days a week, with some flexibility possible.
However, longer hours may be required depending on current deadlines and workload. Jobs
within the City in particular can be highly pressured with long working hours. During the early
years of your career, if undertaking professional study, you will need to factor extra working
hours into your official working day.
What to expect

It is common for employers to provide financial support for professional study, as well as study
leave.
Jobs are available in most areas of the country, with the majority being in or near large towns
and cities.
Self-employment is possible. Finance professionals sometimes work as consultants, but usually
only after gaining significant experience.
Career breaks are possible but, as with any profession, if you are considering re-entry you must
keep up to date with developments.
Travel for work is likely, particularly if the company operates from a number of different sites,
with overnight stays or periods away from home sometimes required.
Opportunities to travel and work abroad will depend on the size and nature of the organisation,
its clients or customers, and whether it has overseas sites or international links.

Related case studies

 Leanne Crook
Financial manager

Qualifications
Although this area of work is open to all graduates, the following subjects may be particularly
helpful and may entitle you to exemptions from some professional examinations:

accountancy and finance

business
economics
management
mathematics
statistics.

A relevant postgraduate course may be useful, but is not essential. In certain niche areas,
specialised knowledge gained through a postgraduate programme may give you a competitive
advantage. Graduate schemes in finance and related areas almost always require further study for
professional qualifications. Search for postgraduate courses in financial management.
Entry into the profession is possible with A-levels (or equivalent) or an HND or HNC, generally
by studying with an institutions such as the:

Association of Chartered Certified Accountants (ACCA)

Institute of Financial Accountants (IFA)

You can then proceed to professional accountancy training and work your way up to a
management position. For more information see the Financial Skills Partnership (FSP) as well as
ACCA and IFA.
Gaining membership with a professional organisation is useful as it shows your interest and
commitment to the sector. Registration with professional bodies is open to individuals with A-
levels (or equivalent) or above, such as an HND or HNC, so you do not have to wait until you
have graduated to join.
A variety of organisations offering finance graduate-training schemes, as well as accountancy
professional bodies, hold presentations on campus and have stands at careers fairs where you can
talk to representatives and recent graduate trainees in order to get an insight into the nature of the
work and tips on what helped them to succeed.
Skills
You will need to show evidence of the following:

commercial and business awareness

excellent communication and presentation skills
an analytical approach to work
high numeracy and sound technical skills
 problem-solving skills and initiative
negotiation skills and the ability to influence others
strong attention to detail and an investigative nature
the ability to balance the demands of work with study commitments
good time management skills and the ability to prioritise
the ability to work as part of a team and to build strong working relationships
the capacity to make quick but rational decisions
the potential to lead and motivate others
good IT skills.

Work experience
Relevant work experience can be valuable and there are many opportunities available. Some
employers run vacation placements or short, work experience taster courses. You should apply as
early as possible as competition can be strong.
Professional accountancy bodies also produce vacancy publications with details of traineeships.
Many employers offer industrial placement years, which can be taken as part of a sandwich
degree. Your university careers service and course tutors should be able to offer you support with
finding these. It is worth approaching organisations directly for work experience even if they
have not advertised placements.
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Employers
Financial managers work in a variety of organisations, throughout all sectors of business,
industry and commerce. Some may begin their training in firms of chartered or certified
accountants, while others train in the public sector in a range of settings, such as:

charities
health authorities
local government
other public organisations
universities and colleges.

Other financial managers work in a range of industrial and commercial companies, including:

banks, building societies and insurance companies

fast-moving consumer goods (FMCG) industries
IT companies
manufacturing and service industries
media
public utilities
retail.

Financial managers may be employed by small to medium-sized enterprises (SMEs), where they
may be responsible for a wider range of activities.
Self-employment is also possible, as a consultant providing financial advice to a range of
businesses. This is usually only possible with a significant amount of experience.
Look for job vacancies at:

ACCA Careers
Chartered Accountants Ireland
CIMA My Jobs
CIPFA Recruitment Services
Exec-appointments
ICAEW Jobs
Institute of Chartered Accountants of Scotland (ICAS)

Appointments are increasingly being handled by recruitment agencies, which frequently

advertise in professional journals and newspapers. When searching for vacancies, look at the job
description rather than just the job title as this can vary across companies.
The finance and accountancy sector is influenced by the economic climate and so when there is a
period of economic downturn it will have a detrimental effect on the sector. This can mean that
firms reduce their levels of recruitment and competition for jobs can be fierce. In these situations
it may be useful to consider jobs with smaller accountancy firms and other SMEs, rather than
focusing on the large organisations that offer graduate schemes and attract a lot of applications.
Professional development
Most financial managers are qualified, or partly qualified, accountants. To become qualified, you
need to pass or be exempt from a series of professional examinations and undergo a period of
practical training.
Professional accountancy training is mostly on the job, and you will study for your examinations
on a part-time basis. Employers usually support this activity and may help to fund the studies.
You may follow a structured graduate training scheme, which will give exposure to a range of
different functions. This will enable you to move into a financial management role at a later date.
You may also be asked to complete a training log or portfolio to show evidence of your training
and experience.
Structured graduate training schemes are offered in large companies and in the public sector,
although some financial managers gain their initial training in accountancy firms.
There are various chartered accountancy bodies in the UK which offer professional
examinations. Check their websites for details of syllabuses, practical experience requirements
and exemptions from professional examinations. Relevant bodies include:

Association of Chartered Certified Accountants (ACCA)

Chartered Accountants Ireland
Chartered Institute of Management Accountants (CIMA)
Chartered Institute of Public Finance & Accountancy (CIPFA)
Institute of Chartered Accountants in England and Wales (ICAEW)
Institute of Chartered Accountants of Scotland (ICAS)

Which professional qualification to study towards is likely to be determined by your employer so

it is important to find out in advance which qualifications are supported by them, as well as the
level of financial support, tuition and study leave provided.
Career prospects
Most financial managers start their career at a lower level and undertake professional
accountancy qualifications, usually with the:

ACCA
CIMA
CIPFA.

You may then move into the role of financial manager in the latter stages of your training or you
may take up the role afterwards, once you have built up some experience.
The expertise offered by a financial manager is extremely transferable. Although training may
have taken place in an engineering company for example, the knowledge and skills gained can be
applied in any other environment across industry or commerce.
Many financial managers use their knowledge of a company to move out of finance and into a
more general management role such as HR manager. Others decide to specialise in one industry,
such as education.
Depending on experience, some move on to the role of finance director or managing director.
Knowledge about the day-to-day running of a company is essential in these roles.
However, moving from one role to another within an organisation, either related or unrelated to
finance, may still require you to undertake further professional training. Fellowship can be
awarded after specific periods of time in service with professional bodies such as ACCA and
CIMA. This can help to show you have reached a certain level and can aid career progression.
Financial management offers good opportunities to work overseas. Professional qualifications
from the major UK accountancy bodies are widely recognised by countries around the world.

Written by AGCAS editors

December 2016
Copyright AGCAS & Graduate Prospects Ltd Disclaimer
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Financial manager
 What Are the Duties of Financial Managers?
by Aurelio Locsin

Related Articles
1What Are the Duties of a Finance Assistant?

2What Types of Skills Are Required to Be a Financial Manager?

3The Difference Between Accountants and Financial Managers

4Finance Job Skills

A sole proprietor might be able to handle the financial end of his shop all by himself but as a business gets bigger, it typically need a manager to be in charge of money matters. Financial managers help decision-

makers with their financial decisions so that their businesses continue to turn a profit and minimize costs.
Basics

Financial managers control an organization's assets, including its investments and cash, to maximize their efficient use. They analyze sales, expenses and economic trends to prepare financial reports and forecasts.

They can then use this information to advise top executives on how to generate wealth and maintain market positioning. Their tasks are often specific to industries or organizations. For example, those in hospitals

must know about how costs are affected by insurance claims, and how government health-care regulations can change medical procedures and expenses. Most receive their technical skills by working several

years in financial occupations such as accountant, auditor or financial analyst.

Titles

Financial manager duties vary by their job titles. Controllers are in charge of an organizations accounting operations, including the production of financial reports. Treasurers handle the budgets and find ways to

raise capital. Cash managers ensure that their organizations have enough money to meet daily and future obligations, while credit managers determine what criteria to judge credit applicants and procedures for

collecting overdue accounts. Insurance managers advise management of any potential hazards to an organization, such as worker safety, and prepare for those potential problems by buying enough insurance.

People

A financial manager can only perform his tasks with the help of professionals such as accountants and financial analysts. He must hire and train his subordinates. He can reward top performers with salary

increases and promotions, or fire those who do not live up to expectations. Good leadership skills are needed to motivate his workers, so he can spend more time on strategic planning and analysis, rather on the

technical nuts and bolts of creating charts and balancing accounts. The ability to communicate well in writing and verbally is essential so he can transmit information about the companys financial health to its top

managers and employees.

Careers

Financial managers need a minimum of a bachelors degree in finance, accounting, economics or business administration, and five years of increasingly responsible experience in a technical profession such as

loan officer or securities sales agent. Many have a masters degree and certification as a Chartered Financial Analyst. As of May 2011, they earned a mean $120,450 per year, or $57.91 per hour, according to the

Bureau of Labor Statistics, although compensation went over $187,199 yearly, or $90 hourly, for the top earners. Most worked for depository credit intermediation, which included banks, to average an annual

$100,440, or $48.29 per hour. The highest pay was in securities and commodity exchanges at a mean $184,510 per year, or $88.71 hourly.
IMPORTANT FUNCTIONS OF THE FINANCIAL MANAGER:
The important function of the financial manager in a modern business consistsof the following:
1.Provision of capital: To establish and execute programmes for theprovision of capital required by the business.
2.Investor relations: to establish and maintain an adequate market for thecompany securities and to maintain adequate liaison with investmentbankers, financial analysis and
share holders.
3.Short term financing: To maintain adequate sources for companyscurrent borrowing from commercial banks and other lending institutions.
4.Banking and Custody: To maintain banking arrangement, to receive, hascustody of accounts.
5.Credit and collections: to direct the granting of credit and the collectionof accounts due to the company including the supervision of requiredarrangements for financing sales
such as time payment and leasingplans.
6.Investments: to achieve the companys funds as required and toestablish and co-ordinate policies for investment in pension and othersimilar trusts.
7.Insurance: to provide insurance coverage as required.
8.Planning for control: To establish, co-ordinate and administer anadequate plan for the control of operations.
9.Reporting and interpreting: To compare information with operating plansand standards and to report and interpret the results of operations to alllevels of management and to
the owners of the business.
10. Evaluating and consulting: To consult with all the segments of management responsible for policy or action concerning any phase of the operation of the business as it relates
to the attainment of objectives and the effectiveness of policies, organization structure andprocedures.
11. Tax administration: to establish and administer tax policies andprocedures.
12. Government reporting: To supervise or co-ordinate the preparation of reports to government agencies.
13. Protection of assets: To ensure protection of assets for the businessthrough internal control, internal auditing and proper insurancecoverage.

Also known as: Lending Manager, Insurance Manager, Cash Manager, Credit Manager, Finance Officer.

Table of Contents
1. What is a Financial Manager?
2. What does a Financial Manager do?
3. What is the workplace of a Financial Manager like?
4. Videos
5. Similar Careers
6. Collections
7. Comments

Financial managers are responsible for the financial health of an organization. They produce
financial reports, direct investment activities, and develop strategies and plans for the long-term
financial goals of their organization. Financial managers work in many places, including banks
and insurance companies.

Financial managers increasingly assist executives in making decisions that affect the
organization, a task for which they need analytical ability and excellent communication skills.

What does a Financial Manager do?

The role of the financial manager, particularly in business, is changing in response to

technological advances that have significantly reduced the amount of time it takes to produce
financial reports. Financial managers main responsibility used to be monitoring a companys
finances, but they now do more data analysis and advise senior managers on ideas to maximize
profits. They often work on teams, acting as business advisors to top executives. Financial
managers typically do the following:

Prepare financial statements, business activity reports, and forecasts

Monitor financial details to ensure that legal requirements are met
Supervise employees who do financial reporting and budgeting
Review company financial reports and seek ways to reduce costs
Analyze market trends to find opportunities for expansion or for acquiring other companies
 Help management make financial decisions

Financial managers also do tasks that are specific to their organization or industry. For example,
government financial managers must be experts on government appropriations and budgeting
processes, and healthcare financial managers must know about issues in healthcare finance.
Moreover, financial managers must be aware of special tax laws and regulations that affect their
industry.

The following are examples of types of financial managers:

Controllers direct the preparation of financial reports that summarize and forecast the
organization's financial position, such as income statements, balance sheets, and analyses
of future earnings or expenses. Controllers also are in charge of preparing special reports
required by governmental agencies that regulate businesses. Often, controllers oversee
the accounting, audit, and budget departments.
Treasurers and finance officers direct their organization's budgets to meet its financial
goals. They oversee the investment of funds. They carry out strategies to raise capital
(such as issuing stocks or bonds) to support the firm's expansion. They also develop
financial plans for mergers (two companies joining together) and acquisitions (one
company buying another).
Credit managers oversee the firm's credit business. They set credit-rating criteria,
determine credit ceilings, and monitor the collections of past-due accounts.
Cash managers monitor and control the flow of cash that comes in and goes out of the
company to meet the company's business and investment needs. For example, they must
project cash flow (amounts coming in and going out) to determine whether the company
will not have enough cash (and will need a loan), or will have more cash than needed
(and can invest some of its money).
Risk managers control financial risk by using hedging and other strategies to limit or
offset the probability of a financial loss or a companys exposure to financial uncertainty.
Among the risks they try to limit are those due to currency or commodity price changes.
Insurance managers decide how best to limit a companys losses by obtaining insurance
against risks such as the need to make disability payments for an employee who gets hurt
on the job, and any costs imposed by a lawsuit against the company.

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What is the workplace of a Financial Manager like?

Financial managers work closely with top executives and with departments that develop the data
that financial managers need. They can be employed in many different environments including
both public and private sectors, such as multinational corporations, retailers, financial
institutions, NHS trusts, charities, manufacturing companies, universities, and general
businesses.

Videos
Role of a Financial Manager
Financial activities of a firm is one of the most important and complex activities of a firm. Therefore in order to take care of these activities a financial manager performs all the requisite financial activities.

A financial manger is a person who takes care of all the important financial functions of an organization. The person in charge should maintain a far sightedness in order to ensure that the funds are utilized in the
most efficient manner. His actions directly affect the Profitability, growth and goodwill of the firm.

Following are the main functions of a Financial Manager:

1. Raising of Funds
In order to meet the obligation of the business it is important to have enough cash and liquidity. A firm can raise funds by the way of equity and debt. It is the responsibility of a financial manager to
decide the ratio between debt and equity. It is important to maintain a good balance between equity and debt.

2. Allocation of Funds
Once the funds are raised through different channels the next important function is to allocate the funds. The funds should be allocated in such a manner that they are optimally used. In order to
allocate funds in the best possible manner the following point must be considered

The size of the firm and its growth capability

Status of assets whether they are long-term or short-term

Mode by which the funds are raised

These financial decisions directly and indirectly influence other managerial activities. Hence formation of a good asset mix and proper allocation of funds is one of the most important activity

3. Profit Planning
Profit earning is one of the prime functions of any business organization. Profit earning is important for survival and sustenance of any organization. Profit planning refers to proper usage of the
profit generated by the firm.

Profit arises due to many factors such as pricing, industry competition, state of the economy, mechanism of demand and supply, cost and output. A healthy mix of variable and fixed factors of
production can lead to an increase in the profitability of the firm.

Fixed costs are incurred by the use of fixed factors of production such as land and machinery. In order to maintain a tandem it is important to continuously value the depreciation cost of fixed cost
of production. An opportunity cost must be calculated in order to replace those factors of production which has gone thrown wear and tear. If this is not noted then these fixed cost can cause huge
fluctuations in profit.

4. Understanding Capital Markets

Shares of a company are traded on stock exchange and there is a continuous sale and purchase of securities. Hence a clear understanding of capital market is an important function of a financial
manager. When securities are traded on stock market there involves a huge amount of risk involved. Therefore a financial manger understands and calculates the risk involved in this trading of
shares and debentures.

Its on the discretion of a financial manager as to how to distribute the profits. Many investors do not like the firm to distribute the profits amongst share holders as dividend instead invest in the
business itself to enhance growth. The practices of a financial manager directly impact the operation in capital market.

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Capital Structure - Meaning and Factors Determining Capital Structure

Meaning of Capital Structure

Capital Structure is referred to as the ratio of different kinds of securities raised by a firm as long-term finance. The capital structure involves two decisions-

a. Type of securities to be issued are equity shares, preference shares and long term borrowings (Debentures).
b. Relative ratio of securities can be determined by process of capital gearing. On this basis, the companies are divided into two-
i. Highly geared companies - Those companies whose proportion of equity capitalization is small.
ii. Low geared companies - Those companies whose equity capital dominates total capitalization.

For instance - There are two companies A and B. Total capitalization amounts to be USD 200,000 in each case. The ratio of equity capital to total capitalization in company A is USD 50,000, while
in company B, ratio of equity capital is USD 150,000 to total capitalization, i.e, in Company A, proportion is 25% and in company B, proportion is 75%. In such cases, company A is considered to
be a highly geared company and company B is low geared company.

Factors Determining Capital Structure

1. Trading on Equity- The word equity denotes the ownership of the company. Trading on equity means taking advantage of equity share capital to borrowed funds on reasonable basis. It refers to
additional profits that equity shareholders earn because of issuance of debentures and preference shares. It is based on the thought that if the rate of dividend on preference capital and the rate of
interest on borrowed capital is lower than the general rate of companys earnings, equity shareholders are at advantage which means a company should go for a judicious blend of preference
shares, equity shares as well as debentures. Trading on equity becomes more important when expectations of shareholders are high.
2. Degree of control- In a company, it is the directors who are so called elected representatives of equity shareholders. These members have got maximum voting rights in a concern as compared
to the preference shareholders and debenture holders. Preference shareholders have reasonably less voting rights while debenture holders have no voting rights. If the companys management
policies are such that they want to retain their voting rights in their hands, the capital structure consists of debenture holders and loans rather than equity shares.
3. Flexibility of financial plan- In an enterprise, the capital structure should be such that there is both contractions as well as relaxation in plans. Debentures and loans can be refunded back as the
time requires. While equity capital cannot be refunded at any point which provides rigidity to plans. Therefore, in order to make the capital structure possible, the company should go for issue of
debentures and other loans.
4. Choice of investors- The companys policy generally is to have different categories of investors for securities. Therefore, a capital structure should give enough choice to all kind of investors to
invest. Bold and adventurous investors generally go for equity shares and loans and debentures are generally raised keeping into mind conscious investors.
5. Capital market condition- In the lifetime of the company, the market price of the shares has got an important influence. During the depression period, the companys capital structure generally
consists of debentures and loans. While in period of boons and inflation, the companys capital should consist of share capital generally equity shares.
6. Period of financing- When company wants to raise finance for short period, it goes for loans from banks and other institutions; while for long period it goes for issue of shares and debentures.
7. Cost of financing- In a capital structure, the company has to look to the factor of cost when securities are raised. It is seen that debentures at the time of profit earning of company prove to be a
cheaper source of finance as compared to equity shares where equity shareholders demand an extra share in profits.
8. Stability of sales- An established business which has a growing market and high sales turnover, the company is in position to meet fixed commitments. Interest on debentures has to be paid
regardless of profit. Therefore, when sales are high, thereby the profits are high and company is in better position to meet such fixed commitments like interest on debentures and dividends on
preference shares. If company is having unstable sales, then the company is not in position to meet fixed obligations. So, equity capital proves to be safe in such cases.
9. Sizes of a company- Small size business firms capital structure generally consists of loans from banks and retained profits. While on the other hand, big companies having goodwill, stability and
an established profit can easily go for issuance of shares and debentures as well as loans and borrowings from financial institutions. The bigger the size, the wider is total capitalization.
1. Capitalization in Finance

Capitalization in Finance
What is Capitalization

Capitalization comprises of share capital, debentures, loans, free reserves,etc. Capitalization represents permanent investment in companies excluding long-term loans. Capitalization can be distinguished from
capital structure. Capital structure is a broad term and it deals with qualitative aspect of finance. While capitalization is a narrow term and it deals with the quantitative aspect.

Capitalization is generally found to be of following types-

Normal

Over

Under

Overcapitalization
Overcapitalization is a situation in which actual profits of a company are not sufficient enough to pay interest on debentures, on loans and pay dividends on shares over a period of time. This situation arises when
the company raises more capital than required. A part of capital always remains idle. With a result, the rate of return shows a declining trend. The causes can be-

1. High promotion cost- When a company goes for high promotional expenditure, i.e., making contracts, canvassing, underwriting commission, drafting of documents, etc. and the actual returns are
not adequate in proportion to high expenses, the company is over-capitalized in such cases.
2. Purchase of assets at higher prices- When a company purchases assets at an inflated rate, the result is that the book value of assets is more than the actual returns. This situation gives rise to
over-capitalization of company.
3. A companys floatation n boom period- At times company has to secure its solvency and thereby float in boom periods. That is the time when rate of returns are less as compared to capital
employed. This results in actual earnings lowering down and earnings per share declining.
4. Inadequate provision for depreciation- If the finance manager is unable to provide an adequate rate of depreciation, the result is that inadequate funds are available when the assets have to be
replaced or when they become obsolete. New assets have to be purchased at high prices which prove to be expensive.
5. Liberal dividend policy- When the directors of a company liberally divide the dividends into the shareholders, the result is inadequate retained profits which are very essential for high earnings of
the company. The result is deficiency in company. To fill up the deficiency, fresh capital is raised which proves to be a costlier affair and leaves the company to be over- capitalized.
6. Over-estimation of earnings- When the promoters of the company overestimate the earnings due to inadequate financial planning, the result is that company goes for borrowings which cannot
be easily met and capital is not profitably invested. This results in consequent decrease in earnings per share.

Effects of Overcapitalization

1. On Shareholders- The over capitalized companies have following disadvantages to shareholders:

a. Since the profitability decreases, the rate of earning of shareholders also decreases.
b. The market price of shares goes down because of low profitability.
c. The profitability going down has an effect on the shareholders. Their earnings become uncertain.
d. With the decline in goodwill of the company, share prices decline. As a result shares cannot be marketed in capital market.
2. On Company-
a. Because of low profitability, reputation of company is lowered.
b. The companys shares cannot be easily marketed.
c. With the decline of earnings of company, goodwill of the company declines and the result is fresh borrowings are difficult to be made because of loss of credibility.
d. In order to retain the companys image, the company indulges in malpractices like manipulation of accounts to show high earnings.
e. The company cuts down its expenditure on maintainance, replacement of assets, adequate depreciation, etc.
3. On Public- An overcapitalized company has got many adverse effects on the public:
a. In order to cover up their earning capacity, the management indulges in tactics like increase in prices or decrease in quality.
b. Return on capital employed is low. This gives an impression to the public that their financial resources are not utilized properly.
c. Low earnings of the company affects the credibility of the company as the company is not able to pay its creditors on time.
d. It also has an effect on working conditions and payment of wages and salaries also lessen.

Undercapitalization
An undercapitalized company is one which incurs exceptionally high profits as compared to industry. An undercapitalized company situation arises when the estimated earnings are very low as compared to actual
profits. This gives rise to additional funds, additional profits, high goodwill, high earnings and thus the return on capital shows an increasing trend. The causes can be-

1. Low promotion costs

2. Purchase of assets at deflated rates
3. Conservative dividend policy
4. Floatation of company in depression stage
5. High efficiency of directors
6. Adequate provision of depreciation
7. Large secret reserves are maintained.

Efffects of Under Capitalization

1. On Shareholders
a. Companys profitability increases. As a result, rate of earnings go up.
b. Market value of share rises.
c. Financial reputation also increases.
d. Shareholders can expect a high dividend.
2. On company
a. With greater earnings, reputation becomes strong.
b. Higher rate of earnings attract competition in market.
c. Demand of workers may rise because of high profits.
d. The high profitability situation affects consumer interest as they think that the company is overcharging on products.
3. On Society
a. With high earnings, high profitability, high market price of shares, there can be unhealthy speculation in stock market.
b. Restlessness in general public is developed as they link high profits with high prices of product.
c. Secret reserves are maintained by the company which can result in paying lower taxes to government.
d. The general public inculcates high expectations of these companies as these companies can import innovations, high technology and thereby best quality of product.
Financial Goal - Profit vs Wealth
Every firm has a predefined goal or an objective. Therefore the most important goal of a financial manager is to increase the owners economic welfare. Here economics welfare may refer to maximization of profit
or maximization of shareholders wealth. Therefore Shareholders wealth maximization (SWM) plays a very crucial role as far as financial goals of a firm are concerned.

Profit is the remuneration paid to the entrepreneur after deduction of all expenses. Maximization of profit can be defined as maximizing the income of the firm and minimizing the expenditure. The
main responsibility of a firm is to carry out business by manufacturing goods and services and selling them in the open market. The mechanism of demand and supply in an open market determine the price of a
commodity or a service. A firm can only make profit if it produces a good or delivers a service at a lower cost than what is prevailing in the market. The margin between these two prices would only increase if the
firm strives to produce these goods more efficiently and at a lower price without compromising on the quality.

The demand and supply mechanism plays a very important role in determining the price of a commodity. A commodity which has a greater demand commands a higher price and hence may result in greater
profits. Competition among other suppliers also effect profits. Manufacturers tends to move towards production of those goods which guarantee higher profits. Hence there comes a time when equilibrium is
reached and profits are saturated.

According to Adam Smith - business man in order to fulfill their profit motive in turn benefits the society as well. It is seen that when a firm tends to increase profit it eventually makes use of its resources in
a more effective manner. Profit is regarded as a parameter to measure firms productivity and efficiency. Firms which tend to earn continuous profit eventually improvise their products according to the demand of
the consumers. Bulk production due to massive demand leads to economies of scale which eventually reduces the cost of production. Lower cost of production directly impacts the profit margins. There are two
ways to increase the profit margin due to lower cost. Firstly a firm can produce at lower sot but continue to sell at the original price, thereby increasing the revenue. Secondly a firm can reduce the final price
offered to the consumer and increase its market thereby superseding its competitors.

Both ways the firm will benefit. The second way would increase its sale and market share while the first way only tend to increase its revenue. Profit is an important component of any business. Without profit
earning capability it is very difficult to survive in the market. If a firm continues to earn large amount of profits then only it can manage to serve the society in the long run. Therefore profit earning capacity by a firm
and public motive in some way goes hand in hand. This eventually also leads to the growth of an economy and increase in National Income due to increasing purchasing power of the consumer.

Profit Maximization Criticisms

Many economists have argued that profit maximization has brought about many disparities among consumers and manufacturers. In case of perfect competition it may appear as a legitimate and a
reward for efforts but in case of imperfect competition a firms prime objective should not be profit maximization. In olden times when there was not too much of competition selling and manufacturing goods were
primarily for mutual benefit. Manufacturers didnt produce to earn profits rather produced for mutual benefit and social welfare. The aim of the single producer was to retain his position in the market and sustain
growth, thereby earning some profit which would help him in maintaining his position. On the other hand in todays time the production system is dominant by two tier system of ownership and management.
Ownership aims at maximizing profit and management aims at managing the system of production thereby indirectly increasing the income of the business.

These services are used by customers who in turn are forced to pay a higher price due to formation of cartels and monopoly. Not only have the customers suffered but also the employees. Employees are forced
to work more than their capacity. they is made to pay in extra hours so that production can increase.

Many times manufacturers tend to produce goods which are of no use to the society and create an artificial demand for the product by rigorous marketing and advertising. They tend to make the product so
tempting by packaging and labeling that its difficult for the consumer to resist. These happen mainly with products which aim to target kids and teenagers. Ad commercials and print ads tend to provide with wrong
information to artificially hike the expectation of the product.

In case of oligopoly where the nature of the product is more or less same exploit the customer to the max. Since they form cartels and manipulate prices by giving very less flexibility to the consumer to negotiate
or choose from the products available. In such a scenario it is the consumer who becomes prey of these activities. Profit maximization motive is continuously aiming at increasing the firms revenue and is
concentrating less on the social welfare.

Government plays a very important role in curbing this practice of charging extraordinary high prices at the cost of service or product. In fact a market which experiences a high degree of competition is likely to
exploit the customer in the name of profit maximization, and on the other hand where the production of a particular product or service is limited there is a possibility to charge higher prices is greater. There are few
things which need a greater clarification as far as maximization of profit is concerned

Profit maximization objective is a little vague in terms of returns achieved by a firm in different time period. The time value of money is often ignored when measuring profit.

It leads to uncertainty of returns. Two firms which use same technology and same factors of production may eventually earn different returns. It is due to the profit margin. It may not be legitimate if seen from a
different stand point.

3 Modern Financial Management Techniques that Will Change Your Business

Whether youre a business or an individual, you have to find a way to manage your finances now and in the future. The cost of everything continues to increase and theres no sign that this trend of price increases
will stop anytime soon. As a result, all entities have to develop a financial management system to ensure their stability for many years to come.

This system has to provide the businesses in question with enough flexibility for them to continue to grow and pay for their necessary expenses. It also has to be stringent enough to allow for money to be put
away in the event of future catastrophes.

In the case of a business, all expenses have to be prioritized in the interest of spending money on the right things.

When it comes time for cost cutting measures to be implemented, they have to be come with consequences in mind. Everything thats done to cut costs has an end result once it becomes a common procedure.

You have to ponder whether youre cutting enough or youre cutting too much. Work has to be done to ensure that cutting individuals from the workforce is the last possible resort. Odds are there are expenses
that can be sliced without having to touch the workforce.

Individuals in the private sector have to manage their finances in the interest of being able to acquire credit.

A persons credit score can affect every possible aspect of their life. The biggest issue currently impacting the financial future of most people is the regular use of high interest credit cards.

Most retail establishments try to push their credit card on their customers on a regular basis. These cards should only be used for small purchases that can be paid shortly after they have been completed.

Financial management is a challenge in a world where spending is seen as the key to getting ahead.

You have to exercise the utmost level of restraint if you want solvency to be in your future. Once you have established an effective budget, your worries about finances will become a thing of the past.

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Financial Intermediaries - Meaning, Role and Its Importance

Introduction

A financial intermediary is a firm or an institution that acts an intermediary between a provider of service and the consumer. It is the institution or individual that is in between two or more parties in a
financial context. In theoretical terms, a financial intermediary channels savings into investments. Financial intermediaries exist for profit in the financial system and sometimes there is a need to regulate the
activities of the same. Also, recent trends suggest that financial intermediaries role in savings and investment functions can be used for an efficient market system or like the sub-prime crisis shows, they can be a
cause for concern as well.

Financial Intermediation

Financial intermediaries work in the savings/investment cycle of an economy by serving as conduits to finance between the borrowers and the lenders. In the financial system, intermediaries like
banks and insurance companies have a huge role to play given that it has been estimated that a major proportion of every dollar financed externally has been done by the banks. Financial intermediaries are an
important source of external funding for corporates. Unlike the capital markets where investors contract directly with the corporates creating marketable securities, financial intermediaries borrow from lenders or
consumers and lend to the companies that need investment.

Role of the Financial Intermediaries

The reason for the all-pervasive nature of the financial intermediaries like banks and insurance companies lies in their uniqueness. As outlined above, Banks often serve as the intermediaries between those who
have the resources and those who want resources. Financial intermediaries like banks are asset based or fee based on the kind of service they provide along with the nature of the clientele they handle. Asset
based financial intermediaries are institutions like banks and insurance companies whereas fee based financial intermediaries provide portfolio management and syndication services.

Need for regulation

The very nature of the complex financial system that we have at this point in time makes the need for regulation that much more necessary and urgent. As the sub-prime crisis has shown, any financial institution
cannot be made to hold the financial system hostage to its questionable business practices. As the manifestations of the crisis are being felt and it is now apparent that the asset backed derivatives and other
exotic instruments are amounting to trillions, the role of the central bank or the monetary authorities in reining in the rogue financial institutions is necessary to prevent systemic collapse.

As capital becomes mobile and unfettered, it is the monetary authorities that have to step in and ensure that there are proper checks and balances in the system so as to prevent losses to investors and the
economy in general.

Recent trends

Recent trends in the evolution of financial intermediaries, particularly in the developing world have shown that these institutions have a pivotal role to play in the elimination of poverty and other debt reduction
programs. Some of the initiatives like micro-credit reaching out to the masses have increased the economic well being of hitherto neglected sectors of the population.

Further, the financial intermediaries like banks are now evolving into umbrella institutions that cater to the complete needs of investors and borrowers alike and are maturing into financial hyper marts.

Conclusion

As we have seen, financial intermediaries have a key role to play in the world economy today. They are the lubricants that keep the economy going. Due to the increased complexity of financial transactions, it
becomes imperative for the financial intermediaries to keep re-inventing themselves and cater to the diverse portfolios and needs of the investors. The financial intermediaries have a significant responsibility
towards the borrowers as well as the lenders. The very term intermediary would suggest that these institutions are pivotal to the working of the economy and they along with the monetary authorities have to
ensure that credit reaches to the needy without jeopardizing the interests of the investors. This is one of the main challenges before them.

Financial intermediaries have a central role to play in a market economy where efficient allocation of resources is the responsibility of the market mechanism. In these days of increased complexity of
the financial system, banks and other financial intermediaries have to come up with new and innovative products and services to cater to the diverse needs of the borrowers and lenders. It is the right mix of
financial products along with the need for reducing systemic risk that determines the efficacy of a financial intermediary.
 Author International Hotel School | October 29, 2010

The hospitality industry is full of curiously named job titles, a few of which well explore in our current
series about career opportunities in hospitality. For example, who is a Financial Manager? Today were
figuring out how the role of a Financial Manager works: who he is and what he does in an average hotel.

What does a Financial Manager do?

A Financial Manager is a hotels head honcho when it comes to money. He plans how to spend it, save it,
and increase it. The Financial Manager basically controls the finances of the hotel or hospitality property.

Financial Manager responsibilities

The Financial Manager is responsible for: Planning, organising, managing and executing the finances
and financial goals of the hotel Managing the accounting department Forecasting budgets
Managing cash flow Working with investments Keeping accurate records of hotel accounts
Compliance with government regulations (like tax) Maintaining relationships with relevant banks and
insurance companies and many other duties.

Who does the Financial Manager report to?

The Financial Manager reports to the General Manager.

Who reports to the Financial Manager?

The accounting staff, which may include: Purchasing manager Food and beverage controller
Storeroom manager Assistant controller Auditor Credit manager Accounts receivable
manager Accounts payable manager Night auditor Paymaster Head cashier

Qualifications
A Financial Manager should have an accounting or finance qualification and plenty of hospitality industry
experience in a position such as Assistant Financial Manager.
Skills
A Financial Manager must: Be great with numbers Be proficient in planning, organising and
executing financial tasks and projects Pay attention to detail Communicate and coordinate well

Working conditions
A Financial Manager usually works normal business hours but will sometimes be required to work after
hours when need be.

Earning potential
A Financial Managers salary can range up to R30 000/month.

Job opportunities
All hospitality properties, whether a small B&B or a 500-room hotel need someone to manage the money
that comes in and goes out. For this reason Financial Manager jobs are available in most countries and at
various types of hotels.

Wrap up
A Financial Manager is the money mastermind of a hotel. Hes responsible for the successful
management of the hotels finances. His intelligent forecasting, planning, budgeting and spending make
sure the hotel runs at a profit. This is a high-level position with a healthy salary. Is it something youd
aspire to? Pop in next week for more info on awesome careers in the hospitality industry!
 The financial manager is responsible for budgeting, projecting cash flows, and determining how
to invest and finance projects.
LEARNING OBJECTIVE

Describe the role and skills of a financial manager

KEY POINTS

The finance manager is responsible for knowing how much the product is expected to cost and how much revenue it is expected to earn so that s/he
can invest the appropriate amount in the product.
The finance manager uses a number of tools, such as setting the cost of capital (the cost of money over time, which will be explored in further depth
later on) to determine the cost of financing.
The financial manager must not just be an expert at financial projections; s/he also must have a grasp of the accounting systems in place and
the strategy of the business over the coming years.
The head of the financial department is the chief financial officer (CFO) who is responsible for all financial decisions and reporting done in the
company.

TERM

capital
Money and wealth; the means to acquire goods and services, especially in a non-barter system.
FULL TEXT

The Role of the Financial Manager

The role of a financial manager is a complex one, requiring both an understanding of how the business functions as a whole and

specialized financial knowledge. The head of the financial operations is called the chief financial officer (CFO).

The structure of the company varies, but a financial manager is responsible for the same general things across the board. The

manager is responsible for managing the budget. This involves allocating money to different projects and segments so that the

business can continue operating, but the best projects get the necessary funding.

The manager is responsible for figuring out the financial projections for the business. The development of a new product, for

example, requires an investment of capital over time. The finance manager is responsible for knowing how much the product is

expected to cost and how much revenue it is expected to earn so that s/he can invest the appropriate amount in the product. This is a

lot tougher than it sounds because there is no accurate financial data for the future. The finance manager will use data analyses and

educated guesses to approximate the value, but it's extremely rare that s/he can be 100% sure of the future cash flows.

Figuring out the value of an operation is one thing, but it is another thing to figure out if it's worth financing. There is a cost to

investing money, either the opportunity cost of not investing it elsewhere, the cost of borrowing money, or the cost of selling equity.

The finance manager uses a number of tools, such as setting the cost of capital (the cost of money over time, which will be explored

in further depth later on) to determine the cost of financing.

At the same time that this is going on, the financial manager must also ensure that the business has enough cash to pay upcoming

financial obligations without hoarding assets that could otherwise be invested. This is a delicate dance between short-term and long-

term responsibilities.
The CFO is the head of the financial department and is responsible for all of the same things as his/her subordinates, but is also the

person who has to sign off that all of the company's financial statements are accurate. S/he is also responsible for financial planning

and record-keeping, as well as financial reporting to higher management.

The financial manager is not just an expert at financial projections, s/he must also have a grasp of the accounting systems in place

and the strategy of the business over the coming years .

Financial Managers - What They Do

Almost every firm, government agency, and other type of organization employs one or more financial
managers. Financial managers oversee the preparation of financial reports, direct investment activities,
and implement cash management strategies. Managers also develop strategies and implement the long-
term goals of their organization.

The duties of financial managers vary with their specific titles, which include controller, treasurer or
finance officer, credit manager, cash manager, risk and insurance manager, and manager of
international banking. Controllers direct the preparation of financial reports, such as income statements,
balance sheets, and analyses of future earnings or expenses, that summarize and forecast the
organization's financial position. Controllers also are in charge of preparing special reports required by
regulatory authorities and often use an expense report software to assist them. Often, controllers
oversee the accounting, audit, and budget departments. Treasurers and finance officers direct their
organization's budgets to meet its financial goals. They oversee the investment of funds, manage
associated risks, look for financial management solutions, supervise cash management activities,
execute capital-raising strategies to support the firm's expansion, and deal with mergers and
acquisitions. Credit managers oversee the firm's issuance of credit, establishing credit-rating criteria,
determining credit ceilings, and monitoring the collections of past-due accounts.

Cash managers monitor and control the flow of cash receipts and disbursements to meet the business
and investment needs of their firm. For example, cash flow projections are needed to determine
whether loans must be obtained to meet cash requirements or whether surplus cash can be invested.
Risk and insurance managers oversee programs to minimize risks and losses that might arise from
financial transactions and business operations. Insurance managers decide how best to limit a
companys losses by obtaining insurance against risks such as the need to make disability payments for
an employee who gets hurt on the job or costs imposed by a lawsuit against the company. Risk
managers control financial risk by using hedging and other techniques to limit a companys exposure to
currency or commodity price changes. Managers specializing in international finance develop financial
and accounting systems for the banking transactions of multinational organizations. Risk managers are
also responsible for calculating and limiting potential operations risk. Operations risk includes a wide
range of risks, such as a rogue employee damaging the companys finances or a hurricane damaging an
important factory.

Financial institutionssuch as commercial banks, savings and loan associations, credit unions, and
mortgage and finance companiesemploy additional financial managers who oversee various functions,
such as lending, trusts, mortgages, and investments, or programs, including sales, operations, or
electronic financial services. These managers may solicit business, authorize loans, and direct the
investment of funds, always adhering to Federal and State laws and regulations.
Branch managers of financial institutions administer and manage all of the functions of a branch office.
Job duties may include hiring personnel, approving loans and lines of credit, establishing a rapport with
the community to attract business, and assisting customers with account problems. Branch mangaers
also are becoming more oriented toward sales and marketing. As a result, it is important that they have
substantial knowledge about the types of products that the bank sells. Financial managers who work for
financial institutions must keep abreast of the rapidly growing array of financial services and products.

In addition to the preceding duties, financial managers perform tasks unique to their organization or
industry. For example, government financial managers must be experts on the government
appropriations and budgeting processes, whereas healthcare financial managers must be
knowledgeable about issues surrounding healthcare financing. Moreover, financial managers must be
aware of special tax laws and regulations that affect their industry.

Financial managers play an important role in mergers and consolidations and in global expansion and
related financing. These areas require extensive, specialized knowledge to reduce risks and maximize
profit. Financial managers increasingly are hired on a temporary basis to advise senior managers on
these and other matters. In fact, some small firms contract out all their accounting and financial
functions to companies that provide such services.

The role of the financial manager, particularly in business, is changing in response to technological
advances that have significantly reduced the amount of time it takes to produce financial reports.
Technological improvements have made it easier to produce financial reports, and, as a consequence,
financial managers now perform more data analysis that allows them to offer senior managers profit-
maximizing ideas. They often work on teams, acting as business advisors to top management.

Work Environment
Working in comfortable offices, often close to top managers and with departments that develop the
financial data those managers need, financial managers typically have direct access to state-of-the-art
computer systems and information services. They commonly work long hours, often up to 50 or 60 per
week. Financial managers generally are required to attend meetings of financial and economic
associations and may travel to visit subsidiary firms or to meet customers.

Education & Training Required

A bachelor's degree in finance, accounting, economics, or business administration is the minimum
academic preparation for financial managers. However, many employers now seek graduates with a
master's degree, preferably in business administration, finance, or economics. These academic programs
develop analytical skills and teach financial analysis methods and technology.

Experience may be more important than formal education for some financial manager positionsmost
notably, branch managers in banks. Banks typically fill branch manager positions by promoting
experienced loan officers and other professionals who excel at their jobs. Other financial managers may
enter the profession through formal management training programs offered by the company.
Certifications Needed (Licensure)
Many financial managers work in accounting departments. Accounting positions normally require
workers to be certified public accountants (CPAs).

Other Skills Required (Other qualifications)

Candidates for financial management positions need many different skills. Interpersonal skills are
important because these jobs involve managing people and working as part of a team to solve problems.
Financial managers must have excellent communication skills to explain complex financial data. Because
financial managers work extensively with various departments in their firm, a broad understanding of
business is essential.

Financial managers should be creative thinkers and problem-solvers, applying their analytical skills to
business. Financial managers must have knowledge of international finance because financial operations
are increasingly being affected by the global economy. In addition, a good knowledge of regulatory
compliance procedures is essential.

Scholarships
Financial Managers
Career, Salary and Education Information
Go to: What They Do | Work Environment | How to Become One | Salary | Job Outlook | Related
Careers

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What Financial Managers Do[About this section] [To Top]

Financial managers are responsible for the financial health of an organization. They produce financial reports, direct investment activities, and develop strategies
and plans for the long-term financial goals of their organization.

Duties of Financial Managers

Financial managers typically do the following:

Prepare financial statements, business activity reports, and forecasts

Monitor financial details to ensure that legal requirements are met
Supervise employees who do financial reporting and budgeting
Review company financial reports and seek ways to reduce costs
Analyze market trends to maximize profits and find expansion opportunities
Help management make financial decisions

The role of the financial manager, particularly in business, is changing in response to technological advances that have substantially reduced the amount of time it
takes to produce financial reports. Financial managers main responsibility used to be monitoring a companys finances, but they now do more data analysis and
advise senior managers on ways to maximize profits. They often work on teams, acting as business advisors to top executives.
Financial managers also do tasks that are specific to their organization or industry. For example, government financial managers must be experts on government
appropriations and budgeting processes, and healthcare financial managers must know about topics in healthcare finance. Moreover, financial managers must be
knowledgeable about special tax laws and regulations that affect their industry.
The following are examples of types of financial managers:
Chief financial officers (CFOs) are accountable for the accuracy of a companys or organizations financial reporting, especially among publicly traded
companies. As head of a companys entire financial department, they manage the lower level financial managers. They oversee the companys financial goals,
objectives, and budgets.
Controllers direct the preparation of financial reports that summarize and forecast the organizations financial position, such as income statements, balance
sheets, and analyses of future earnings or expenses. Controllers also are in charge of preparing special reports required by governmental agencies that regulate
businesses. Often, controllers oversee the accounting, audit, and budget departments of their organization.
Treasurers and finance officers direct their organizations budgets to meet its financial goals. They oversee the investment of funds and carry out strategies to
raise capital (such as issuing stocks or bonds) to support the firms expansion. They also develop financial plans for mergers (two companies joining together) and
acquisitions (one company buying another).
Credit managers oversee their firms credit business. They set credit-rating criteria, determine credit ceilings, and monitor the collections of past-due accounts.
Cash managers monitor and control the flow of cash that comes in and goes out of the company to meet the companys business and investment needs. For
example, they must project cash flow (amounts coming in and going out) to determine whether the company will have a shortage or surplus of cash.
Risk managers control financial risk by using strategies to limit or offset the probability of a financial loss or a companys exposure to financial uncertainty. Among
the risks they try to limit are those that stem from currency or commodity price changes.
Insurance managers decide how best to limit a companys losses by obtaining insurance against risks, such as the need to make disability payments for an
employee who gets hurt on the job or the costs imposed by a lawsuit against the company.

Work Environment for Financial Managers[About this section] [To Top]

Financial managers held about 555,900 jobs in 2014. The industries that employed the most financial managers were as follows:

Finance and insurance 29%

Management of companies and enterprises 12

Professional, scientific, and technical services 11

Manufacturing 8

Government 8
Financial managers work closely with top executives and with departments that develop the data financial managers need.

Financial Manager Work Schedules

Most financial managers work full time, and about 1 in 3 worked more than 40 hours per week in 2014.

How to Become a Financial Manager[About this section] [To Top]

Get the education you need: Find schools for Financial Managers near you!
Financial managers typically have a bachelors degree and 5 years or more of experience in another business or financial occupation, such as
an accountant, securities sales agent, orfinancial analyst.

Financial Manager Education

A bachelor's degree in finance, accounting, economics, or business administration is often the minimum education needed for financial managers. However, many
employers now seek candidates with a masters degree, preferably in business administration, finance, or economics. These academic programs help students
develop analytical skills and learn financial analysis methods and software.

Licenses, Certifications, and Registrations

Professional certification is not required, but some financial managers still get it to demonstrate a level of competence. The CFA Institute confers the Chartered
Financial Analyst (CFA) certification to investment professionals who have at least a bachelors degree, 4 years of work experience, and pass three exams. The
Association for Financial Professionals confers the Certified Treasury Professional credential to those who pass an exam and have a minimum of 2 years of
relevant experience.

Work Experience in a Related Occupation

Financial managers usually have experience in another business or financial occupation. For example, they may have worked as a loan
officer, accountant, securities sales agent, orfinancial analyst.
In some cases, companies provide formal management training programs to help prepare highly motivated and skilled financial workers to become financial
managers.

Important Qualities for Financial Managers

Analytical skills. Financial managers increasingly are assisting executives in making decisions that affect their organization, a task which requires analytical
ability.
Communication skills. Excellent communication skills are essential because financial managers must explain and justify complex financial transactions.
Detail oriented. In preparing and analyzing reports such as balance sheets and income statements, financial managers must be precise and attentive to their
work in order to avoid errors.
Math skills. Financial managers must be skilled in math, including algebra. An understanding of international finance and complex financial documents also is
important.
Organizational skills. Financial managers deal with a range of information and documents and so they must stay organized to do their jobs effectively.

Financial Manager Salaries[About this section] [More salary/earnings info] [To Top]
The median annual wage for financial managers was $117,990 in May 2015. The median wage is the wage at which half the workers in an occupation earned
more than that amount and half earned less. The lowest 10 percent earned less than $63,020, and the highest 10 percent earned more than $187,200.
In May 2015, the median annual wages for financial managers in the top industries in which they worked were as follows:
Professional, scientific, and technical services $140,160

Management of companies and enterprises 136,490

Manufacturing 117,310

Finance and insurance 113,040

Government 107,120
 Financial Manager job description
This Financial Manager job description template is optimized for posting in online job boards or careers pages and easy to
customize for your company. Similar job titles include Finance Manager and Financial Controller.

Financial Manager Responsibilities

Include:

Providing financial reports and interpreting financial information to managerial staff while recommending further courses of action.

Advising on investment activities and provide strategies that the company should take

Maintaining the financial health of the organization.

Job brief
We are looking for a reliable Financial Manager that will analyze every day financial activities and subsequently provide advice and guidance to upper management on future
financial plans.

The goal is to enable the companys leaders to make sound business decisions and meet the companys objectives.

Responsibilities

Provide financial reports and interpret financial information to managerial staff while recommending further courses of action.

Advise on investment activities and provide strategies that the company should take

Maintain the financial health of the organization.

Analyze costs, pricing, variable contributions, sales results and the companys actual performance compared to the business plans.

Develop trends and projections for the firms finances.

Conduct reviews and evaluations for cost-reduction opportunities.

Oversee operations of the finance department, set goals and objectives, and design a framework for these to be met.

Manage the preparation of the companys budget.

 Liase with auditors to ensure appropriate monitoring of company finances is maintained.

Correspond with various other departments, discussing company plans and agreeing on future paths to be taken.

Requirements

Proven experience as a Financial Manager

Experience in the financial sector with previous possible roles such as financial analyst

Extensive understanding of financial trends both within the company and general market patterns

Proficient user of finance software

Strong interpersonal, communication and presentation skills

Able to manage, guide and lead employees to ensure appropriate financial processes are being used

A solid understanding of financial statistics and accounting principles

Working knowledge of all statutory legislation and regulations

BS/MA degree in Finance, Accounting or Economics

Professional qualification such as CFA/CPA or similar will be considered a plus