Finance

The Role of the Financial Manager 1

The Role of the Financial Manager

Finance for Managerial Decision Making

January 9, 2005

The Role of the Financial Manager 2

Abstract

This paper will discuss the role of the financial manager and how that particular role, in the area of corporate expertise, differs from that of the shareholder and of the employee. The discussion the paper provides will help determine how the financial manager maximizes shareholder value in today's financial market. Lastly, the viewpoint of the financial manager will be compared to that of the shareholder and employee.

The Role of the Financial Manager 3

What is a Financial Manager?

Most critical to this discussion is a clear understanding of what a financial manager is and does and how his or her role aids in helping to establish the valuation of a corporate entity in today's global financial market. Quite simply, a financial manager helps to measure a company's market value and its risk while also helping to systematically reduce its costs and the time necessary to make informed decisions regarding objective driven operations. This is quite a demanding game plan for an individual and most often financial managers, in the corporate world, work in cooperation with a team of financial experts. Each member of that team perhaps having expertise in differing areas of activity, but each however, being no less expert in his or her respective area of endeavors in behalf of the corporation. The team is assembled under the direction of the officer know in the corporation as the Chief Financial Officer who today is becoming increasingly indispensable to the CEO who directs a modern model of action driven, bottom-line oriented corporate activity (Couto, Neilson, 2004). One can accurately state that the role of the competent and capable financial manager is figuratively worth its weight in gold.

As global markets - today's financial market - increase in complexity, the tradition of learning by doing will not suffice. The financial manager today must hit the ground running with ready expertise to be used effectively as the CFO or as part of a team of financial experts within the ranks of the CFO's office. In navigating the international marketplace effectively, financial managers find themselves in a technology driven, real time information deluge which helps them to satiate the knowledge demands of investors, commercial and investment bankers, shareholders, employees, brokers, traders et al who must know particular companies, their products and the markets wherein they operate.

The Role of the Financial Manager 4

The financial manager is charged with providing the information necessary to fulfill this relentless demand for a range of financial information that literally runs the gamut. There is the continual requirement to provide or analyze company data that ranges from activity in currency and commodity markets and exchange rates, to capital budgeting, financing decisions, equity and debt instrument products, and interest rates and net working capital. This plethora of information formulates the financial premises or tools the financial manager consumes to aid him or her in maximizing shareholder value.

How Does the Financial Manager Maximize Shareholder Value?

There is one word that emerges as an operative one in this discussion. That is transparency. Financial transparency is an aspect of corporate governance that comes into play in such an integral way in the world's real time financial market. The enactment of Sarbanes-Oxley was necessary to level the playing field so that all players recognize, once again, that there are and always have been rules to entering the game of finance. Most importantly, Sarbanes-Oxley will enforce the need for transparency to help gain investor confidence. Consequently, over time, greater corporate transparency will translate into increased shareholder/stakeholder confidence and trust which will greatly enhance a company's valuation. The financial manager today is focusing on those drivers of operational excellence that are critical to bottom-line performance (Couto, Neilson, 2004). Publicly traded companies not only require the skills of the seasoned financial manager but he or she must be confident, dynamic and possess the ability to be thrust upon a public stage for an ongoing series of media and analysts interviews reports and board or shareholder meetings. All of these ongoing activities help to maximize shareholder