Role of Financial Manages

Role of Financial Managers

Jesus G. Covarrubias

University of Phoenix

October 15, 2005

Table of Contents

Page

Introduction 3

Financial Manager Duties 3

Maximizing Shareholder Value 4

Financial Responsibility 4

Financial Markets 5

Investor Trust 5

Conclusion 6

References 8

Introduction

This paper focuses on identifying the major duties of Financial Managers and their role in maximizing shareholder value within today's financial markets. A comparison between a Financial Manager's viewpoint and that of stockholders with related to maximizing share value will be discussed.

Financial Manager Duties

Almost every business, government agency, and organization has one or more financial managers who handle the preparation of financial reports, investment activities, and routinely implement cash management strategies. Financial managers also spend time developing strategies and implementing long-term goals for their organizations often intended to maximize shareholder value.

The basic duties of financial managers vary with their specific titles, which include controller, treasurer or finance officer, credit manager, cash manager, and risk and insurance manager. 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 regulatory authorities. Often, controllers oversee the accounting, audit, and budget departments.

Treasurers and finance officers direct the organization's financial goals, objectives, and budgets. They oversee the investment of funds and manage associated risks, supervise cash management activities, execute capital-raising strategies to support a firm's expansion, and deal with mergers and acquisitions. Credit managers oversee the firm's issuance of credit. They establish credit-rating criteria, determine credit ceilings, and monitor the collections of past-due accounts. Managers specializing in international finance develop financial and accounting systems for the banking transactions of multinational organizations.

Maximizing Shareholder Value

Financial managers try to build shareholder value by strategically planning and integrating financing and investment decisions. The process requires financial managers to fully understand a number of financial concepts. Managers must make the best use of corporate policies and practices involving capital structures, cost of capital, diversification, risks, capital budgeting, financial policy, and how to earn the minimum acceptable rate of return on an investment. They must also understand how to make decisions that create economic value and how to evaluate the financial consequences of their decisions.

Maximizing shareholder value is typically related to a company's investment strategies. Such investment strategies are driven by the need to build value for investors through creating sustained profitable growth, maintaining a disciplined approach to decision making, building upon the financial health of the company and fostering a culture of integrity and transparency (Powell, D. CFO Cysco Systems Inc.)

Financial Responsibility

Financial managers must understand that their decisions can result in having their companies held accountable to everyone with a stake in its success. (Financial Mangers. U.S. Department of Labor). Responsible financial managers endeavor to establish a foundation of investor confidence that begins with the integrity of financial reporting and conservative accounting. Building on that foundation, financial managers design investment strategies to generate sustained profitable growth by using a company's financial strength and making deliberate investment decisions that will ultimately create additional value for shareholders. Furthermore, financial managers must recognize that satisfying the needs of stakeholders or customers is an essential part in the creation of shareholder value.

Financial Markets

Financial markets are markets for the exchange of capital and credit, including the money markets and the capital markets. Financial managers must use these markets strategically and effectively. To deliver the value stakeholders or investors demand, financial managers need the right market information and analysis. Financial markets are the tools that can help financial managers rapidly identify emerging opportunities and make the most of those opportunities. In this regard, the financial markets pay a key role in a company's strategic planning and investment decisions.

Investor Trust

Investors vote with their money and capital and they can easily flee those companies that fail to honor the trust that they have bestowed