Essays24.com - Term Papers and Free Essays
Search

Role Of A Financial Manager

Essay by   •  March 19, 2011  •  1,250 Words (5 Pages)  •  1,703 Views

Essay Preview: Role Of A Financial Manager

Report this essay
Page 1 of 5

This paper will examine the role of the financial manager in maximizing shareholder value within today's financial markets. This paper will also compare the financial manager's perspective with the perspective of a shareholder with regards to maximizing shareholder value. Individuals trust that financial managers will have their best interest at hand when it comes to allocating their company shares. Therefore, individuals invest in businesses that are economically secure and able to offer them the best possible return. Once the scandal of Enron occurred, investors became apprehensive and hesitant about trusting other individuals to invest their savings. The end result of the Enron scandal and other scandals that occurred in the recent years, caused investors to require more accountability from accountants and stockbrokers. The link connecting financial managers and shareholders have to maintain a high level of interest in order to maintain the financial statements.

A financial manager can have many roles as well as many definitions. It can be one person or a team of people having power over the financial outcome of a company. According to Ross, Westerfield, & Jaffe, (2005) "the most important job of a financial manager is to create value from the firm's capital budgeting, financing, and net working-capital activities". Microsoft financial management defines the position that the financial manager in order to carry on a business needs to ensure the corporation has an almost endless variety of real assets. Many of these assets are tangible, such as machinery, factories, and offices; others are intangible, such as technical expertise, trademarks, and patents.

Other companies for example University of Texas mentions that the 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 (www.utexas.edu/). In order to understand a bit more a financial manager's role we need to know more about the individuals that may either embody this title or those that may contribute to a team. 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. Very often controllers also 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 and 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 (http://stats.bls.gov/oco/ocos010.htm).

Brealey, Myers & Allen, (2005) state that "the financial manager stands between the firm's operations and the financial (or capital) markets, where investors hold the financial assets issued by the firm". They go on to say that shareholders and managers may have different objectives, beginning with shareholders wanting to increase the value of the company's stock. The financial manager will need to make investment and financing decisions that will help increase shareholder value, because the shareholder's claim on a firm's value comes after all its debts are paid.

In order to compare the viewpoints between manager and shareholder it is important to understand who is in control of the corporation. According to the authors of the book entitled Corporate Finance, there's a set of contracts viewpoint. These viewpoints suggests the corporate firm will attempt to maximize the shareholder's wealth by taking actions that increase the current value per share of existing stock of the firm (Ross, Westerfield, and Jaffe, 2005). The contracts theory evaluates the corporation as a set of agreements between the manager and the shareholder. Managers are considered the agent and shareholders are the principal, with all parties acting in the best interest of each other.

Shareholders can discourage managers from unexpected or unethical behavior by developing incentives and keeping record of their operations. Agency costs are the sum of the monitoring costs of the shareholder and the cost of implementing control devices (Ross, Westerfield, and Jeffe 2005). Therefore, contracts will be devised with incentives for managers to maintain and maximize shareholder wealth. Corporations understand that they are not perfect and they conflict is expected to arise, resulting in residual loss. Residual loss is the lost wealth of shareholders due to unethical behavior by managers (Ross, Westerfield, and Jeffe, 2005).

Depending on the company and its current standing the financial manager may have more weight laid on keeping the company functioning and not necessarily be too worried about the residual value of the firm. The company may be hard presses to obtain financing to fund their investments and functions. This can limit

...

...

Download as:   txt (8.5 Kb)   pdf (109.9 Kb)   docx (11.6 Kb)  
Continue for 4 more pages »
Only available on Essays24.com
Citation Generator

(2011, 03). Role Of A Financial Manager. Essays24.com. Retrieved 03, 2011, from https://www.essays24.com/essay/Role-Of-A-Financial-Manager/37324.html

"Role Of A Financial Manager" Essays24.com. 03 2011. 2011. 03 2011 <https://www.essays24.com/essay/Role-Of-A-Financial-Manager/37324.html>.

"Role Of A Financial Manager." Essays24.com. Essays24.com, 03 2011. Web. 03 2011. <https://www.essays24.com/essay/Role-Of-A-Financial-Manager/37324.html>.

"Role Of A Financial Manager." Essays24.com. 03, 2011. Accessed 03, 2011. https://www.essays24.com/essay/Role-Of-A-Financial-Manager/37324.html.