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Role of the Financial Manager

Essay by   •  February 13, 2011  •  Research Paper  •  730 Words (3 Pages)  •  1,511 Views

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Examining the Role of the Financial Manager

Corporations operating in the United States are becoming more transparent in today's markets, mainly due to the Sarbanes-Oxley Act of 2002. Accountability has been increasingly placed on senior corporate officers to comply with the government regulations and validate the financial information presented to the firm's stockholders. The fact is that this does not always ensure a firm's financial managers, employees or the shareholders viewpoints on maximizing shareholder value are one and the same.

In the broadest sense of the term, a financial manager can be anyone within a firm that has the responsibility for major investments or decisions concerning financial matters (Brealey, Meyers, and Allen, 2005, p. 8). This responsibility falls on numerous individuals within a firm. In most United States firms, ultimate accountability for financial activities is in the hands of the corporation's Chief Financial Officer (CFO) and Chief Executive Officer (CEO), and at times less important officers (Ross, Westerfield, and Jaffe, 2004, p. 5).

The financial managers' job is to look for ways to create value from the financial activities of the firm. If the financial manager is not able to do this, or acts unethically in their position, this can result in the inability of maximizing share holder equity and quite possibly loss of business over time. The alternative is; by investing in assets that generate more revenue than the total investment or in selling of stocks, bonds, and other financial instruments more income is generated than the original investment cost (Ross, et. al, 2004, p. 6). This is the position financial managers strive to achieve for their shareholders.

Financial managers are faced with decisions regarding long-term investment strategies, the raising of cash for necessary investments, and the amount of short-term cash flow requirements to meet day-to-day operations (Ross, et. al, 2004, p. 2). They must make financial decisions in a timely manner, at times with limited information. When making these decisions the true direction of the company is at steak. If the attitude is survivalist; then the goal will be to generate only enough resources to keep the company in business. The survivalist financial manager limits the growth opportunities of the organization and revenues can greatly diminish.

Shareholders do not differ greatly from employees in their reason for selecting a corporation. Both shareholder and employees make this choice because of the potential income that can be realized over the future. Where the two begin to differ is the way the money is to be realized. The employee desires the firm to remain competitive and viable in its present form, long enough for each to retire or move on to another place of employment. On the other hand, the shareholder wants management to create optimal value from his or her investment. This is regardless of whether the workforce remains intact.

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