Decisions financial managers make

I. Analyze Roles and Responsibilities for Compliance

A. Examine the types of decisions financial managers make. How are these decisions related to the primary objective of financial managers?

Every financial manager has three major decisions they must make to ensure the business runs smoothly. The first decision for financial managers to make is an investment decision or capital budgeting decision. The firms have many options to invest their funds with the firms selecting the most appropriate investment that will bring the maximum benefit for the firm (Pujari). One factor that affects the investment decisions is the cash flow project because it will need to be assessed properly before investing in the proposal (Pujari). Another factor that affects the investment factor is the return on investment because it will be able to bring back for the company (Pujari). The final factors that affect the investment decisions are the risks involved and the investment criteria. There are risks involved with any investment, so every proposal should be prepared with a moderate degree of risk only and the finance manager must compare all the available alternatives carefully by deciding where to invest the scarce finance of the firm (Pujari). It relates to the primary objective of financial managers by the careful selection of assets, which the funds will be invested for the firms.

Another decision for financial managers to make is financing decisions because a company can raise finance from various sources what include shares, taking loans and advances, or debentures. The main sources of finance can be divided into two categories which are owner’s funds and borrowed funds. The owner’s funds include retained earnings and share capital while borrowed funds include debentures, bonds, loans, and extra (Pujari). Some factors that affect the financing decisions include the cost, risks, cash flow position, control considerations, floatation cost, fixed operating cost, and state capital market. It relates to the primary objective of financial managers because the finance manager’s main concern is deciding how much to raise from both the owner’s funds and borrowed funds while comparing the advantages and disadvantages (Pujari). The borrowed funds will have to be paid back and involve some risks where the owner’s funds have no fixed commitment of repayment and no risk involved. The last decision for financial managers to make is working capital management decisions. Working capital management is concerned with short term cooperate financing by focusing on the management of association between the short term liabilities and short assets of a company (Working Capital Management). The main purpose of the working capital management is to make sure the company is capable of carrying out its functions and the company is meeting the short term obligations by receiving adequate cash flow.

As a company grows, the more strategic planning and outsourced functions coming in expands the financial manger’s roles and responsibilities. One responsibility of a financial manager is planning by using a long term financial strategy for the company when they delegate bookkeeping to the staff (Ashe-Edmunds). The financial managers will set goals for achieving specific gross profits, revenues, and profit margins with setting targets for production and overhead expenses (Ashe-Edmunds). This will create a master budget which is tied to the business’s accounts receivable, balance sheet, and payable reports that include cash flow and profit or loss statements. Another major key responsibility for a financial manager is cost containment by controlling the company’s expenses with setting spending levels and cutting costs (Ashe-Edmunds). They can create a request for proposals and purchasing polices for contractors to make sure the business is getting a combination of quality and price.

The most important role of a financial manager is cash flow management because it refers to the receipt of the actual money and payment of bills. It includes the monitoring of the receivables turnover by keeping enough cash and credit reserves available that keep the company financially stable (Ashe-Edmunds). If the company did not negotiate customer credit terms or supplier and vender terms right then the company will be waiting to collect the sales invoices after the bills are due (Ashe-Edmunds).