The Role of Financial Management in a Firm
In an organization, financial management plays a critical role pertaining to the financial success of the organization. Therefore, an organization should always consider the financial management as the key component that contributes to the general management of the firm. Financial management includes strategic goals and tactics that are related to the financial resources of a firm. Some of the specific roles that are included in financial management systems include, book keeping, accounting, accounts receivable and payable, risk, and investment opportunities. Therefore, the financial management must understand they key financial documents of an organization, such as the balance sheet, statement of cash flow, and income statement. This paper observes the role of financial management in a firm by analyzing the various aspects that pertain to financial management.
Various Aspects of Finance that Management Must Understand
The management of an organization acts as the major determinants of the financial success of an organization. This is because decisions made by financial managers tend to intensively influence the way all the business activities of an organization are conducted.
A financial manager, as the leader of the financial team of an organization is responsible for providing financial support and advice to colleagues and clients in order to enable them make effective business decisions. Therefore, in a business organization, the role of financial manager goes beyond accounting to other multifunctional aspects of effective operation of the firm. Financial managers, therefore, must understand all aspects of the organization to enable them offer adequate support and advice to the chief executive officer pertaining t decision making and enhancing the company profitability and growth (QFinance, 2013). The management must, therefore, understand financial reports, how to implement cash management strategies, direct investment activities, and implementation of long term goals.
An effective financial manager must be able to go through the financial reports of an organization and understand what the indications means to the firm. Through this, the financial manager will be able to provide sufficient advice on measures to be taken for the effective running of the business organization. Similarly, a financial manager should be able to weigh out on the most effective investment activities of the organization.
Why a manager needs to understand the characteristics and importance of financial markets
A financial market is a place is a place whereby financial instruments are traded or exchanged. It, therefore, provides the following major economic functions: Price discovery, reduction of transaction costs, and liquidity. Price discovery is an important function of the financial market because the price of the traded asset is determined by buyers and sellers interaction in the market and the nature of the traded asset. Liquidity function is essential because it provides information of the ability of the subject commodity to fairly sell in a given market at any time, contrary to this, the investor may be forced to hold the commodity. Reduction of transaction costs, on the other hand, implies the charges that the participants in the market are subjected during a transaction (BCCC.bg, 2010). Therefore, a financial manager must understand the characteristics and importance of financial markets in order to make effective decisions pertaining to trading in the market.
QFinance, (2013). The Role of a Financial Manager. Retrieved From, http://www.qfinance.com/balance-sheets-checklists/defining-the-financial-managers-role On June 21, 2013.
BCCC.bg, (2010). Financial Markets. Retrieved From, http://www.bcci.bg/projects/latvia/pdf/7_Financial_markets.pdf On June 21, 2013.