Chapter 1 - Financial Management Objectives

Question 1

What is the role of the financial manager

Answer 1

To make the right decisions in order to achieve the objectives of the company in the future

Question 2

What are the 4 key areas that the financial manager is concerned with ?

Answer 2

1. Raising long term capital - the company needs finance for investment in order to expand and it is the job of the financial manager to be aware of the different sources of finance and to decide which source to use
2. Investment decisions - Decisions have to be made as to where capital is to be invested. For example is it worth launching a new product or expanding the factory or perhaps acquiring another company
3. Management of working capital - in order for a company to operate it will have to accept certain levels of receivables and accept certain levels of inventory. Although these are needed to operate the business successfully they require long term investment of capital that is not directly earning profits.

Receivables and inventory are just two components of working capital ( working capital = current assets less current liabilities)

4. The management of risk - one of the roles of financial manager is to manage the risk due to changing exchange rates if the business trades abroad e and yo manage the risk due to changes in interest rates if the business borrows or deposits money