The financial manager is responsible for deciding the ideal mix of long and short-term financing. This ratio, also known as the firm’s capital structure, aims to maximize the company’s shareholders’ returns and minimize its risks. Another function of the finance manager is investment decision-making, which involves managing working capital and making decisions on buying or leasing assets. It also determines whether the firm distributes all of its profits to shareholders or keeps them in its business.
The COVID-19 pandemic has forced organizations worldwide to re-evaluate their business models, presenting new challenges and new demands on the finance function. Figure 4 shows the relative changes in time spent on finance-related activities. The largest increases in time have been in cash forecasting/management and risk management. As a result, these functions have become more important than ever before. However, there’s a balance between these two extremes.
The best finance functions automate the remedial data processing and focus on value-added activities. By implementing effective governance and using standardized data definitions, companies can drastically reduce their accounting costs. Data visualization tools help employees make better decisions and identify opportunities. Achieving a perfect balance between these two goals is the key to making your finance function run smoothly. Once you implement these practices, you’ll see the benefits quickly.
The finance function supports all business functions by providing the funds needed to run the business. From purchasing assets to meeting day-to-day expenses, the finance department is essential to the success of a business. Increasing profitability requires adequate financial resources. It also helps business diversify and modernize. Without adequate finances, the business cannot survive and will have trouble surviving. You can’t run without them. They help you determine what funds your business needs.
Lastly, the finance function must align its strategy with its performance mandate. It must activate capabilities that support traditional business models and extract maximum value from digital technologies. It must keep a clear sight into the capital markets and communicate a compelling message about value creation. The finance function must also be capable of building a strong performance culture. It must also create a culture that encourages innovation. Its role in the organization cannot be underestimated.
The finance department is responsible for making decisions about capital expenditure over time, investment and dividend distribution. These decisions have significant implications for the future cash flow and are essential for an organization to function smoothly. These decisions require a lot of administration skills and routine work. The control of cash flows and the management of non-cash assets are key for all finance functions. All finance managers must know how much cash is locked up in non-liquid assets.
Today’s finance functions must work as strategic partners. Their work is crucial to the long-term success of a business, and it needs to be fit for purpose. In order to stay competitive, finance teams must be able to leverage technology and collaborate across the organization to solve problems that can arise. If a company cannot handle these challenges, it will soon face insolvency. So, it is essential to manage both current assets and liabilities to avoid any risks.
The seventh function is financial decision-making. Managers have to make sound decisions about the acquisition of funds. There are a variety of ways to acquire funds, but the key aspect is that the correct ratio of equity to debt is maintained. This is called the firm’s capital structure. If a company wants to improve its capital structure, finance managers must optimize the financial decisions that are made by the company’s management. Ultimately, the finance function helps the company be more productive and cost-efficient.
The last finance function is investment decision-making. This involves the financial markets and institutions that help people transfer funds. A business will invest in assets that generate a return to its investors. Financial managers should evaluate the risks associated with these investments and make appropriate decisions. They need to determine whether it is worth investing in low-yield assets and which assets to hold onto for the long-term. A proper investment decision can increase the company’s profits and minimize its costs.
The financial system is one of the most important inventories in modern society. Every economic system has an imbalance of capital. While some people have surplus funds, others have deficit funds. The finance system works to facilitate this flow of funds by regulating and monitoring financial activity. The financial system consists of various institutions, markets, laws, and professionals such as investment bankers, money managers, and analysts. There are also other areas of finance that make up the financial system.
