who is responsible for the financial decisions that arise in a course of business?

Full Answer

What are the financial decisions taken by a finance manager?

Financial decisions are taken by a finance manager alone or in conjunction with his other executive colleagues of the enterprise. In principle, finance manager is held responsible to handle all such problems as involve money matters.

What is the role of a financial manager in an organization?

The financial manager’s responsibilities include financial planning, investing (spending money), and financing (raising money). Maximizing the value of the firm is the main goal of the financial manager, whose decisions often have long-term effects. The inflow and outflow of cash for a firm.

What are the financial functions of a firm?

The functions of raising funds, investing in assets and distributing returns to shareholders are main financial functions or financial decisions in a firm. The finance functions are divided into long-term and short-term decisions as mentioned below:

Why are financial decisions looked upon as cutting across functional boundaries?

Likewise, finance manager has to take decision regarding disposition of business income without consulting other executives since various factors involved in the decision affect ability of a firm to raise funds. In sum, financial decisions are looked upon as cutting across functional, even disciplinary boundaries.

Who is responsible for financial decisions?

Financial decisions are taken by a finance manager alone or in conjunction with his other executive colleagues of the enterprise. In principle, finance manager is held responsible to handle all such problems as involve money matters.

What should a finance manager consider when making a decision?

While taking financing decision a finance manager should also give due consideration to the requirements of potential investors. There may be different types of investors with varying degree of safety, liquidity and profitability notions.

What is dividend policy?

Dividend policy of a firm should also be attuned to changing economic conditions. If it lurks that the business is entering upon a period of depression, conservatism should be followed, for the business may need all of its cash resources to carry it safely through the period of decline until its sales soar.

Why do firms with fixed assets need to rely on debt?

Firms with sufficient amount of fixed assets must rely on debt to take advantage of cheaper source of financing. For example, public utilities and steel companies can depend heavily on debentures for raising capital as they can mortgage their assets for securing loan.

Why is it important to be a finance manager?

A finance manager has to exercise a great skill and prudence while taking financial decisions since they affect financial health of an enterprise over a long period of time. It would, therefore, be in fitness of things to take the decisions in the light of external and internal factors. We shall now give a brief account of the impact ...

What is the most predominant factor influencing business decisions since it takes away bigger slice of business income?

Taxation Policy: Taxation is the most predominant factor influencing business decisions since it takes away bigger slice of business income. While deciding to invest in projects, a finance manager has to keep in view the existence of tax incentives.

What is financial decision?

Financial decisions refer to decisions concerning financial matters to a business concern. Decisions regarding magnitude of funds to be invested to enable a firm to accomplish its ultimate goal, kind of assets to be acquired, pattern of capitalization, pattern of distribution of firm’s income and similar other matters are included in financial ...

What are the responsibilities of a financial manager?

They analyze financial data prepared by accountants, monitor the firm’s financial status, and prepare and implement financial plans.

What is the role of financial management in accounting?

But the accountant’s main function is to collect and present financial data.

What is financial management?

Financial management —the art and science of managing a firm’s money so that it can meet its goals—is not just the responsibility of the finance department. All business decisions have financial consequences. Managers in all departments must work closely with financial personnel.

How is the value of a publicly owned corporation measured?

The value of a publicly owned corporation is measured by the share price of its stock. A private company’s value is the price at which it could be sold. To maximize the firm’s value, the financial manager has to consider both short- and long-term consequences of the firm’s actions. Maximizing profits is one approach, ...

Does money from sales come in?

But money from sales doesn’t always come in when it’s needed to pay the bills. Financial managers must track how money is flowing into and out of the firm (see (Figure) ). They work with the firm’s other department managers to determine how available funds will be used and how much money is needed.

What does it mean to be financially responsible?

Arriving at "Responsible". Ultimately, financial responsibility means living within your means, regardless of the level of those means. So take a close look at your financial situation, evaluate your earning and spending habits, and make the necessary adjustments to put yourself on responsible financial footing.

What does financial responsibility mean?

Financial responsibly means doing what you have to do to take care of your needs and the needs of your family. To make this happen, your focus should be internal. The neighbors aren't paying your bills, so their spending habits shouldn't dictate yours or set the bar for your standard of living .

What is the importance of budgeting?

Budgeting. Having a budget is one of the core pillars of financial responsibility. You should know where your money is going. Business owners know the importance of understanding their cash flows and balance sheets; as a result, no successful business exists without a budget. Neither should you.

Why is it important to use credit cards responsibly?

Responsible use of credit means paying the balance on your account in full each month. Also, credit cards should be used for convenience, not to make ends meet. Credit cards are handy because they eliminate the need to carry cash. Plus, you can generate reward points. Credit cards can be very helpful in an emergency.

Is it easier to cut down on interest or borrowing?

For many people, cutting down on interest and borrowing is easier said than done, but in practice, it really comes down to knowing the difference between necessities and luxuries. For example, you might need a car, but you don't need a top-of-the-line model and, unless you can afford to pay for it in cash, you shouldn't be driving one.

What are the key aspects of financial decision making?

The key aspects of financial decision-making relate to financing, investment, dividends and working capital management.

What is a financial decision?

A financial decision which is concerned with the amount of finance to be raised from various long term sources of funds like, equity shares, preference shares, debentures, bank loans etc. Is called financing decision. In other words, it is a decision on the ‘capital structure’ of the company.

What is a bad working capital decision?

A bad working capital decision affects the liquidity and profitability of a business.

What is a long term investment decision?

A long term investment decision is called capital budgeting decisions which involve huge amounts of long term investments and are irreversible except at a huge cost. Short-term investment decisions are called working capital decisions, which affect day to day working of a business.

How does working capital management affect liquidity?

Working capital management also involves risk-re- turn trade off as it affects liquidity and profitability of a firm. Liquidity is inversely related to profitability, i.e., increase in liquidity results in decrease in profitability and vice versa. Higher liquidity would mean having more of current assets. This reduces risk of default in meeting short term obliga­tions.

Why do investors expect dividends?

Dividend decision also involves risk return trade off. Generally investors expect dividends because dividends resolve future un­certainty attached with capital gains. So a company should pay dividends. However when a company, having profitable investment opportunities pays dividends, it has to raise funds from external sources which are costlier than retained earnings.

How does fixed operating cost affect financing decisions?

Fixed operating costs of a business influence its financing decisions. For a business with high operating cost, funds must be raised from equity as lower debt financing would be better. On the other hand, if the operating cost is low, business can afford to pay high fixed charges therefore, more of debt financing may be preferred.

Handling Material Non-Public Information

For many professionals who deal with securities, instances may arise where they come into possession of material non-public information. This type of information is defined as anything that might have an impact on the price of a security that has yet to be made publicly available. 1 

Analysis Using Mosaic Theory

Insider information is not a black and white concept by any means. Quite often, professionals may stumble upon such information unwillingly or overhear conversations in and around the office.

Reporting Unethical Activities

We know what you're thinking... "I'm an honest person, and I wouldn't put myself in a situation where my ethical standards would be questioned." That may be true, but professional ethics and standards go beyond the individual — ethics is an industry-wide effort.

The Bottom Line

This only scratches the surface of the types of ethical dilemmas and situations that financial professionals may face on any given day. Over the years, financial professionals have been involved in countless scandals and allegations of fraud which have rocked the industry and given financial professionals a black eye.