Roles of the Financial Manager
As already discussed, a company's strengths are its assets, either tangible or intangible. These assets include everything that a company own that, directly or indirectly, translates to cash. For example, physical equipment such as cars, computers, machinery and office equipment such as chairs, tables, copiers, etc. On the other hand, a company's workforce, patents, goodwill, etc. are some intangible assets. All this, in addition to cash, building and land are some of the total company's assets. But assets don't come and go as they please. They have to be led and guided. That's where the financial manager comes in. As illustrated in Figure 1.1, the flow of cash between assets and entities is the financial manager's job. In this figure, the first step (1) is to sell financial assets to the bank (taking a loan). This newly acquired cash is used to buy or employ real assets (2), for example buying new machinery or hiring new personnel. If everything goes according to plan, those assets will generate cash enough to repay the initial loan (3). Then, a crossroad arrives, where either the cash will be reinvested in the company's assets (4a), or is returned to the investors (4b) in step 1. This is an overview of the different paths an asset can take inside an organization. It is the job of the financial manager to guide the cash path and where and when it should be reinvested, returned or asked. Depending on the organization's financial and market position, different kind of assets is needed. For example, if a company's already has the key personnel needed to run, then the attention should direct to another kind of asset, like marketing. If, on the other hand, personnel and marketing are on top of the game, and the company's performing better than anticipated, maybe a bigger building or space is required to allow itself to expand. These are different kind of assets that depending on the company's specific situation will be needed. The...
References: Brealey, Myers, Marcus (2001). Fundamentals of Corporate Finance, Third Edition. McGraw-Hill Higher Education.
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