In the period of globalization, the size of the firm and its operation are increasing rapidly and the management and financial system are going to be complicated day by day. That’s why to manage the overall financial activities the finance department must be specialized with the experts in financial areas. Before going to the key point let us see what finance is and what the financial system is.
In simple words, finance means a technical and strategic way of managing financial affairs. Some authors define it as the art and science of managing financial activities.
Gitman presented this subject as “Finance is concerned with the process. Institutions market and instruments involved in the transfer of money among individuals. Business and governments” (Searcy, and Gitman, 2005). And financial is concerned with collecting. Money investing money setting up business setting up personnel lounges new product estimating and calculating the profit and so on. In a single sentence, it can be said that the design of the overall financial activities of a company is called a financial system. The financial manager who is responsible for managing the finance department actively manages all financial and non-financial activities of his departments. The financial system has to broad areas:
- Financial service.
- Managerial finance.
Financial service is one of the most important areas of the financial system It focuses on the design and distribution of advice and financial products to individuals businesses and other affiliates.
On the other hand, managerial finance focuses on the duties and responsibilities of a financial manager in a business organization. A financial manager has to perform a wide variety of roles in the business firm. First of all, he/she has to design and make a plan in which area they do business how much they spend over there and how much profits they expect from that projects. The financial manager has to extend credit to customers evaluate proposed large expenditures consider and calculate the present and future value of money and raising money to find the firm’s operations.
As a result of globalization, business organizations have increased their sales purchase investment raised funds dramatically. This changing situation created the job of financial manager more complicated. They have to manage cash flows considering different currencies. They have to play a vital role to project the firm from different risk which arises from the international transactions.
People who are in charge of any activities of who are given responsibility must have better interaction and communication with the finance personnel and procedures to get their jobs done. It can better be explained by explaining the role of the finance department.
The size and significance of the finance department depend on the size of the organization. If the size of the business is small then the accounting department is enough to perform the financial activities. But if the firm is a large one then the function is divided into separate departments related to the company president of CEO through the chief financial officer (CEO).
In a large firm, the (CEO) Chief Executive officers are generally reported by the treasurer and the controller. Whereas the treasure deals with the activities of handling financial activities like financial planning. Collecting fund. Formulating capital expenditure decisions. Managing cash a credit affairs designing pension funds and handling the foreign currencies.
On the other hand, the controller is responsible for the accounting activities including corporate accounting, tax management, financial accounting, and cost accounting. The controller puts his/her eyes in the internal affairs of the company. It has been already mentioned that the present business condition is very complicated and competitive. In this case finance department my rise a couple of employees whose main job is to monitor and manage the firms’ exposure to loss from currency fluctuations. Before setting up them or giving the power the new employee would be trained up properly and they should be well known by the financial investment.
Besides this, the financial manager has to take investment decisions and financial decisions. These are showing by the following diagram:
With the going business concern, the business firms are setting up a new standard of conduct or moral judgment. Most business leaders believe that strong ethical standards increase their goodwill which ultimately had to strengthen their competitive position.
There are some tools that must be considered while making an investment decision. There is the time value of money, cash flows, and rich. IRR (Internal Rate of Return) etc. It has been said that the “Stridden Marks” has become the public limited company through the initial thing (IPO) system. Before entering into the stock market proper valuation is necessary. Valuation is the process that creates a link between risk and returns to determine the worth of an asset. There are three key terms which is used in the valuation process That is:
- Cash flows, (Return).
- Timing.
- Measure of Risk
There are three major cash flow components. That is:
- Initial investment.
- Operating cash inflows.
- Terminal valuation.
The financial analyst has to pay attention while selecting a project. The finance departments have to rank the project according to their required rate of return and choose the best one which has the most positive internal rate of return among the alternatives.
Bibliography
Searcy, Cory. Gitman, J. Lawrence. (2005). The Principles of Managerial Finance. 11 ed. Pearson Prentice Hall.