Question

Financial managers work in just about every industry and every country in the world. In fact, in 2013, the need for financial managers increased by almost 4%, creating over 5,000 new positions worldwide.

Why is the financial management position becoming so important? What do financial managers do and what types of businesses employ financial managers? The responsibilities of and need for financial managers? Explain the responsibilities of financial managers working in global business environments. Then, describe the types of businesses which might employ a financial manager, and explain the need for such a position at businesses.

Year	0	1	2	3	4
Machine investment	(94)
Marketing research cost	(2)
Net working capital	(15)
Revenue		78	78	78	78
Costs		(36)	(36)	(36)	(36)
Pre-tax profit		42	42	42	42
Tax (20%)		(8.4)	(8.4)	(8.4)	(8.4)
Free cash flow	(111)	33.6	33.6	33.6	33.6
NPV@15%	(15.07)

Answer 1

Solution:-

Importance of financial management and thus the financial management positions:

There is no ambiguity when it comes to the goal of doing any business. Any business survives and thrives on its ability to generate profits in the long-term. This requires a suitable business model that has the promise of providing financial resources to the business to grow and enough financial returns to the investors.

While the industry-related strategic expertise is no doubt very crucial which is why the CEO of the any company posses that, it is equally important that the strategic decisions taken by the management and board is well supplemented by required financial analysis by the financial managers.

This ensures that the decisions taken by the management are financially sound, is in line with the financial position (balance sheet) of the business and generates wealth for shareholders.

Since the great recession of 2008, the focus of companies around the world has increases more towards profitability and a financially sustainable business model, which is why we have seen a growth in financial management positions around the world.

What type of businesses employ financial managers?

Since the goal of any business is to generate financial returns, every industry requires financial managers and therefore employs them.

What do financial managers do?

In simple words, financial managers take care of the financial well-being of a company, ensure that the business runs profitably and that has access to required financial resources to meet the growth targets

What are their responsibilities and needs?

The primary roles and responsibilities filled in by the financial managers include the following:

• Evaluating the financial feasibility of various projects, i.e. capital budgeting decisions
• Deciding the optimal capital structure, evaluating the various sources of capital, and ensuring that the business' cost of capital is as low as possible
• Evaluating various targets for mergers and acquisitions (business combinations)
• Analysing the periodic financial performance and identifying the scope of improving profitability
• Working capital management, including ensuring the short-term liquidity, debtors management, credit policies, inventory policies, etc.
• Ensuring adherence to adequate financial reporting, auditing, and ensuring that required financial internal controls are exercised in the organisation

What are their responsibilities in global business environments?

In the era of MNCs where a company operates in multiple countries, the role of financial managers become even more important. In addition to the conventional responsibilities, financial managers need to take care of the following:

• Managing the foreign exchange risk through appropriate strategies, such as hedging, etc
• Evaluating projects for multiple geographies, taking in to account the respective markets, competitive scenarios, taxability, macro-risks, financial and regulatory policies, cost of capital, and financial risks involved
• Hedging the interest rate risks if debt capital is raised in foreign markets.
• Dividend policies for foreign subsidiaries, taking into account the growth targets, taxability, etc

Type of business that requires financial managers and their need:

Any business which operates at a decent scale will need financial management and thus financial managers. Only the businesses that are too small, operates locally and can be managed by the business owners themselves can do without professional financial managers. Other than that, all medium and large businesses require to hire financial managers.

The need of financial managers is to ensure that the business takes financially feasible decisions, the financial position remains strong and resources are allocated appropriately in line with the goals of the business.