Role of a Financial Manager

Financial activities of a firm is one of the most important and complex activities of a firm. Therefore in order to take care of these activities a financial manager performs all the requisite financial activities.

A financial manger is a person who takes care of all the important financial functions of an organization. The person in charge should maintain a far sightedness in order to ensure that the funds are utilized in the most efficient manner. His actions directly affect the Profitability, growth and goodwill of the firm.

Following are the main functions of a Financial Manager:

Raising of Funds
In order to meet the obligation of the business it is important to have enough cash and liquidity. A firm can raise funds by the way of equity and debt. It is the responsibility of a financial manager to decide the ratio between debt and equity. It is important to maintain a good balance between equity and debt.

Allocation of Funds
Once the funds are raised through different channels the next important function is to allocate the funds. The funds should be allocated in such a manner that they are optimally used. In order to allocate funds in the best possible manner the following point must be considered

The size of the firm and its growth capability
Status of assets whether they are long-term or short-term
Mode by which the funds are raised
These financial decisions directly and indirectly influence other managerial activities. Hence formation of a good asset mix and proper allocation of funds is one of the most important activity

Profit Planning
Profit earning is one of the prime functions of any business organization. Profit earning is important for survival and sustenance of any organization. Profit planning refers to proper usage of the profit generated by the firm.

Profit arises due to many factors such as pricing, industry competition, state of the economy, mechanism of demand and supply, cost and output. A healthy mix of variable and fixed factors of production can lead to an increase in the profitability of the firm.

Fixed costs are incurred by the use of fixed factors of production such as land and machinery. In order to maintain a tandem it is important to continuously value the depreciation cost of fixed cost of production. An opportunity cost must be calculated in order to replace those factors of production which has gone thrown wear and tear. If this is not noted then these fixed cost can cause huge fluctuations in profit.

Understanding Capital Markets
Shares of a company are traded on stock exchange and there is a continuous sale and purchase of securities. Hence a clear understanding of capital market is an important function of a financial manager. When securities are traded on stock market there involves a huge amount of risk involved. Therefore a financial manger understands and calculates the risk involved in this trading of shares and debentures.

Its on the discretion of a financial manager as to how to distribute the profits. Many investors do not like the firm to distribute the profits amongst share holders as dividend instead invest in the business itself to enhance growth. The practices of a financial manager directly impact the operation in capital market.

Capital Structure – Meaning and Factors Determining Capital Structure

Meaning of Capital Structure
Capital Structure is referred to as the ratio of different kinds of securities raised by a firm as long-term finance. The capital structure involves two decisions-

Type of securities to be issued are equity shares, preference shares and long term borrowings (Debentures).
Relative ratio of securities can be determined by process of capital gearing. On this basis, the companies are divided into two-
Highly geared companies – Those companies whose proportion of equity capitalization is small.
Low geared companies – Those companies whose equity capital dominates total capitalization.
For instance – There are two companies A and B. Total capitalization amounts to be USD 200,000 in each case. The ratio of equity capital to total capitalization in company A is USD 50,000, while in company B, ratio of equity capital is USD 150,000 to total capitalization, i.e, in Company A, proportion is 25% and in company B, proportion is 75%. In such cases, company A is considered to be a highly geared company and company B is low geared company.

Factors Determining Capital Structure
Trading on Equity- The word “equity” denotes the ownership of the company. Trading on equity means taking advantage of equity share capital to borrowed funds on reasonable basis. It refers to additional profits that equity shareholders earn because of issuance of debentures and preference shares. It is based on the thought that if the rate of dividend on preference capital and the rate of interest on borrowed capital is lower than the general rate of company’s earnings, equity shareholders are at advantage which means a company should go for a judicious blend of preference shares, equity shares as well as debentures. Trading on equity becomes more important when expectations of shareholders are high.
Degree of control- In a company, it is the directors who are so called elected representatives of equity shareholders. These members have got maximum voting rights in a concern as compared to the preference shareholders and debenture holders. Preference shareholders have reasonably less voting rights while debenture holders have no voting rights. If the company’s management policies are such that they want to retain their voting rights in their hands, the capital structure consists of debenture holders and loans rather than equity shares.
Flexibility of financial plan- In an enterprise, the capital structure should be such that there is both contractions as well as relaxation in plans. Debentures and loans can be refunded back as the time requires. While equity capital cannot be refunded at any point which provides rigidity to plans. Therefore, in order to make the capital structure possible, the company should go for issue of debentures and other loans.
Choice of investors- The company’s policy generally is to have different categories of investors for securities. Therefore, a capital structure should give enough choice to all kind of investors to invest. Bold and adventurous investors generally go for equity shares and loans and debentures are generally raised keeping into mind conscious investors.
Capital market condition- In the lifetime of the company, the market price of the shares has got an important influence. During the depression period, the company’s capital structure generally consists of debentures and loans. While in period of boons and inflation, the company’s capital should consist of share capital generally equity shares.
Period of financing- When company wants to raise finance for short period, it goes for loans from banks and other institutions; while for long period it goes for issue of shares and debentures.
Cost of financing- In a capital structure, the company has to look to the factor of cost when securities are raised. It is seen that debentures at the time of profit earning of company prove to be a cheaper source of finance as compared to equity shares where equity shareholders demand an extra share in profits.
Stability of sales- An established business which has a growing market and high sales turnover, the company is in position to meet fixed commitments. Interest on debentures has to be paid regardless of profit. Therefore, when sales are high, thereby the profits are high and company is in better position to meet such fixed commitments like interest on debentures and dividends on preference shares. If company is having unstable sales, then the company is not in position to meet fixed obligations. So, equity capital proves to be safe in such cases.
Sizes of a company- Small size business firms capital structure generally consists of loans from banks and retained profits. While on the other hand, big companies having goodwill, stability and an established profit can easily go for issuance of shares and debentures as well as loans and borrowings from financial institutions. The bigger the size, the wider is total capitalization.

The Almost “Secret Ingredient” to a Highly Profitable Business

Recently, I watched probably one of my favorite movies of all time:

Kung Fu Panda.

Now, before you write this off as a stupid animated movie, there’s a GREAT business lesson hidden inside if you’re an expert, consultant, or coach.

Here’s the TL;DR version of the movie:

1) A big fat panda, Po, is “accidentally” picked to become the chosen one

2) His master, Shifu, doesn’t want to train him because Shifu believes Po was chosen by accident

3) The great master Oogway, however, tells Shifu that “there are no accidents”

4) Shifu finally teaches Po the art of kung fu. Eventually, Po is entrusted with the legendary “Dragon Scroll” which holds the ancient secrets to save the kingdom

5) Po opens the Dragon Scroll only to find… nothing… and realizes: “There is no secret ingredient.”

The essence is simple:

Po always had everything he needed to become “the chosen one.”

He didn’t need anything fancy.

What he actually needed was the right mentor and the right training program.

Here’s my point:

Just like Po realized that there is no secret to becoming the “chosen one.”

No matter what the Fakebook guru’s preach, there is *NO* secret “hack,” “funnel,” or “tactic” that will turn your business into a profitable one.

Of course, you *can* find new tactics, hacks, and whatever. But, if your foundation isn’t solid (i.e., if your strategy is weak). It won’t matter which new hack you try to install into your business.

Whether that’s Facebook hacks… webinars… Instagram… or, insert whatever new tactic the latest Fakebook guru’s try to shove down your throat. Eventually, it’s only a matter of time before your business crumbles beneath its own weight.

The closest thing to a “hack” that can take you from frazzled entrepreneur to profitable business owner is learning how to write emails that sell.

The only difference is that email marketing isn’t a hack… it’s a powerful strategy.

In my opinion (which, of course, makes it a fact).

This was true when I worked my corporate job and sold for millions of dollars by email and online marketing.

And it’s been true in my own business.

To round this off.

Let me close with my favorite quote from the late, great, and esteemed, Mr. Eugene M. Schwartz.

This quote is as relevant today as it was when Eugene Schwartz unleashed these true words upon the world of advertising:

“The task of a copywriter is not to create this mass desire – but to channel and direct it.” – Gene Schwartz

Take that to heart the next time you sit down to write your latest email designed to sell.
If you want to discover how to 2x your sales and get more clients for your business, my free online training session is a great place to start.

You’ll learn how to use the old-school principle of “Infotainment” to write emails that people LOVE to read. Including: How to write stories so compelling they immediately draw customers in – even if you’re not a professional writer… and much more.