The Role and Responsibilities of Financial Managers

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  • 0:07 Financial Management
  • 1:17 Financial Managers -…
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Lesson Transcript
Instructor: Shawn Grimsley
Financial managers play a pivotal role in the success of companies. In this lesson, you'll learn about the duties and responsibilities of financial managers. You'll also have a chance to take a short quiz after the lesson.

Financial Management

Meet Milton. He works in financial management. Milton's job is pretty important. In a nutshell, Milton's job in financial management involves allocating the financial resources of a company in a way that maximizes its wealth and profitability.

Let's expand upon this concept a bit. We can break down financial management activities into three broad categories: capital budgeting, financing and dividend policy.

Capital budgeting involves decisions about what investments a business will make with its resources. For example, Milton may help the president of his company figure out if a new business is worth the investment in financial terms.

Financing involves decisions about what external resources should be brought into the business to be used for investment in profitable enterprises. Examples of outside resources include funds acquired from investors from purchase of company stock and funds acquired from creditors through loans.

Dividend policy is the decisions about profits to be distributed to equity investors, such as shareholders. Milton may help determine if there is sufficient revenue to cover the company's expenses and anticipated investments and still provide for a dividend distribution.

Financial Managers - Role & Duties

Some small businesses may not have a full-time financial manager. The company's owner or president may fulfill this role. On the other hand, very large corporations will have a team of financial managers that fulfill specialized roles. Let's look at some of these roles.

If Milton is responsible for his company's accounting activities, such as reporting and analysis of the company's earnings, expenses and overall financial position, he is serving as controller. Controllers also play an important role in regulatory reporting.

The people at the top of the financial management food chain are typically the treasurer and finance officers of the company. These folks are involved in overseeing and directing the budgets and investments of the company. They are also involved in strategy formulation.

Financial management also involves managing risk. Risk managers fill this role. For example, if Milton is serving as a risk manager, his job is to reduce and mitigate the financial risks the company is exposed to due to its business, such as ensuring the company is adequately insured.

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