In the end, financial management is there to help the company achieve its goals. The end result of all these goals is usually the same, though: making a ton of money. This is referred to as “profit maximization,” which means steering resources to maximize return on investment (ROI) and capital use. Since they guarantee the most return on investment, shareholders typically benefit from profit-maximizing business operations. Therefore, producing as much money as possible through prudent, well-informed financial decisions is the main goal of financial management for many businesses. To learn more, take a look at these goals of finance manager.
Applicable to businesses of all sizes, Corning, with a 160-year history, prioritizes a long-term view over quarterly results. Known for cutting-edge technology, it specializes in glass and ceramic products, including Gorilla Glass for smartphones. Originally famed for Pyrex and Corelle, Corning is now a technology enterprise, particularly in communications technology with optical fiber. High costs in research and development, machinery, and equipment contribute to the expense of their product lines.
Goals of Finance Manager
Just imagine for a second if a company operating in a very competitive and technologically advanced industry decided to forego all research and development efforts. Considering the astronomical price tag of R&D, this would quickly amass a substantial fortune. The company’s capacity to compete will likely erode over time due to its lack of new product development. To maximize long-term profits for the business is the holy grail of financial management. To accomplish this overarching purpose, a financial manager must concentrate on a number of smaller, more particular objectives, such as planning, reducing expenses, managing cash flow, and complying with the law. For your research and knowledge purposes, below is a list of goals of finance manager.
Controlling Funds
While a company’s budget takes expenses and income into consideration, cash flow shows how much the company really gets and how much it pays its creditors. Assuring a smooth flow of funds into and out of the business is a top priority for every financial management. Any business that thinks it will get its money ahead of schedule is being naïve. This remains valid regardless of whether the business is indebted to its customers. Making sure there are enough funds to pay bills is the main goal of a company’s cash management policy. The corporation maintains a healthy cash and credit reserve to ensure the stability of its finances.
Price and Management
It will take more than one strategy to get costs down. It is not enough to only set spending limits and come up with ways to decrease costs. Requests for bids, bidding procedures, and purchasing restrictions pertaining to vendors, suppliers, and contractors are all responsibilities of a finance manager. Following this course of action is the only surefire way to maximize ROI for the company. In addition, CFOs and other financial managers need to decide if the business would be better off handling the task in-house or contracting it out. To do this, they look at the resource needs of the business both now and in the future. In addition, the financial manager is responsible for managing the company’s debt and taxes in a way that minimizes interest payments and tax liabilities.
Providing Information
The company’s compliance with its reporting obligations is one example of a responsibility that falls on the shoulders of the finance manager. They achieve this by keeping precise financial records and by keeping themselves apprised of all applicable legislation. Businesses are obligated to provide financial information to the government for tax collection and public record-keeping, making it a crucial aspect of doing business. Providing accurate information in these matters enhances the company’s public image.
Maximizing Earnings Per Share
Making the most money possible after taxes, considering all of the current owning shares, is called earnings per share (EPS maximization). Producing as much money as possible while taking both requirements and qualities into account is relevant to this goal. It’s crystal clear what kind of profit is being considered and how it will be measured. A decline in value could occur if earnings per share (EPS) increase. This is because the effect of payment strategy on value is disregarded entirely. Achieving accurate financial reporting and fostering a positive public image are also key goals for a finance manager.
Observance of Law
Ensuring that the company meets all of its legal monetary obligations is the responsibility of the financial management. The provision of employee benefits, compliance with federal and state wage standards, reporting to the Securities and Exchange Commission (in the case of a public sector organization), and payment of sales and income taxes are all examples of such obligations. In addition, it is the finance manager’s job to make sure the business follows all industry regulations. To meet these regulatory standards, a financial manager may work with either internal staff or external consultants, including tax experts and CPAs.
Controlling
The financial manager of an organization oversees fund management, including budgeting, expenditure tracking, and making necessary adjustments to fund utilization. So, it is their responsibility to ensure or enhance profitability. To ensure the company is on the right track to achieve its goals and long-term profitability, they monitor these changes and compare them to predictions.
Making Plans
A financial manager’s role is to oversee the day-to-day accounting operations of the business, while an accountant’s concentration is on developing strategic plans for the company’s financial resources. Some examples of such tactics include limiting expenses related to labor, production, and debt-serve management fees and establishing concrete targets for revenue, profit margin, and gross profit. Additionally, in the event that a business generates more capital than it requires, he will need to determine the best investments to make.
Beyond that, he might think of ways the business can buy other businesses or obtain capital. A master budget, also called a budget deviation analysis, will be necessary for him to build these plans. The budget will consider the organization’s profit and loss statements, cash flow records, and accounts payable reports. The finance manager will regularly review this budget variance analysis to assess if the company is meeting its objectives. If the company’s goals aren’t met, he will help figure out what needs to change.
Achieving Maximum Profitability
Focusing solely on the exact profit figure may obscure important details. Connecting profit to factors like sales, output, capacity utilization, or asset spending is crucial. Profitability, considering scale, takes precedence over the core objective of profit maximization. Calculating profitability through ratios like profit divided by sales or ROI provides a more precise picture. ROI, calculated by dividing profit or return by average expenditure, helps evaluate investment profitability. Other indicators, like profit per rupee of sales and capital turnover, show a company’s profit generation and activity levels. Choosing the right metrics maximizes investment returns.
This aim’s scores were identical to those of the goal of maximizing profits. Aside from a little detail, the negative evaluations for this objective are the same as those for the goal of maximizing profits. Maximizing one’s financial gain does not establish a fixed foundation. But you need make sales and/or investments if you want to make the most money. So, it’s a subjective metric. By this measure, it outshines the objective of making as much money as possible. Unfortunately, I must inform you that this objective received a “qualified” grade due to additional factors that may reduce its desirability.
Optimizing Liquidity
An organization’s liquidity, the ability to pay short-term bills, depends on factors like current asset-to-liability ratio, asset quality, relationships with creditors, and more. Signs of a healthy firm include a rising current ratio, balanced current assets, a dynamic balance, and a match between asset maturities. Maintaining high liquidity involves using current assets, showing empathy for creditors, and aiding bank employees. Generating enough cash flow for day-to-day operations is crucial, as insufficient liquidity may lead to bankruptcy. Companies with substantial financial reserves can seize opportunities, but finding a balance between excess cash and strategic allocation is essential.
Maximizing Profits
Generating maximum profit is one of the declared objectives of financial management. After deducting all costs from revenue, the remaining amount is the profit. Achieving maximum profitability requires either raising revenues relative to expenditures or cutting expenditures relative to revenues, or doing both at once. Maximizing profits is within reach when one employs price and scale methods. To maximize earnings, you can raise the price of the product if demand doesn’t reduce by the same amount. Maximize your profit by selling more products and capitalizing on the price-elasticity of demand. A number of factors affect the potential for cost savings, including volume, cost awareness, and the state of the input market. To maximize profits, you need to do a few different things.
The author outlines various restrictions, making the pursuit of maximum profit uncommon. Challenges include defining profit (gross, before taxes, net, etc.) and clarifying if it’s for the near or distant future, each influencing decision-making. Long-term and short-term profit views differ in approach and priorities. So, the importance of business size in profit pursuits is overlooked, impacting the understanding of performance and efficiency. The time component, related to profit, is crucial, considering factors like inflation and the time value of money, often disregarded in the pursuit of maximal profit. The goals of a finance manager include optimizing financial performance and ensuring efficient fund utilization.
FAQ
In what Ways are your Objectives Assessed?
SMART goals make it easier to assess achievements and goal progress effectively. A goal with a deadline that is clear, measurable, achievable, and relevant simplifies the evaluation of accomplishments. Evaluation of success in reaching objectives is equally important.
To what End are you Working?
If their aims are specific, it shows that they have thought them through thoroughly. Researchers found that having well-defined goals is associated with a threefold increase in the likelihood of accomplishing one’s objectives. To succeed, it is even more important than intrinsic motivation.
Just how Crucial are Objectives?
Setting and working for goals not only keeps you moving forward in life, but they may also aid in the development of new habits, the maintenance of focus, and the inspiration to take action. Make a list of all your goals. In addition to helping you concentrate better, they may also give you a greater sense of agency. You can’t manage what you don’t monitor, and you can’t enhance what you don’t control well.
Final Words
All facets of financial management depend on making these three fundamental decisions. The choices should be made concurrently due to their interdependence. Owners’ and clients’ perceptions of the company’s value will be profoundly affected by these pivotal decisions. A financial firm’s analysis, planning, and management all make use of analytical techniques. In conclusion, the topic of goals of finance manager is complex and has a huge impact on many people. To learn about the best practices for addressing role of finance manager topic, read this guide from a blog post.
