how does the modern financial manager differ from the traditional financial manager Does the financial managers role differ for large diversified form and the small medium size firm?

Answer 1

A modern finance manager is totally different from traditional finance manager. Initially the finance manager was concerned and called upon whenever funds were required by the firm. The traditional finance manager was given a target amount of funds to be raised and was given the responsibility of procuring these funds. So, his function was for raising the funds only. Once the funds were procured his function was over. However, over a period of time, the scope of his function is tremendously widened. His presence at present is required at every moment whenever the decision involving funds is to be taken. The functions of traditional finance manager are:

1. Overall financial planning and control

2. Raising funds from different sources

3. Selection of fixed assets

4. Management of working capital

5. Any other financial event

While performing these functions the scope of finance manager increased from traditional to modern and so has their working.

Today, a modern finance manager has to operate a link between firms operations on one hand and the capital market on other hand. The role of finance manager as an intermediary arises because of two way cash flows between the firm and the investors in the first instance the investors provide funds through capital market to the firm and second, the firm distributes profit among the investors in the form of interest or dividends. So the finance manager has to take care of the interest of the investors as well as the firm.

While performing these functions, he is required to take different decisions which can be broadly classified into 3 groups:

1. Investment decision: Firms has scarce resources that must be allocated among competitive uses. The investment decisions include not only that create revenues and profits but also those that save money.

2. Financing decision: Financing decision deals with the financing pattern of the firm. As a firm makes decisions concerning where to invest these resources they also have to decide how they should arise resources. There are 2 main sources of finance-

a. The shareholders funds

b. Borrowed funds

The borrowed funds are always repayable and the shareholders funds are not repayable.

3. Dividend decision: Another major area of decision making by a finance manager is dividend decision. It deals with appropriation of profits after tax. These profits are available to be distributed among the shareholders or can be retained by the firm for reinvestment within the firm.

Answer 2

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