A Finance Manager’s Goal in an Organization is to Maximize Owner Wealth

The objective of a Finance Manager in an organization is to maximize owner wealth.  This is done in a variety of ways that both increase the value of the firm and also maintain the firm’s financial health.  The Finance Manager does this by making decisions in several areas that have a multi-faceted impact on the firm (Brooks p. 35).  The Finance Manager is required to be efficient in how they allocate financial resources.  The Finance Manager works to increase profitability by making sure the firm generates enough profits to be able to sustain necessary growth and to provide proper returns to owners.  The Finance Manager has to maintain liquidity in order to ensure the firm’s ability to meet its shorter-term financial obligations.  The Finance Manager, minimize and manage financial risks in order to achieve strategic goals.  These activities can be better categorized as: Raising of Funds, Allocation of Funds, Profit Planning, and then Understanding Capital Markets (Educationleaves, YouTube).  Let me build out the body of what goes in in each of these categories.

Finance Managers have to raise funds in order to cover the necessities of the business’s activities (Educationleaves, YouTube).  Funds are raised generally as either debt or equity.  Debt is taken on in the form of loans of different types or bonds, and equity is given away in exchange for the use of the funds investors pay for some of what they hope to pull in as profit in the form of the larger dollar amount that their equity like stocks has become.  Finance Managers then work to maximize the value of the equity of the company which for a private company that has not yet issued stock is the market value of the company’s assets minus the claims against the company (Brooks p. 38).

Allocation of funds is the next step in the concept structure that I am using to describe what Finance Managers do and this step has several points to consider (Educationleaves, YouTube).  Once funds are raised it is mandatory to allocate funds based on the size of the firm and the potential growth capacity based on use of funds in different areas of the business.  Conditions of assets and whether or not they are short-term assets, or long-term assets must be determined.  The method by which funds are raised also determines at times what way the funds are to be allocated.  Capital structure which has to do with the method by which funds are raised also determines at times what way the funds are to be allocated (MBA Knowledge Base, Online Article).   Then finally the direct and indirect influence that allocation has on other managerial activities must be taken into consideration.  Capital budgeting is a crucial component of allocation, and it involves evaluating and selecting long-term investments to ensure they align with the firm’s strategic objectives while balancing risk and return (MBA Knowledge Base, Online Article).  Allocation of funds is one of the topmost important activities in business because it permeates the entirety of a business and affects all aspects in a variety of patterns of ways.  Working capital management is how a corporation determines the short-term operating needs and the business’s day-to-day finance requirements (Brooks p. 35).

Profit planning is one of the most important elements of what a Financial Manager does because without profit there is no way that a business can continue to exist.  Profit will grow because of a proper analysis and balance of a whole set of different factors such as pricing, industry competition, state of the economy, mechanism of demand and supply, cost and output, import and export factors, international market issues like law systems and different advantages upon which a business can capitalize because of specific placement in markets between states and between countries (Educationleaves, YouTube).  The Finance Manager has to work with each of the different departments in the firm to create value and maintain assets that each department has put its allocated resources to use in order to build over the time they have been in operation (Brooks p. 38).  Effective working capital management ensures that the firm maintains liquidity to meet short-term obligations while optimizing the use of current assets to drive profitability (MBA Knowledge Base, Online Article).  A robust mix of business variables and fixed factors of business are ultimately managed by the Finance Manager.

The final element to the concept structure that I have chosen to use in order to describe what a Finance Manager does is the element of understanding capital markets.  This requires Finance Managers to understand the legal responsibilities and mechanics of business transactions that are involved in issuing shares for the continuous purchase and sale on the open market (EducationLeaves, YouTube).  Equity Markets where stocks are bought and sold, Debt Markets where bonds are bought and sold, Derivatives Markets where futures contracts are bought and sold and Foreign Exchange markets where currencies are bought and sold are all markets that a Finance Manager is expected to have a firm grasp on in order to put their firm in the strongest financial position possible (Brooks pp. 33-34).

BIBLIOGRAPHIC INFORMATION

Brooks (2023). Financial Management Core Concepts (4th ed., pp. 30-37). Pearson.

Francis, A. (n.d.). Financial management decisions. MBA Knowledge Base. Retrieved January 5, 2025, from https://www.mbaknol.com/financial-management/financial-management-decisions/

Educationleaves (2021, November 13). Role of Financial Manager | Functions of a Finance Manager [Video] YouTube. https://youtu.be/0RHqiYBrzWg?si=8oL20qyW8rMqM2VQ