The Role of Financial Management in a Firm.

The Role of Financial Management in a Firm.Examine the role of management as it relates to finance in a corporation. In your post, discuss the role of management by addressing the following prompts:Explain the various aspects of finance that management must understand.Describe why a manager needs to understand the characteristics and importance of financial markets including their liquidity, competitiveness, and efficiency.Interpret the function of the Financial Balance Sheet in assisting in management’s decision making process.Discuss what could happen if management does not fulfill responsibilities related to finance. Share a real world example from your own professional experience or from an external source.Your post should be 200-250 words in length.Guided Response: Review several of your classmates’ postings. Respond to at least two classmates’ by commenting on their example of management not fulfilling its responsibilities. Pose a question to spark discussion regarding what could have been handled differently——————————————————————————-1. Danica.The job of managers in finance is to maximize shareholder wealth through investing (Byrd, Hickman & McPherson, 2013). Managers know all the information that goes on day to day in a company, which is why they are responsible for financial decision making (Byrd, Hickman, & McPherson, 2013). The be successful at that they need to be able to plan and execute investments without losing money. Managers need to understand various aspects of finance, especially cash flow, financial balance sheets, and risks.Corporations have access to financial markets readily and can provide funds to firms as an investment or get funds from an investor (Byrd, Hickman, & McPherson, 2013). Liquidity is an important characteristic for managers to understand when talking about financial markets and investments because a lack of liquidity can be bad for the company. Liquidity is the company’s ability to turn a security into cash without having to take a hit on the value (Byrd, Hickman, & McPherson, 2013). A manager would not want to invest all their funds into one investment and would always want to make sure they are not putting their liquidity at risk. Competitiveness is another characteristic that is important because they may not be the only ones putting their bid in for an investment. In turn, they may have investors bidding on their shares if they are selling, and that can influence the price of the shares (Byrd, Hickman & McPherson, 2013). Knowing market efficiencies is another key factor for managers. There are three market efficiency levels: weak-form efficient, semistrong-form efficient, and strong-form efficient (Byrd, Hickman & McPherson, 2013). In an efficient market, prices are fair and make the managers’ jobs easier (Byrd, Hickman & McPherson, 2013).The financial balance sheet can give managers a lot of information about the company in such that it provides different features from an accounting balance sheet. It focuses on cash flow, looks at current values of accounts rather than history costs, and it is built on theory (Byrd, Hickman & McPherson, 2013). It helps managers understand why or how they should invest.Pugh (2019) says that 75% of businesses fail within the first year and a half. The reason why businesses fail is because of poor management. One of the biggest financial management scandals that has happened is the story of Enron. Enron went from being a $100 billion company to filing bankruptcy the same year (Pugh, 2019). Enron used a lot of accounting loopholes and false reporting that lead to their collapse (Pugh, 2019). Managers making poor financial decisions is what ultimately ended Enron.Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance [Electronic version]. Retrieved from, A. (2019). 10 Businesses that Failed Due to Poor Management. E-Careers. Retrieved from————————————2.Rebekah.Aspects of Finance that Management Must UnderstandFinance is the backbone of any organization’s longevity as businesses need to make money to survive another day. While management needs to consider their customer’s needs as well as the workforce needs, financial health is vital for an organization to be successful. Leadership needs to look at many factors to find how their role impacts the finances of the organization. For instance, one department may focus on quality for products produced and the leadership needs to ensure adequate staffing to meet the production needs and budgeted labor costs. If the company was to incur overtime to meet the production needs, this adds increased cost which may not be able to be balanced out by the sales. The role of management is considering these factors as they relate to finance when weighing decisions for the good of both the organization, workforce and customers.Manager Understanding of Liquidity, Competitiveness, and EfficiencyLeadership in organizations should understand how financial markets are impacted by their actions and what would be needed to adapt to changes. For instance, using managerial accounting leaders focus on understanding the costs associated with producing a good or service efficiently (Schneider, 2017). Considering managerial economics leadership needs to assess the competition and how the company can succeed in a market given the demand of the region (Douglas, 2012). Liquidity in the financial market is how the management in the organization can have as securities are bought or sold without a significant impact on the price (Byrd, Hickman, & McPherson, 2013). In other words, some companies can have many shareholders and are traded often to the value that would be liquid as it is changing but still holds a relative value. In comparison, some companies have stocks that are rarely bought or sold making the stocks termed, thinly traded as it is more complicated due to the low volume and then the price can be reduced (Byrd, Hickman, & McPherson, 2013). Leaders in organizations need to understand these variations as they impact the finances of the company.The Function of the Financial Balance Sheet in Management’s Decision MakingThe financial balance sheet can be seen as the road map to the organization’s finances. For instance, the left side of the balance sheet includes the tangible investments, such as factory costs, and intangible investments, such as quality and human resources (Byrd, Hickman, & McPherson, 2013). The right side of the balance sheet will denote the investments that the organization has made such as short-term loans, stocks, bonds, or accountable payable (Byrd, Hickman, & McPherson, 2013). From a leadership view, the left side can be used to evaluate innovations or plans to generate more revenue and the right side to define how the left side projects would be funded (Byrd, Hickman, & McPherson, 2013). By looking at the two sides, the management can find how to balance the scales for their decisions.Example from Financial FailureAs one can see, finance balance is a skill and one that not all leadership may possess. As an example, in my organization, we had a CEO that had been a CFO in the past. During his tenure, the company was successful financially. Once the CEO retired the company started to slip in their financial goals and it was defined to be due to the CFO was not functioning effectively. The CFO was friendly often asking the staff about their family and hobbies, which made him well-liked. However, the former CEO had produced many of the financial report, which the CFO would present. Once the CEO had left, the CFO became overwhelmed by the nuances that the organization had and some of the financial balances were not balancing positively causing budgets to be missed. After two dismal fiscal years, the CFO was let go from the company. The new interim CFO was covering two sites in the company but was still able to produce financial reports to leadership to decide to turn the failure of the past around. For instance, some functions that had been contracted at a higher cost were completed inhouse for cost savings. Investments into new service lines were moved forward using capital funds that then produced profits in the first year of implementation. In the example I observed in my organization, one needs to understand how finances can balance to support leadership decisions in other departments for the success of the company.ReferenceByrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance. Retrieved from, E. (2012). Managerial Economics (1st ed.) Retrieved from, A. (2017). Managerial accounting: Decision making for the service and manufacturing sectors (2nd ed.). Retrieved from———————Required ResourcesTextByrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance [Electronic version]. Retrieved from• Chapter 1: A Financial Model of the Corporation• Chapter 2: Financial Claims and MarketsMultimediaFilms Media Group. (Producer). (2011). Microeconomics: Understanding the market system [Video File]. Retrieved from Films on Demand.Accessibility Statement does not exist.Privacy Policy