Question

Functions of financial management and decision-making [21 MARKS]
1.1 Identify three primary functions of a financial manager and explain the
relationship between these roles.(9)
1.2 Create your own example(s) to illustrate the difference between sensitivity
analysis, standard deviation and coefficient of variance. Ensure that you
explain how these indicators are interpreted

Answer 1

Functions of Financial Manager-

(a) Raising of funds:- In order to meet the obligations of the business it is important to have a enough cash and liquidity. A firm can raise a funds by the way of equity, preference shares,debentures,banks and financial institutions. it is the responsibility of a financial manager to decide the ration between debt and equity.

(b) Allocation of funds:- Once the funds are raised through different sources the next important function is to allocate the funds. it is task of the finance manager to ensure that the funds are invested to gain more ROI. While alloacting the fund following points must be considered .

• The size of the firm and growth of the firm
• Nature of the asset whether they are long run or short run.
• mode of funds raising

(c) Profit Planning:- The main function of every business is earning more profits. Profit earning is important for survival of any organisation. Profit planning includes usage of profit generated by the firm.profit arises due to many factors such as pricing, industry competition, demand and supply. A healthy mix pf variable and fixed factors of production can lead to an increase in the profitability of the firm.

Relation between the roles:- The roles of financial manager are interlinked. One role must be linked with other role.Suppose allocations of funds happened after raising of funds only. without raising fund there is no possibility of allocation of funds. so these role interrelated.