Question

What could a financial manager look at to determine whether his company is successful or in distress? 

Answer 1

All companies need a solid financial back up to stay in business and earn profit. Profit is necessary for meeting up the expenses and for growth prospects. However to earn profit, the company along with product sales also needs to invest in profitable ventures and projects and this is where the role of financial manager comes up. There are many companies, who solely depend on the expertise of their financial managers to make a profitable investment and stay in good financial health.

Financial managers are mostly hired in banking and insurance sector. Currently, they're also in demand ofr health care industries. They are also employed by private and public companies. They are essential for a company's long term survival. A financial manger has a very serious responsibility which he or she can't delegate to anybody else. They have to oversee different investment plans and projects and evaluate them to find the best project for the company to invest. Then they have to work out different strategies and a financial plan for the project to begin investment. Once the mode of financing is decided, they have to work out methods to obtain the finance. They also have to decide the capital structure. Debt financing needs to be arranged with banks. The bank which provides the loan with minimum interest and mximum time frame is naturally the first choice. The terms of financing need to be negotiated. Once the finance is arranged, the foundation stone for the project is laid. The financial manager monitors the progress of the project and ensures to arrange for any additional finance. Once the project is completed, then comes the cash flow part. When cash flows are positive every year and the NPV and IRR of the project is favorable, it is said to be a success. The financial manger is lauded and rewarded for their efforts. The smaller the company, the greater is the role of the financial manager.

The level of success or distress for a company is easily discoverable in its financial statements. The income statement will be the first indicator. A study of this will make the manager conclude the current financial situation. The balancesheet will be a strong and utmost indicator of the financial health of the business. The current debt situation, how much loss the company is in and how much it can handle to bear. Based on this, the manager will prepare his or her report indicating their thoughts on the financial health of the company and ways and suggestions to improve.