Question

Discuss the the aspects of the financial manager's role in the firm's cash and liquidity management, and the components of the firm's policies regarding liquidity. Include a discussion regarding the firm's policies when it has excess cash, and the alternatives the firm might consider when it has excess cash.

Answer 1

Financial activities of any business is the most important aspects. therefore, In order to take the activities in operating manner so financial manager is appointed for doing all the financial activities of the firm.

Financial manager is a person who takes cares of each activity related to finance. Financial manager ensures that funds are utilised in efficient manner. The action of manager directly affect the firm's growth, goodwill and profitabilty of the firm.

The functions of financial managers. they are-

1. Raising of Funds

2. Alloction of Funds

3. Effective utilisation of resources

4. Profit Planning

5. Understanding the capital market.

The components of the firms regarding liquidity is the firm is mainatain all aspects of the liquidity by which any requirement of cash is pay off by liquidity position. Cash is the lifeline of the business and without maintaining the adequate cash the business does not run for a forseeable future.Owners are required to understand the working caapital requirement and cash management techniques.

The policies when the firm have excess cash is to maintain the requirement of cash for the firm.

Excess cash have four negative impacts on the business. they are-

1. Lower return on assets.

2. Increase cost of capital.

3. Attract culprits and thiefs.

4. Increasing overall risk by destroying business value.

5. Create an overly confident management team.

.