Functions of Financial Management Systems - Management Of Financial Resources as a Duty Of The Financial Manager

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This function entails ensuring that there is appropriate deployment of the financial resources that eliminates wastes. The financial manager in carrying out his functions should be concerned about the need to maintain a proper liquidity level.

That is to say that the company should be able to take good investment opportunities as they arise but not too liquid that the company can reduce its earning potentials. The investment manager must balance the need for liquidity and the need to make worthwhile investment opportunities. A company that lays emphasis on optimum liquidity level tends to de-emphasize opimum profit level.

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The reason is that highly liquid assets (like cash) earn the least income for an enterprise. Conversely, the least liquid assets (like loans and advances) earn the highest income for an enterprise. Thus, if the objective of a business enterprise is to optimize its income, then such an enterprise should keep too little assets as liquid assets. The issue of apportionment is to maintain a delicate balance among these interest groups.

An equitable formular should be arrived at in order to ensure that each interest group, particularly the shareholders, workers and community are given a sense of belonging. The payment of government tax and creditors (interest on loans) are of course mandatory. With respect to the shareholders, it is the duty of the financial manager to strike a balance over how much should be declared as dividend or retained, depending on the growth and expansion programme of the company, the attitude of the shareholders towards such programme and the ease (cost wise) with which additional funds could be raised outside the firm.

(Egungwu, 2004:8)

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