Functions of Chief Financial Officer
Every organization has finance head as ‘Chief Financial Officer’. Division of responsibility has created post for this officer. This is also called ‘Director of Finance’. Chief Financial Officer (CFO) has different functions depending upon the size, nature and type of business.
Functions of Chief Financial Officer are:
- Formation of Financial Policies and Forecasting
- Managing Fund
- Appropriate Disposal of Profits
- Report to the top management
- Keeping an Eye on Market
- Making Relations with Financial resources
- Discharge his Duty Towards Various Parties
- Maximization of shareholders wealth
Table of Content
- 1 Functions of Chief Financial Officer
Formation of Financial Policies and Forecasting
This is the main function of CFO to make sound financial policies keeping in mind the nature and size of the business, long term financial goals and objectives of the business. Policies must be dynamic enough to face dynamic business environment. It also includes analyzing the need of fund and its source from where it is to be raised.
Funds are needed to be managed for fulfilling business objective. It starts with acquisition of funds which involve generating or mobilizing funds from various sources.
Before this, a detailed study is carried out of available alternatives and a best combination is selected having minimum cost. After this allocation of funds is done which means an effective distribution of acquired funds to various projects.
This stage is very important because if allocation or distribution is not done properly than desired objectives will not be achieved. Utilization of funds comes after the above which means having proper control over cash flows and inflows.
Appropriate Disposal of Profits
Appropriate Disposal of Profits is very important stage under financial management as it decides the future of the company. After generating profits, it becomes very important to invest and distribute it in optimum way.
Appropriate profits should be retained in the business for future requirements and satistfactory amount should be distributed among shareholders to keep share price up shareholders happy.
Report to the top management
It is the primary duty of CFO to report to the top management about the financial position of the company. Current year progress report compare with past performances must be drafted and submitted so that an evaluation can be made and necessary steps should be taken for a future course of action.
Keeping an Eye on Market
Keeping updates of dynamic environment helps in surviving competition. Global market makes it tough in long run business to stand without support. A CFO makes financial plans in such a way to handle competition.
Making Relations with Financial resources
Making Relations with Financial resources enables CFO to raise require funds easily from financial institutions and other sources. Good relations with outside parties enhance credibility of the business and also ensures steadily arrangement of funds required in future.
Discharge his Duty Towards Various Parties
CFO is not only accountable to parties from which it generates funds but he Dischargehis Duty Towards Various Partieslike creditors , suppliers, debtors in many ways.
Modern approach of financial management has objective of maximization of shareholders’ wealth. CFO formulates policies in such a way to enhance shareholders wealth and thus achieving its objective. This is also important for the image of the business in the market as it appreciates market price and goodwill.