The overall roles and responsibilities of a Sr Finance Advisor in the multinational organization are:
- Maximization of shareholder’s wealth as the primary objective.
- Treasury Risk management (Forex risk & interest rate risk).
- Efficient and effective use of financial resources.
- Investment appraisal and capital rationing.
- Raising finance and minimizing the cost of capital (WACC).
- Distribution of dividends (Dividend Policy) and retentions towards future growth.
- Financial planning and control towards ensuring liquidity and maintaining solvency.
- Communication with stakeholders.
The primary role is the maximization of shareholders wealth, which can be maximized by:
- Increasing the value of the company (which will have positive impact on share price), and
- Providing cash flow to shareholders via dividend.
In order to achieve the above objective a financial manager must take three types of decisions:
- Investment decisions: Identifying the best investment opportunities.
- Financing decisions: Deciding how to finance them.
- Dividend decision: Deciding how much dividend shall be paid.
It is important of recognizing all stakeholders when making any financial decision due to:
- Risk & disruption: Stakeholder recognition is necessary to gain an understanding of the sources of potential risk and disruption.
- Influence: Stakeholder recognition is important in terms of assessing the sources of influence over the objectives and outcomes for the project.
- Conflict of interest: Stakeholder recognition is necessary in order to identify potential areas of conflict and tension between stakeholders.
- Ethical & reputation: There is an ethical and reputational case for knowledge of how decisions affect stakeholders, both inside the organisation or external to it.
How to assess the impact of the decisions of a finance manager?
- Strategic impact: The financial decisions has impact on
- competitive advantage of the company,
- the proposal may or may not fit to the business environment, hence creating an impact on the business environment,
- optimum use of financial resources,
- stakeholders’ acceptance,
- impact of risk in the decision.
- Financial impact: The financial impact of decisions of finance managers include:
- impact on the share price,
- impact on financial statements,
- impact on cost of capital.
- Regulatory impact:
- business license,
- listing in capital market.
- Ethical impact:
- treatment of stakeholders (suppliers, customers, & employees),
- clarity and transparency of decisions through proper communication & participation.
- Environmental impact:
- sustainable development,
- pollution,
- social and cultural factors.
Treasury Department
The function of treasury department includes Short-term management of financial resources of the company which include:
- Short term cash management covering lending/investing or borrowing funds as required.
- Currency management
- Short-term treasury risk management covering interest rate risk and forex risk.
The Long-term vision of the treasury function usually covers the goal of maximization of shareholder wealth which is usually achieved through:
- Raising long term finance,
- including equity strategy,
- management of debt capacity while ensuring tax shield,
- following pecking order theory while arranging finance for new ventures,
- ensuring solvency of the organization be maintaining gearing level, and
- debt & equity structure to maintain level of WACC.
- Investment decisions, including investment appraisal,
- The review of merger & acquisitions,
- Divestments, demerger or spin-offs,
- Defense from hostile takeovers, and
- Dividend policy decisions & others towards shareholders wealth maximization.
Risk management
- As encapsulated above the function of treasury department includes assessing risks arising from forex exposures & interest rate fluctuations.
- Long term Interest rate risk management through Swaps and other hedging strategies.
- Hedging of foreign exchange risk.
Those functions in the treasury department specific to multinational companies are:
- Setting transfer prices towards Tax optimization, i.e., to stay complied to tax regulations while minimizing tax expenses.
- MNCs has higher Forex exposures, hence the treasury function always involved in deciding currency exposure policies and procedures.
- Transferring of cash across international borders while ensure compliance to banking regulations as well as maintaining entity & group level working capital position.
- Internal hedging strategies also crucial to treasury operation in an multinational company such as, leading or lagging payment/receipts, invoicing in home currency or netting and matching currency obligations etc.
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