Finance department plays a vital role in every organization and ensure that the organization have enough resources and liquidity to meet its legal obligations as well as facilitate its shareholders. The primary goal of the finance manager is to ensure that his company has adequate supply of capital and sufficient statutory reserves (Chance & Don M, 2001). The financial manager or the chief financial officer (CFO) is responsible for financing the enterprise and acts as an intermediary between the financial system’s institution and markets. Major financial decisions made by the managers of a business are either investment decisions or financing decisions (Bierman, 2008). In investment decisions, manager considers the amount invested in the assets of the business and the composition of that investment. Investment in assets are more beneficial because its produces cash flow for the entity that are needed to meet operating expenses, pay interest to lenders and taxes to government. In this assignment we have to consider the role of the CFO and the Treasurer of a company with the effectiveness of the firm. Apart from that, we also have to describe the indispensability of diversification in the field of investment.
CFO and Treasurer are the back bone for any organization because these people can change the destiny of any organization overnight. The work of both these professionals is relevant up to some extent. CFO is held responsible to have an eye over the accounting treatment of the entire organization; his work includes the implementation of the International Financial Reporting Standards on the treatment, while Treasurers are held responsible to allocate the funds of the organization in the best available place from where the organization can get maximum benefits. Every single decision of both these professionals are some important for the sake of the organization because one good or bad decision can change the productivity and effectiveness of the entire organization. Organizations usually needs funds to comply with the financial obligations on regular basis and these two professionals do their jobs extremely proficiently to keep the rhythm and momentum going of the funds. If the firm is doing well than it automatically increase the effectiveness of the firm. We have seen in details the contribution of CFO and Treasurer in the effectiveness of the organization. Now, we will define the benefits of diversification in the world of investment.
It is a common saying that, “Don’t put all your eggs in one basket, its good to put them separately”
What does it means? What problem we may encounter, if we put all eggs in one basket? It means the same “Diversification”. We may encounter a problem, if we put all eggs in one basket, let say you put 12 eggs in a basket and the basket has slipped from your hand than all the eggs will broke, one the contrary, if you diversify the quantity of eggs in different basket, than you may have a chance to save some eggs out of total. The same dilemma can be applied on the investment field. In a portfolio, an investor has a number of securities and it’s good to have different securities in the portfolio to mitigate the risk accordingly. Inevitably, we can not eliminate risk but we can reduce it with effective and efficient strategies. Let say you have two securities in your portfolio and both the securities are risky but they offer good return which induce you to park your money in their stocks. It’s not good to invest all your money in these risky stocks, but you to diversify the investment risk by put some of the proportion in risk free securities like Treasury Bills or Mutual Funds. The involvement of risk free assets does not decrease the return of the portfolio but it certainly decrease the risk of the portfolio tranquilly and it is the best way of asset allocation.