FINANCIA MANAGEMENT NOTES
TOPIC 1
SCOPE OF FINANCE FUNCTIONS
The functions of Financial Manager can broadly be divided into two: The Routine functions and the
Managerial Functions.
Managerial Finance Functions
Require skilful planning, control and execution of financial activities. There are four important managerial finance functions. These are:
a) Investment of Long-term asset-mix decisions
These decisions (also referred to as capital budgeting decisions) relates to the allocation of funds among investment projects. They refer to the firm’s decision to commit current funds to the purchase of fixed assets in expectation of future cash inflows from these projects. Investment proposals are evaluated in terms of both risk
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4. Interests of customers – the company has to provide quality goods at fair prices and have honest dealings with customers.
5. Welfare of the society – the company has to maintain sound industrial relations with the society:
* Avoid pollution * Contribution to social causes e.g. Harambee contributions, building clinics etc.
6. Fair dealing with suppliers. A company must: * * Meet its obligations on time * Avoid dishonor of obligations.
7. Duty to the government: A company should:
* Pay taxes promptly * Go by government plans * Operate within legal framework.
OVERLAPS AND CONFLICTS * Overlaps – when achieving ONE MEANS achieving the other * Conflicts – when achieving ONE CANNOT allow the achievement of the other.
Overlaps * Nos. 4 & 5 – Some of the customers will be members of the Society. * Nos. 1 & 2 – If a company is profitable it will in most cases increase its net worth. * Nos. 1 & 6 – if a company maximises its profits, then it will be able to honour its obligations * Nos. 2 & 5 – Net worth & the society. * Nos. 3 & 5 – Employees may be the society. * Nos. 1 & 5 – Profits vs. Society
Conflicts * Nos. 1 & 4 – Profits vs. Costs * Nos. 1 & 3 – Profits vs. Costs * Nos. 1 & 7 – Profits vs. Costs * Nos. 5 & 7
Furthermore, they give hope to children across the globe struggling with injustice and poverty. With justice being one of the five ethical principles that are critical for leaders to possess. In other words as Aristotle first proposed; respect to others, serves others, shows justice, manifests honesty and builds communities ( Northouse 2106) are key to companies being successful.
Capital budgeting decisions involve investments requiring large cash outlays at the beginning of the life of the project and commit the firm to a particular course of action over a relatively long period of time. As such, they are costly and difficult to reverse, both because of: (1) their large cost and (2) the fact that they involve fixed assets, which cannot be liquidated easily.
Capital Investment decision is financial term is also known as Capital Budgeting. Its important goal is to upraise the firms profit by taking on a project at the suitable time.
To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate” (Straub,
It is important to treat employees fairly, this is to mean that they should not be overworked because the company wants to make profits. The law should be followed in the process of building the business, humanity should prevail.
Financial management is important to the organization because it provides pertinent finance and accounting information to help managers accomplish the purpose of the organization. Financial accounting provides accounting information to external users. On the other hand, managerial accounting is more for managers (internal users) to use for things like planning, budgeting, etc. The definition of finance has changed over the years, but it’s used to ultimately evaluate previous decisions and make assessments for future decisions of the organization.
“Stockholders provide the enterprise with the capital and expect an appropriate return on their investment in exchange. Employees provide labour and skills. In exchange they expect commensurate income and job satisfaction. Customers want value for money. Suppliers seek dependable buyers. Governments insist on adherence to legislative regulations. Unions demand benefits for their members in proportion to their contributions to the company. Rivals seek fair competition. Local communities want companies that are responsible citizens. The general public seeks some assurance that the quality of life will be improved as a result of the company’s existence”.
Virtually all general managers face capital-budgeting decisions in the course of their careers. Among the most common of these is the either/or choice about a capital investment. The following describes some general guidelines to orient the decision-maker in these situations.
is having a negative impact on their resourcing budget for 2010. Unlike last year, when the public sector was less affected, this year they were equally likely to report cuts to resourcing.
Respect stakeholders beyond shareholders-contribute to economic, social, and environmental development-build trust by going beyond the letter of the law-respect rules and conventions-support responsible globalization-respect the environment-and-avoid illicit activities (Caux Round Table for Moral Capitalism, 2018).
Hence, the tasks involved in Financial Management include: Ø Analysing financial needs Ø Forecasting financial needs Ø Managing working capital Ø Planning capital structures Ø Organising financial operations Ø Monitoring and controlling finances etc. In fact raising funds and allocating funds for business are the two prime financial management tasks.
According to the rules of conduct, the Group concerns about Relations with Employees (Protection of Health and Safety & Equal Opportunity), Relations with Customers (Commitment and Professionalism, Customer Care & Confidentiality), Relations with Suppliers and Commercial Partners (Strategic Alliances, Transparency in selection, Awareness and Training &
In proper terms, the risk is related with project can be well-defined as the changeability that is probably to take place in the forthcoming earnings from the project. The larger the inconsistency of the predictable returns will indicate the riskier project. On the other hand, risk can be restrained more accurately. From the research, it has been found out that there are many significant in capital budgeting in which it will directly affected the firms. For some reasons, capital budgeting is important in term that the project will be approved via the capital budgeting. Thus, the firms become knotted to the project and lose some of its flexibility during the project. Other than that, the decision making in order to purchase the assets and cost will need forecasting analysis of the revenue. Thus, it will related to the capital budgeting. Therefore, it is important to have capital budgeting. Capital budgeting also
Capital budgeting is the most important management tool that enables managers of the organization to select the investment option that yields comprehensive cash flows and rate of return. For managers availability of capital whether in form of debt or equity is very limited and thus it become imperative for them to invest their limited and most important resource in perfect option that could prove to beneficial for the organization in the long run (Hickman et al, 2013). However, while using capital budgeting tool managers must understand its quantitative and qualitative considerations that are discussed below.
The organisations have no natural right to these benefits, and in order to allow their existence, society would expect the benefits to exceed the costs to society". The society allows the corporation to operate as long as it meets their expectations. Again considering the Legitimacy Theory, the organisation should consider the rights of the public at large, not merely those of its investors. If the company fails to meet these expectations, the society would react by imposing sanctions, for example legal restrictions or high taxes, fines, demand reduction of the company's products, eliminating the supply for labour and financial capital top the business.