Financial Management
University: University of Chester
Question :
Critical discussion on the financial corporate objectives which has been formed by a company and analyses of the key financial and capital market along with identifying the impact of economic environment on business operations.
- Explanation of the nature and purpose of financial management functions of a business along with identifying an interrelationship with financial, corporate objective on their corporate strategy.
- Discussion on the role of management in fulfilling objectives formed by stakeholders with the use of agency theory.
Answer :
INTRODUCTION
Financial management helps in to earn profit, measuring the costs, and to control the inventories. It is required for the survival , growth and expansion of the business organization. In this report we discuss about financial management and its nature and purpose and explain relationship between financial objective ,corporate objectives and corporate strategy and evaluate the role of management in reference to stake holders .
Explain Financial management And explain the nature and purpose of financial management:
Finance is an act which is provide in terms of money , in a company or any organization finance is requires for its survival. Financial management helps in to earn profit, measuring the costs, and to control the inventories (Abanis and et.al., 2013). It is required for the survival , growth and expansion of the business organization. Definition of “Financial management refers to a managerial decisions which is helps in acquisition and finance of long term and short term financing credits for the organization.”
Nature of financial management :
- Financial management is an internal part of the management. It involves business decision , replacement of assets, production and marketing . So it is a wide concept throughout the management.
- Financial management mainly focuses on valuation of the firm. All the financial decision may help in increasing and optimize the value of the organization.
- It is importantly involves risk and return trade off. Higher the risk results is higher the return (Brigham and Houston, 2012).
- Financial management is also related with accounting, economics , operations research mathematics etc.
Purpose of financial management:
- Financial management helps in determining the financial requirement of the business concern an it takes the financial planning.
- It involves the acquisition of required finance to the business, and it source finance at minimum cost (Higgins, 2012).
- It improves the profitability of the business effectively and efficiently.
- And its main purpose is to allocation of funds.
Relationship between financial objectives , corporate objectives
Financial objectives are those which helps in to completing future plan of the company or organisation and its main aim is to set a target how to achieve profit make more money . Its objective is to maximize the profit , in this profitability meets the social needs also, profit is the main source of finance. And the other objective of financial is wealth maximization, their the term wealth is related to shareholder wealth. It consider both time and risk of the business. Corporate objectives are those which is related to overall business. And it is set by top management and they provide to set more detailed objectives for the main functional area of the business (Titman, Keown and Martin, 2017). In this it focuses on desired performance and results of the business. Financial objective is a part of corporate objectives. It covers the marketing standing, productivity, physical and financial resources, profitability, management, employees and pubic responsibility.
Corporate strategy is a realistic goal is set by company. Financial objective is related with corporate strategies because both main objective is to profit maximisation earn revenue by take the financial decision to allocate the funds. And it is also related by wealth maximisation of share holder (Abanis and et.al., 2013). Corporate strategy is related with corporate objective because to achieve the objective we make a strategy . For achieving the objective we follow the strategies. And corporate objective main aim is to earn maximum profit and to expand the business or organisation.
Explain role of management in meeting the stakeholders needs and justify the application of agency theory
Stakeholders are the person who actively involved the work of the projects. They are the group of the people who have an interest in business. Stakeholders are owners, shareholders, managers , customer, suppliers, and government. In a large firm there are many stakeholders and they each own a small part of the business. Key stakeholders for any project typically inside the organisation. Good project managers is to begin their projects by identifying stakeholders , and to understand their role in the projects. The project managers has been encourage team members to doing their best. The key stakeholder is a pivotal role in the success of any projects and they have a number of responsibilities (Chandra, 2011). Internal stakeholders have a financial interest in the organisation , these includes shareholders, board of directors and investors. They invest in the organization for the success of the company. They have the voting rights which is based on number of shares owned or how much percentage of shares they have. In this those who have larger stakes in the company they might meet with leaders, brainstorm development or marketing ideas for market penetration. External stakeholders have not invested organisational funds of the company (Brinckmann, Salomo and Gemuenden, 2011). These stakeholders don't have right s to vote or any other decisions. Stakeholders meet with leadership or present information to the board of the directors for reviewing their ideas. The main role of this stakeholder is to reflect the community , government and environmental concern. If management ignore the external share holders could leads to blocking of the projects.
The study is to test the applicability of agency theory to small firms. The agency theory relates to business relationships , in this they consists principal and agent who are engaged in the corporate behaviour and they have different goals toward the risk. To control the relationship between the principal and agent its depends upon the situation the contract of both will be based outcome based (Madura, 2011). The main aim of this theory is the trade off between the cost of measuring behaviour and outcomes and to transferring the risk. This theory is related to the problem that occurs when co-operating parties have different goals. The stake holders are the main part of the organisation, according to this theory principle and agent both engaged with each other here stakeholder is the agent and principle is the management both have different goals and different attitude towards the organisation.
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