The purpose of this report is to evaluate the effectiveness of financial management in the context of a business. In this regard, it is required to identify Relationship between financial and corporate objectives of a firm.
- Evaluate financial corporate objectives of an organisation as well as analyze financial decisions and its impact over the economic environment.
Every business concern in the world needs finance for meeting the economic requirements of the business (Aggarwal and Rivoli,1990). Finance is like a lifeblood for a business to conduct its operations effectively and efficiently. It does not matter what is the size of the organisation , every business needs funds for the operation. It is very important to perform financial management in order to succeed and make profits and ultimately achieving the objectives of the organisation.
Nature and purpose of the financial Management functions of a business:
Financial management can be defined as an integral function of a management of a business which is concerned with the procurement of funds from different sources such as equity , debentures and other long term loans and utilising that fund in a efficient manner for the achievement of organisational objectives (Amihud and Mendelson, 1988).
The nature of financial management is related with the functions, its scope. Financial management is one of the important function of management and it is related with variou functional departments such as production, marketing, personnel etc. The nature of financial management is discussed below:
- Financial management helps in forecasting financial requirements of the organisation. It is the feature of financial management to find out how much of funds are required to acquire the fixed assets and to properly fund the raw material requirement and other operational requirements of a business concern.
- The nature of financial management enables the business organisations to take best investment decisions among the available investments which gives more return than the cost of capital. The financial manager must have good capital budgeting skills to choose the best projects among the available that means the project with the highest NPV.
- The another feature of financial management is cash management. The management of cash plays a major role in finance because it leads to efficient utilisation of cash and also helps in the maintaining the liquidity to manage the operating expenses and short term obligations of business.
Purpose of financial Management:
Finance is like the blood of an organisation. As a body needs blood , an organisation needs finance for the proper functioning of the business entity (Crutchley and Hansen, 1989 ). Every business concern needs to maintain adequate finance for carrying out the activities which are necessary for achieving the organisational objectives. Some of the leading importance of financial management are as follows:
- Financial planning: Financial management helps in estimating the financial requirements of the company and also in financial planning regarding various operations of the departments and ultimately helping in the promotion of business.
- Acquisition of funds: Financial management is mainly concerned with the acquisition of funds from different alternative sources such as Equity, Debentures, and Long term loans. The financial manager has to decide which of the above sources is cheapest for the company according to the structure of the company.
- Proper utilisation of the funds: Financial management is concerned with the proper use and allocation of funds in those activities where the maximum return is possible which decreases the overall cost of capital and increases the value of the firm.
Relationship between financial and corporate objectives and corporate strategies:
Financial objectives are those that are related with the effective and efficient use of finance and utilising that fund in a manner which is most profitable to the organisation. The financial objectives of a company are the profit maximisation and wealth maximisation. On the other hand, corporate objectives are those that are related to the whole of the organisation. The corporate objectives are set by the top management and they provide the focus on the detailed objectives of the organisation and not just the financial objectives. The corporate objectives focuses on the performance and results that are desired by the business. Corporate objectives focuses on number of key areas where the attention is required rather than focusing on a single objective. ( Gitman and Forrester, 1977)
Corporate strategies basically means a vision of a company and its tactics to outperform it's competition in the market. A corporate strategy is long term objectives that the company seeks to achieve and thereby creating corporate value and motivating the employees of the organisation to achieve the customer satisfaction. Corporate strategy is a continuous effort to keep the investors engaged in trusting their money in the company, which in turn will increase the equity of the company. Those organisations who manage in delivering consumer satisfaction unfailingly are the ones who revisit corporate strategies in order to improve the results ( Scottand Martin, 1975).
Discussion on the role of management in meeting the stakeholders need and application of agency theory:
Stakeholders are persons who are associated with your organisation and they are affected by tha actions, policies and objectives of the organisation in a direct or indirect way. Example of some of the stakeholders are creditors, government, employees etc. Stakeholder management means creating positive relations with them and proper management of their interest, expectations and their objectives in order to manage the relationships with them. To assist the interest of stakeholders the following components define the rights, responsibilities and power of every stakeholder group:
Legal Infrastructure: This infrastructure defines that a legal framework should be designed for them to protect their rights and remedial actions should be taken in case of violations.
Organisational infrastructure: This infrastructure is related with the internal systems and governance practices which is used to maintain relations with them. ( Laeven, 2003 )
Governmental infrastructure: This infrastructure is related with following the rules and regulations imposed by the government on the org