The Role of Financial Management in a Corporate Organisation

Abstract of The Role of Financial Management in a Corporate Organisation

This project is poised to x raying the degree of “the role of financial management in a corporate organization”.  The main aim of every business is profit maximization.  Care must therefore be taken to ensure that available finance for a business is well managed. This role is left in the hands of financial manager. In conducting the research on this topic, the researcher wishes to visit the Enugu office of the NICON insurance corporation NICON PLC and administer questionnaire to the Zonal Director and other top ranked workers in the corporation in a bid to collect proper information.  It is purely on oral interview, after which critical analysis of data follows.        Regrettably certain factors will tend to limit research for this information.  Resources are scarce to meet up with transportation expenses to various part of the country for information.  Lectures will be going on in the class, making it impossible for the researcher to go out every time. In conclusion, the researcher will suggest that corporate organizations in Nigeria will be compared to those in advanced countries if the finance available to them are managed well.

Chapter One of The Role of Financial Management in a Corporate Organisation

INTRODUCTION

BACKGROUND OF THE STUDY

Financial management involves all activities of a financial manager concerned with arising of capital, planning cash and credit requirement including the effective control of financial resource.

The activities could be segregated as follows:

i.                   Converting forecasts into plans and budgets

ii.                 Planning the appropriate capital structure

iii.              Raising cash from outside the business

iv.              Forecasting the future availability of and requirement of cash

v.                 Investing surplus finds

vi.              Controlling cash balances and flows in accordance with plans and with changing circumstances.

With the emergence of finance as a separate field of study the emphases was more or less on legal matter such as mergers formation of new company’s disposal and consolidation.

With most vital problem of the firm was identification of means of raising capital for possible expansion due to increasing ware in industrialization, the mobility of funds from area of surplus to are of scarcity pose a lot of problems.

In the 1930s the stock of depression ushered in an era of conservation, and attention shifter to such topics as preservation of capital, maintenance of liquidity, reorganization of financially troubled corporations, and the bankruptcy process the federal government assumed a much larger role in regulating business.

In 1940s and early 1950s offered little new in the study or produce of corporate finance.  However, in the mid- 50s a major shift in emphasis took place.  Up to that time, the study of finance had been descriptive o definitional in nature.

Furthermore, the orientation had been from the viewpoint of a third partly, or outside looking in the all changed in the mid-50s as a more analytical decision oriented approach began to evolve.

The first area of study to generate the new found enthusiasm for decision related analysis  was capital budgeting, in which the financial manager was presented with analytical techniques for allocating resources among the various assets of the firm the enthusiasms spread to other decision making areas of the firm such as cash and inventory management, capital structure formulation, and dividend and policy. The emphasis shifted from that of the outside looking in to that of the financial manger force to make tough day to-decision affecting the performance of firm.

Form the late 1960s through todays; financial management has focus on risk-return relationship and the maximization of return for a given level of risk.

Another area of financial research that also receiving more attention in early 1990s is AGENKY THEORY.  This theory examines the relationship of the firm.  In privately owned firms, management and the owners are usually the same people.  Management operates the firm to satisfy its own goals, needs, financial requirements, and the like.  As a company moves from private to public ownership, management now represents all the owners, this places management in the agency position of making   decision in the best interest of all shareholder.

Because of the diversitied ownership interest, conflicts between managers and shareholder can arise that impact the financial decision of the firm.

Also, because of the increased level of corporate stock took place in the 1980s agency theory has became more important in assessing whether shareholders goals are being achieved by management in the long rum

STATEMENT OF PROBLEM

There have been unprecedented increase in the request for the answer of

the following questions posed in order to clarity the duties of financial manager which is the prospective rank of a student studying finance.

What is managerial finance?  How important is finance functions to the company; it the financial manager is responsible for the performance of certain tasks, dose this mean that his actions are designed to accomplished specific goals.  How and when do the finance achieved the firms’ objective? What is the financial manager’s definition of a far price and how is it related to his firms return and investment capitals if they do not affect profile, why can their profile affect not be taken directly into account in the analysis?  What tools and techniques are available to him and how does one go about measuring his performance?  On a general seals do they have operational measuring?  That is how can managerial finance be used to further national goals?

Having identified these questions, the provision of the  possible answers to the aforementioned question constitute the area of consideration of this profit.

As stated, the financial manager must find a rational bases for answering the following questions.

a.                 How large should and enterprise be and how last it grow?

b.                 What should be the composition of its liability

c.                  In what firm should it held its assets

The questions stated above related to three board decision area of financial management, investment financing and dividend.

Therefore the above roles of financial managers becomes important that the primary researcher conducted as a named company serves dual purpose.  This nothing serves as part to unfold the extent the financial manager of the company is executing his duties according to the project.

 OBJECTIVE OF THE STUDY

Since this project is concerned with the role of financial managers in a corporate organization.  Therefore, it is important to note the objective if any corporate organization.

a.       MAXIMIZATION OF WEALTH:  The main objective of financial management is the maximization of owners wealth. Owners wealth maximization of accomplished by maximizing the sum of te present value of the stream of dividends received and the present value of the increased in the market value of the share of stock held by the shareholder.  Thus the apparent wealth maximization is the best economic objective for shareholders as the owners and for the company whose primary interest is to shareholders/ owners.

b.                 PROFIT MAXIMIZATION:  this is the second of frequently encountered objectives of any business.  Infact, all business firms believed that as long as they are earning as much as possible while holding down lost they are achieving this goal of profile maximization.  It is regarded as a rational for business as stated “Although profit maximization appears to be intuitively appealing, it represents only one aspect of corporate performance.

THE ENVIRONEMNTAL SCOPE OF FINANCIAL MANAGER IN EXECUTIVE THEIR JOB

Financial managers do not have absolute authority on carrying out their responsibilities, there actions are constrained by certain factors beyond their control.

These factors can be divided into two:

a.                 Internal environment:  This principal factor in this case, sit is unavailability or the lack of human resources and the organizational self imposed standard.

b.                 The external environment factor:  the external factors include political, economic (monetary and fiscal polices) technological or even social.  It is this factor that mostly accounts of the unpleasantness that facts the financial manager in his bid to achieve organizational goals.

RESEARCH HYPOTHESIS

1.                 The sources of fund which the company use in financing their company, i.e. whether short or medium term sources of fund.  Also, the method of financing working capital which the company adopt.

2.                 Methods used by the company in forecasting additional funds needed to support the higher volume of sales and also plan for profits.

3.                 What financial ratios are often used in evaluating and understanding of the results of the business operations?

4.                 The objective of the company’s budget and the policies usually established in furtherance  of  the budgeting system.

 SCOPE AND LIMITATIONS OF THE STUDY

The problems encountered in the study include lack of sufficient fund, inadequate contact with some of the respondents, illiteracy level and prejudice, distrust arising from ignorance of the basis for the study.

One of the limitations of the study is time.  In the collection of questionnaires, several repeat calls were made and sometimes the respondents never actually answered the question.  This state of affairs could be frustrating and in some cases, the respondents become hostile and aggressive.

With the high rate of illiteracy in this part of the world, some respondent never understood what was required of them and why the research was being carried out.  They therefore never answered any of the questions.