More handpicked essays just for you.
Fundamentals of financial management
The Role And Objectives Of Financial Management
Fundamentals of financial management
Don’t take our word for it - see why 10 million students trust us with their essay needs.
1. Explain why market prices are useful to the financial manager.
The financial manager is responsible for giving financial advice and support to clients and colleagues that will enable them to make good business decisions. Particular work environments differ considerable and involve both public and private sector organizations such as retailers, corporations, financial institutions, charities, and even small manufacturing companies and schools (Financial Manager, 2011).
Primarily, financial managers look at the market price in maximizing the value of the firm. The market value is the present value of the net cash flow divided buy the risk. Investors consider the firm’s future and present earnings, disadvantages or risks and other factors that will influence a firm prior to deciding to create an investment decision and the market price of the stock that will reflect all the information considering these factors (Arain, 2011).
2. Discuss how the Valuation Principle helps a financial manager make decisions.
Valuation Principle is the analysis between values of benefits and costs. This gives an understanding for creating decisions in a company. When valuing a company in a competitive market. Its good price will always be the basis rather than the preference or opinion of a person or a firm. Hence, the valuation principle is the commodity or asset to the investors or firm that is recognized by the competitive market. The financial manager will weigh the costs and benefits of decision in utilizing that market price. Of course, if the benefits exceed the costs, the decision made by the financial manager will increase because of the firm’s market value (Fundamentals of Corporate Finance, 2011).
3. Describe how the Net Present...
... middle of paper ...
...al-Manager.
Clougherty, T. (2011). Interest Rates and the Price System. Retrieved on July 8, 2011 from http://www.adamsmith.org/blog/tax-and-economy/interest-rates-and-the-price-system/.
Financial Manager. (2011). Retrieved on July 8, 2011 from http://www.prospects.ac.uk/financial_manager_job_description.htm.
Fundamentals of Corporate Finance. (2011). Chapter 3 – The Valuation Principle: The Foundation of Financial Decision Making. Retrieved on July 8, 2011 from http://su3finance.wikispaces.com/Chapter+3+%E2%80%93+The+Valuation+Principle-The+Foundation+of+Financial+Decision+Making.
Slack, B. & Rodrigue, J.P. (2011). Cost/Benefit Analysis. Retrieved on July 8, 2011 from http://people.hofstra.edu/geotrans/eng/ch9en/meth9en/ch9m1en.html.
The Basics of a Bond. (2011). Retrieved on July 8, 2011 from http://investing-school.com/definition/the-basics-of-a-bond/.
Review, T. R. (2017, September 01). A Debate Over the Use of Cost-Benefit Analysis. Retrieved October 25, 2017, from
The second method we used to analyze the firm’s value was the Comparable Companies Method. We used the historical figures as of 1990 and Goldmans Sach’s Projections. With an average of 22.
According to Buffett, intrinsic value is an all-important concept that offers the only logical approach to evaluating the relative attractiveness of investments and businesses. Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.
Lastly, in theory and in practice, market condition playing an integral role and probably indicates most sensible clarification of the tendency of different values. The market is imperfect and it should never be forgotten. No one ensure the presence of instant buyers and sellers in the market. For example, there are a number of different events such as inflation rate which impact the stock price and the organization’s worth.
Today financial corporate managers are continually asking, “What will today’s investment look like for the future health of the company? Should financial decisions be put on hold until the markets become stronger? Is it more profitable to act now to better position the company’s market share?” These are all questions that could be clearly answered if the managers had a magical financial crystal ball. In lieu of the crystal ball, managers have a way of calculating the financial risks with some certainty to better predict positive financial investment outcomes through the discounted cash flow valuation (DCF). DCF valuation is a realistic approach, a tool used, to “determine the future and present value of investments with multiple cash flows” over a particular period of time which is incurred at the end of each period (Ross, Westerfield, & Jordan, 2011). Solutions Matrix defines DCF as a “cash flow summary adjusted so as to reflect the time value of money (The Meaning of Discounted Cash Flow, 2014).” The valuation of money paid or rec...
Many companies choose cost benefit to help with the breakdown of the financial cost and the overall project. How and what the cost benefit will produce for the company and gives a forecast of what that particular project will bring to the company as far as revenue, risk and gives a comparison of positives and negatives on all potential project from start to finish. In looking into both cost benefits we can distinguish the different and what might be the best solution for the company at that moment. The cost benefit functions such as net present value and payback period are both functions that can help with the organization deciding factor. Taking a look into both we can see the pro and cons on both ends.
Today financial corporate managers are continually asking, “What will today’s investment look like for the future health of the company? Should financial decisions be put on hold until the markets become stronger? Is it more profitable to act now to better position the company’s market share?” These are all questions that could be clearly answered if the managers had a magical financial crystal ball. In lieu of the crystal ball, managers have a way of calculating the financial risks with some certainty to better predict positive financial investment outcomes through the discounted cash flow valuation (DCF). DCF valuation is a realistic approach, a tool used, to “determine the future and present value of
Making business decisions involves choosing between alternative courses of action. Many factors affect business decisions, yet analysis typically focuses on finding the alternative that offers the highest return on investment or the greatest reduction in costs. Some decisions are based on little more than an intuitive understanding of the situation because available information is too limited to allow a more systematic analysis. In other cases, intangible factors such as convenience, prestige, and environmental considerations are more important than strictly quantitative factors. In all situations, managers can reach a sounder decision if they identify the consequences of alternative choices in financial terms. This unit
Jose (2008) illustrates that fair value increases volatility on profit and loss accounts and bank balance sheets. Fair value takes into consideration market conditions at a specific time, therefore profit and loss accounts would be overly influenced by potential temporary market conditions. This argument would be heftier if the volatility observed on markets were not in response to fundamentals but to bogus reasons. What is more, this volatility might be exacerbated by investors decisions if they were to act from a short term perspective motivated by the changes in accounting fair value produced in financial information (Jose, 2008). From a quantitative standpoint, fair value has exposed shortcomings in the design of valuation models, which have not properly captured the characteristics of the most complex products during the financial crisis (Magnan, Menini, & Parbonetti, 2015). Also from a more qualitative perspective, it has stressed governance problems, in systems have not been properly designed to verify and test the valuations made by fair value. Also the information reported to the market does not appear to have been sufficient to allow users of such information to understand it. These are some limitations of fair value that has been exposed in the financial
Financial analysis is an estimation of the financial viability of an investment option, the financial benefit from its implementation, stability. It looks at the total costs, the benefits of using and supporting the solution, and the total cost of the changes
Present theoretical arguments for the choice of net present value as the best method of investment appraisal;
Most critical to this discussion is a clear understanding of what a financial manager is and does and how his or her role aids in helping to establish the valuation of a corporate entity in today's global financial market. Quite simply, a financial manager helps to measure a company's market value and its risk, while also helping to systematically reduce its costs and the time necessary to make informed decisions regarding objective driven operations. This is quite a demanding game plan for an individual and most often financial managers, in the corporate world, working in cooperation with a team of financial experts. Each member of that team perhaps having expertise in differing areas of activity, but each however, being no less expert in his or her respective area of endeavors on behalf of the corporation. The team is assembled under the direction of the officer known in the corporation as the Chief Financial Officer who today is becoming increasingly indispensable to the CEO who directs a modern model of action driven, bottom-line oriented corporate activity (Couto, Neilson, 2004).
This paper will define and discuss five financial theories and how they impact business decisions made by financial managers. The theories will be the Modern Portfolio Theory, Tobin Separation Theorem, Equilibrium Theory, Arbitrage Pricing Theory (APT), and the Efficient Markets Hypothesis.
Value is a term that expresses the concept of worth in general, according to Wordiq (2010) and it is thought to be connected to reasons for certain practices, policies or actions. According to (Lopper, 2008) value is, a principle, or quality intrinsically valuable or desirable.
Depending on the type of organization of industry financial managers can hold different titles i.e. controller, finance officer, credit manager, cash manager, and risk and insurance manager.