Green University of Bangladesh Green Business School Mid Term Assessment (Assignment), Fall Semester-2021 [213] Course Code: BUS 203; Course Title: Financial Management Mostafijur Rahman - 181006044 Ans to the question number 1 Describe the answer using the proper definition, essential objectives of a financial manager, and relate with the organization's goal using suitable examples. Ans: Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. The objectives of financial management are given below: 1. Profit maximization Main aim of any kind of economic activity is earning profit. A business concern is also functioning mainly for the purpose of earning profit. Profit is the measuring techniques to understand the business efficiency of the concern. The finance manager tries to earn maximum profits for the company in the short-term and the long-term. He cannot guarantee profits in the long term because of business uncertainties. However, a company can earn maximum profits even in the long-term, if: The Finance manager takes proper financial decisions He uses the finance of the company properly 2. Wealth maximization Wealth maximization (shareholders’ value maximization) is also a main objective of financial management. Wealth maximization means to earn maximum wealth for the shareholders. So, the finance manager tries to give a maximum dividend to the shareholders. He also tries to increase the market value of the shares. The market value of the shares is directly related to the performance of the company. Better the performance, higher is the market value of shares and vice-versa. So, the finance manager must try to maximize shareholder’s value 3. Proper estimation of total financial requirements Proper estimation of total financial requirements is a very important objective of financial management. The finance manager must estimate the total financial requirements of the company. He must find out how much finance is required to start and run the company. He must find out the fixed capital and working capital requirements of the company. His estimation must be correct. If not, there will be shortage or surplus of finance. Estimating the financial requirements is a very difficult job. The finance manager must consider many factors, such as the type of technology used by company, number of employees employed, scale of operations, legal requirements, etc. 4. Proper mobilization Mobilization (collection) of finance is an important objective of financial management. After estimating the financial requirements, the finance manager must decide about the sources of finance. He can collect finance from many sources such as shares, debentures, bank loans, etc. There must be a proper balance between owned finance and borrowed finance. The company must borrow money at a low rate of interest. 5. Proper utilization of finance Proper utilization of finance is an important objective of financial management. The finance manager must make optimum utilization of finance. He must use the finance profitable. He must not waste the finance of the company. He must not invest the company’s finance in unprofitable projects. He must not block the company’s finance in inventories. He must have a short credit period. 6. Maintaining proper cash flow Maintaining proper cash flow is a short-term objective of financial management. The company must have a proper cash flow to pay the day-to-day expenses such as purchase of raw materials, payment of wages and salaries, rent, electricity bills, etc. If the company has a good cash flow, it can take advantage of many opportunities such as getting cash discounts on purchases, large-scale purchasing, giving credit to customers, etc. A healthy cash flow improves the chances of survival and success of the company. Describe the answer using proper definition, essential objectives of a financial manager, and relate with the organization's goal. Ans: Financial managers maintain a company's financial health. This might involve managing the budgets and creating profitability for a young company or strategic risk assessment and investment evaluation for an established company. The goals of financial management remain the same, however, no matter the size of the company. In this article, we discuss financial management goals as well as the tasks and components involved in achieving them. Common goals of financial management The goal of a financial manager is to keep the company or organization solvent and successful. There are several elements to this goal: Maximize current value The financial manager or managerial team works to maintain the highest value possible for the company's assets. In a publicly owned company, this means maintaining the highest possible value per stock in the company. Maintain growth The financial manager aims to increase the company's value over time. They help to achieve this by producing and implementing financial plans. Maximize profit Maximizing profit may involve locating opportunities to invest, acquire a competitor or develop new products. This can involve communications with other divisions such as marketing or research and development to create efficient strategies. Minimize cost As they monitor spending, a financial manager looks for opportunities to minimize the costs of doing business, such as overhead, manufacturing and distribution costs. They then communicate these potential changes to the respective management teams. Describe the answer using the proper definition, essential objectives of a financial manager. Ans: Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. Objectives of Financial Management The financial management is generally concerned with procurement, allocation and control of financial resources of a concern. The objectives can be1. To ensure regular and adequate supply of funds to the concern. 2. To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders. 3. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost. 4. To ensure safety on investment, i.e, funds should be invested in safe ventures so that adequate rate of return can be achieved. 5. To plan a sound capital structure-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital. Functions of Financial Management 1. Estimation of capital requirements: A finance manager has to make estimation with regards to capital requirements of the company. This will depend upon expected costs and profits and future programmes and policies of a concern. Estimations have to be made in an adequate manner which increases earning capacity of enterprise. 2. Determination of capital composition: Once the estimation have been made, the capital structure have to be decided. This involves short- term and long- term debt equity analysis. This will depend upon the proportion of equity capital a company is possessing and additional funds which have to be raised from outside parties. 3. Choice of sources of funds: For additional funds to be procured, a company has many choices likea. Issue of shares and debentures b. Loans to be taken from banks and financial institutions c. Public deposits to be drawn like in form of bonds. Choice of factor will depend on relative merits and demerits of each source and period of financing. 4. Investment of funds: The finance manager has to decide to allocate funds into profitable ventures so that there is safety on investment and regular returns is possible. 5. Disposal of surplus: The net profits decision have to be made by the finance manager. This can be done in two ways: a. Dividend declaration - It includes identifying the rate of dividends and other benefits like bonus. 6. Management of cash: Finance manager has to make decisions with regards to cash management. Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintenance of enough stock, purchase of raw materials, etc. 7. Financial controls: The finance manager has not only to plan, procure and utilize the funds but he also has to exercise control over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc. Describe the answer by discussing the essential objective of a financial manager. Ans: Financial management is the management of all financial activities that includes processes such as planning, directing, organizing and controlling. In other words, it can be defined as the application of general management principles to financial activities of the enterprise. The basic objectives of financial management have been highlighted in the Financial Management Assignment. Some of them are given below: One of the main objectives of financial management is to maximize the wealth of shareholders. It is a great approach that aims at the growth of the organization. To cut down additional and unnecessary costs for effective utilization of funds. It will reduce the wastage of funds in useless assets. To ensure that sufficient amount of funds is available at the time of need. It is an important step that must be taken by the management for sound financial condition of the business. Functions of Financial Management: Financial management plays a crucial role in business and has numerous functions. The various functions of financial management have been discussed in the Financial Management Assignment. Some of them are mentioned below: Investment of Funds- It is the task of financial manager to allocate and invest funds into profitable ventures in order to ensure the safety of funds in the investment. Estimation of Capital Requirement- capital requirement is estimated according to the profits, expected costs and future policies of a firm. An adequate estimation is necessary for the growth of the firm. Management of Cash- financial managers have to make decisions regarding cash management. The management of cash is required for many purposes like raw materials, maintenance of stock, wages and salaries, creditors, bills, etc. Financial Control- it is an important of financial management. It can be done through techniques like financial forecasting, ratio analysis, cost and profit control, etc. Define the term financial management Ans: Financial management refers to the strategic planning, organizing, directing, and controlling of financial undertakings in an organization or an institute. It also includes applying management principles to the financial assets of an organization, while also playing an important part in fiscal management. Ans to The question number 2 Ans: Motivation is one of three key performance elements. In fact, research suggests that performance is a function of ability, motivation and opportunity: Performance = Function {Ability × Motivation × Opportunity} Ability refers to a person’s or a team’s ability to perform a task. Opportunity refers to the timing and situation around the task. For instance, if a hospital sets out to be known for successful heart transplants, it must have a team of surgeons that are skilled in performing transplants (ability), and there must be adequate space and equipment to perform transplants, as well as patients who need them (opportunity). Managers have little influence over ability, and they can only somewhat influence opportunity. Can managers influence employees to be more productive by understanding their sources of motivation, or even creating sources of motivation for their employees? Most researchers agree that the answer to that is yes. Motivation isn’t a stable state of mind, and what motivates an employee right now might not be the same a year later. But researchers don’t necessarily agree on the best way to accomplish that—and perhaps there is not one best approach. Motivation is one of the most researched topics in organizational behavior, because a manager’s ability to influence employee motivation can directly affect an organization’s bottom line. Evaluate the concept of conflict of interest with example and discuss and relate the different motivating factors that may minimize the conflict. Ans: Motivation and Conflict Management Organizations strive for creative ways to enhance employee motivation and resolve conflicts with the desire to have employees perform better within the workplace. To motivate one has to be motivated. Motivation within the workplace has to be constant and requiring a goal. Motivation, if not repeated will not last. Therefore, learning to determine how different organizations apply motivation theories to motivate employees, analyzing conflict management strategies and what approaches work best in different organizations will influence the success of an organization. Motivation Theories and Organizational Behavior Motivation is the concept of stimulating or arousing a person to achieve a goal. Motivation has much to do with desire and ambition, and if they are absent, motivation is absent too (What is Motivation and How to Strengthen It, para. 1). Motivation theories are unique to each organization. Some organizations have come up with motivation theories such as setting work goals, job performance evaluations, and fair treatment policies within the work environment to keep employees motivated. The impact that individuals, groups and structures have on behavior within organizations is Organizational Behavior. Motivation is affected by organizational behaviors, which is why different organizations apply motivation theories to motivate employees Evaluate the concept of conflict of interest problem with example and discuss the different motivating factors of the agency problem. Ans: Agency problems—also known as principal-agent problems or asymmetric information-driven conflicts of interest—are inherent in many corporate structures. This conflict arises when separate parties in a business relationship, such as a corporation's managers and shareholders, or principals and agents, have disparate interests. Principals hire agents to represent the principals' interests. Agents, working as employees, are assumed and obligated to serve the principal's best interests. Problems occur when the agent begins serving different interests, such as the agent's own interests. Thus, conflict occurs between the interests of principals and agents when each party has different motivations, or incentives exist that place the two parties at odds with each other. Corporations employ several dynamic techniques to circumvent static issues resulting from agency problems, including monitoring, contractual incentives, soliciting the aid of third parties, or relying on other price system mechanisms. The study of agency problems is ongoing in both corporate and academic circles. Increasingly, contract design limits are recognized and corporations are turning to different incentive mechanisms.