The Role of Financial Management A Corporate Orgnaisation
There have been a great deal of research conducted in areas that that are either directly or indirectly in line with what the researcher is doing. Most of them exposed many questions than they were able to answer which consequently stimulate further researcher on lie this. It is assumed that this project and further researcher on topic will be invaluable and eventually adopted by financial manager who bring it into the main stream of the standard financial management
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Nevertheless, there are many invaluable contribution so far made by some academicians which have contributed to million in the field of finance. The researcher will look into what T. martin said on profit maximization if it stress the efficient rise of capital.
The goal of profit maximization dose stress are efficient use of capital resources.
The researcher disagreed with him rather agree with some other authorities on matters we shall see that profit maximization has the following weakness.
- It ignores the time value of money: that is money received today has higher value than money received next year because of reinvestment possibility
- It overlooks quality aspect of feature activities: some business may place a high value on the growth of sales and therefore will be willing to accept lower profits in order to gain the stability provided by a large volume of sales
- It is vogue in that there are number of concept related to profits live gross profit, net profits, profit before tax an after tax, short, medium and long run profits, it is not clear which is to be maximized.
- Revenue maximization model which illustrates how multiple goal can influence a firms decision up to the side of its output, by so doing he assumed that as long as minimum level of profit is earned to stockholders. The firm will devote its attention to increase total revenue in order to meet other goals.
As Rev V. Brown in 1974 on his decision analysis for the manager stated that, “the decision over are facing in this problem will affect the difference between the cash that comes into this company and the cash that goes out for some time to come, certainly for five or possibly ten years and that is what I am interested in (2).
It is observed that his decision involves the time value of money. The test of financial success in the short run is harder to judge. Because the financial function is accompanied by many measurable activities, management is confronted with the task of reviewing all data selecting the appropriate action. As kenneth D. Duft in 1979 on this time and value relationship in Agric-Business finance said that” further to take corrective action in the short run becomes the major factor contributing toward ultimate financial collapse”.
However, the quoted author is interested in the shorten for the financial manager to make decision so that researcher agreed with the view. The vice president of the consulting form Booz, Allian and Hamilton has to say ample evidence exist that the Chief executive officer have followed a formal financial carriers path or devised.l their corporate expense between financial and general management posts.
Another management consultant feels that the role of the financial manager to get even more important because the decision making environment is becoming increasingly complex. The chairman, chief executive officer of a general electric company identified thus. “Corporate debt has already doubted since 1966 and is how well over billion, debt equity ratios are strained and digit interest rates has become borden some indeed.
Therefore, for effective management the financial manager should know the maximum debt required and avoid rescheduling of such interest. In confirming the fact that financial management will contribute to gain more important in the corporate structure, the president of the international association of financial executive institute states. “He (the financial executive) most be of lenders of innovation in management philosophy and techniques.
As a top level professional, the financial executive must have an over-all view of the corporation. He has to be more and more sensitive to humanistic values and he must not restrict himself to acting only on the basis of a purely technical analysis of problem”
It then appears that it in time to come the financial manager will take an additional responsibilities to financial management become important.
Financial management is attaining its standard in most developing, countries like Nigeria which can be seen in the increasing, growth of the duties of the financial controller in the company of study.
FINANCIAL RATIO AND PROFIT PLANNING
Financial ratio is the basis to understanding the evaluating the result of business operations. It provides the frame work within the financial manager can plan his future requirement. It helps the financial manager to succeed.
Financial plans may take many forms but any good plan must be relate to the firms existing strength and weakness. The financial ratio and planning service in these purposes
- The financial manager of firms rises financial ratio in making decision towards their responsibilities and duties.
- The creditors, investors and lenders use it to evaluate the performance of the firm.
Comparison may be made with financial ratio for earlier periods in the same business order to disclose trends.
It is sometimes employed for purposes of inter-firm companies. The financial ratios employed by the company of study shall be basically seen at (chapter four)
However, financial ratios generally classified as follows:
- Equity ratios: which are primarily concerned to shareholders
- Profitability ratio: this seeks to have management overall effectiveness as shown by the return generated on sale and investment
- Liquidity ratio: which provides a measure of the firm’s ability to pay its short term obligation.
- Activity ratio: this provides an indication of resources.
- Leverage ratio: This measures the extent to which the firm has been financial by debts as well as a measure of its financial risk.
Due to the inability of industrialist, inventors and individuals in these countries to read financial statements and interpret the ratio financial ratio are not widely used in developing countries of Africa”
FINANCIAL FORECASTING AD PROFIT PLANNING
Financial forecasting is the future projection of revenue and cost. This is important for the financial manager, since it institutes the basis for planning for financial receivables managing inventories, inventing in additional plant capacity and hiring personal.
There are four types of financial forecast.
- Funds forecast
- Industry forecast
- Economic forecast
- Sales forecast
When questioned “which of the following methods are used by your company in forecasting additional funds need to support the higher volume of sales and also plan for profits.
- Regression analysis
- Break even analysis
- Operations leverage
- The percentage of sales method
According to the financial controller of NICON insurance company limited Enugu, who said that (b) and (c) is the method used by the company for financial forecasting and profit planning.
The simplest approach to the forecasting of financial requirement express the firms needs in terms of the percentage of annual sales invested on each individual balance sheet item.
This method assumed that certain items in forms balance sheet changes in some fixed proportion to changes in sales volume, cash required to operate the business increases. Similarity, if credit column term do note change increase sales volume results, the higher level of receivables outstanding. The increase or decrease in fixed assets would be the functions of existing plant utilization.
Note: payable long term debts and common equity do not increase spontaneously with sales increase because there are not raised frequently.
Bearing the foregoing in mind the forecast f capital requirement under the percent it states method can either be calculated through the constructions of a pro-forma balance sheet or by the application of the following method:
—-This article is not complete———–This article is not complete————
This article was extracted from a Project Research Work Topic
“THE ROLE OF FINANCIAL MANAGEMENT A CORPORATE ORGNAISATION
A CASE STUDY OF NICON INSURANCE COMPANY LIMITED ENUGU, ENUGU STATE”
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The Role of Financial Management A Corporate Orgnaisation
