Discussion: Financial Management Role

Discussion: Financial Management Role

Discussion: Financial Management Role

Permalink: https://collepals.com/discussion-the-r…gement-in-a-firm/

DQ 1: The Role of Financial Management in a Firm

Examine the role of management as it re late s t o finance in a corporation. In your post , discuss the role of management by addressing the following prompt s:

· Explain the various aspect s of finance that management must understand. · Describe why a manager needs to understand the charact er is t ics and importance of financial market s

including t he ir liquidit y, compe tit iveness, and efficiency. · Inte rpre t the funct ion of the Financial Balance Shee t in ass ist ing in management’s decis ion making

process. · Discuss what could happen if management does not fulfill re sponsibilit ie s re lated to finance . Share a

real world example from your own profess ional experience or from an exte rnal source.

Response:

Finance would often be considered a discipline of accounting. The area of finance and financial management is covered by the CFO and its critical areas of management. Certain terms are used both in accounting and finance, but could be different or similar things. A financial balance sheet demonstrates managements need to understand where the source of investment are generated, how decisions are made are made using the investments, and insure a balanced flow between investments funds into the company and the regeneration of the funds.

All managers and areas above management should understand the role of finance and the financial model. Even accounting provide the numbers managers still need financial knowledge. The financial department is the area that can determine if spending money on something new is would be good or bad. Whether to borrow money or explore other options. Every department manager depends on finance to produce the knowledge and the okay’s to go through with certain things.

The text focuses on a corporation structure and therefore we can reference large option funding from areas such as stocks and bonds. Stocks represent ownership in the company by investors that expect a rate of return, and bonds represent loans made by a different group of investors that require repayment with interest (Byrd et al., 2013). Primary investments funding sources are augmented with bank loans, lines of credit and access to commercial paper markets. Those cash make up varies cash that funds many things. The manager’s job is to make sure that the funds are used correctly.

Having no real banking experience, I can just image as too what goes wrong in the financial management. Which can result in loss of business or job of the manager.

Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial finance. Retrieved from http://www.bridgepointeducation.com

Eric Medellin’s response to DQ1:

The goal of the manager in a corporation is to maximize investor (shareholder) wealth (Byrd, Hickman, & McPherson, 2013). Managers not only need to understand the financial market environment that their corporation operates in, but also that of the forces applied on the business from limits and opportunities (Byrd, Hickman, & McPherson, 2013). With an understanding of the financial markets, such as liquidity, efficiency and competitiveness, managers know how to sell securities, gather information and identify prices within the markets. Additionally, this awareness aids in recognizing the various sources of capital available for their corporation’s investments. The Financial Balance Sheet (FBS) focuses on the financial functions of the business, the cash flow, rather than periodic reporting of profit or net income as accomplished by the accounting balance sheet (Byrd, Hickman, & McPherson, 2013). This is important to management because it is cash that pays the bills and it is also cash that can be invested (Byrd, Hickman, & McPherson, 2013). The FBS allows management to decide which investments should be attained and through what source of capital to finance the investment (Byrd, Hickman, & McPherson, 2013). In this way management can plan for long-term sustainability and success of the business (Byrd, Hickman, & McPherson, 2013).

Bibliography

Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance. San Diego, CA, USA: Bridgepoint Education Inc.

DQ2: Short Term or Long Term View?

Afte r reading the firs t two chapte rs of your t extbook, evaluate t he following statement:

Managers should not focus on the current s tock value because doing so will lead t o overemphas is on short – te rm profits at the expense of long-te rm profits.

In your post , explain what is meant by this s tat ement . Describe how management might decide whe ther to focus on short t erm or long te rm goals and how that decis ion impacts the organizat ion. Next , us ing the financial balance sheet as displayed in the text , compute an example of how focusing on short te rm profits can be de trimental to long t erm profits . Share your opinion regarding whe ther you fee l it’s a be t te r option t o focus on short t erm or long te rm goals.

Cara Harris’response to DQ2:

A company’s value depends on its long-te rm abilit y t o generate cash to fund value-creat ing growth and pay dividends t o its shareholde rs (Rappaport , 2005). The st ock marke t fluctuate s and changes daily. Management if focused on current stock value would be taking daily risks invest ing in these st ocks because the re is not a lot of t ime bet ween buying and se lling that would allow for any research in t he s tock. Management could be invest ing in current stock value t hat does not generate any cash flow to their shareholde rs. Maximizing long- te rm cash flows rather t han managing for short- te rm earnings , even in an earnings-dominated marke t , is t he most e ffect ive means of creat ing value for continuing shareholde rs (Rappapor t , 2005).

A focus on short- te rm earnings compromises shareholde r value because managers exploit the discre t ion allowed by the account ing rules in the calculat ion of earnings by pushing revenues into the current pe riod and deferring expenses to future per iods (Rappapor t , 2005).

I be lieve that although the re are some short te rm goals that could deem profit able for t he bus iness, however the pract ice should be in long-te rm goals because of t he risks associated wit h short te rm and t he risk could poss ibly render more t han the reward. Long t erm goals hold a lower volat ility. The longer you inves t the great er the poss ibilit y t hat you may be able to weather the s torm of low marke t pe riods .

Rappaport , A. (2005). The Economics of Short-Term Performance Obsess ion. Financial Analys ts Journal, 61(3), 65-79.

Andrea Kenny’s response to DQ2:

Managers should not only consider the current standing of a firm when making decisions but must also consider the possible growth of the future in regards to future profits. It is important for shareholders to see not only the short-term where a company can meet their obligations but also the long-term as an indication that the company will exist in the future.

The financial balance sheet serves as the counterpart to the accounting balance sheet Byrd, Hickman, & McPherson, 2013). This summarized information represents cash flows, investments, assets and purchases, and it allows users to see how that information interacts

Sometimes managers can focus too much on the short-term and lose sight of the long- term of a company. This will cause managers to make quick decisions that can have lasting effects. These situations are not appealing to long-term investors because they are looking for sustainable investments (Byrd, Hickman, & McPherson, 2013) that will be in their portfolio for years to come. Reference: Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial Finance. San Diego, CA: Bridgepoint Education Inc.