JONAH BANDOJA

BSBS
FINANCIAL ANALYSIS AND REPORTING

Concept Discussion
1On goal maximization discuss;
A. What is meant by goal maximization of the shareholders' wealth?
- The principle of shareholder wealth maximization (SWM) holds that a maximum return
to shareholders is and ought to be the objective of all corporate activity. In pursuing this
objective, managers consider the risk and timing associated with expected earnings per
share to maximize the price of the firm's common stock.
B. What are the drawbacks in considering that the utmost goal of a business entity is to
yield the highest profit possible for the firm?
- One drawback is that it can motivate the business's leaders to prioritize profit over
things like ethics, the well-being of their employees, and the well-being of their
customers. For example, car companies will sometimes sell cars that they know have
manufacturing errors that will result in deaths. They've calculated that the money lost
from lawsuits related to dead customers is less than the money they would lose by
recalling the cars, so selling the faulty cars is the profitable choice. If the company didn't
have profit as their highest goal, they might recall the cars instead, which is the ethical
choice.
Another drawback is that customers often prefer to buy from companies who do not
have profit as their highest motive. One reason is because companies that openly
prioritize ethics, honesty, and human well-being over profit will be less likely to sell
products that harm their customers. Another reason is that people's personal values
generally align more with a company that does not have profit as its first goal.

2. What are the functions of financial management?

(A) Estimating the Amount of Capital Required
This is the foremost function of the financial manager. Business firms require capital for:
purchase of fixed assets,meeting working capital requirements,
(B) Determining Capital Structure
Once the requirement of capital funds has been determined, a decision regarding the
kind and proportion of various sources of funds has to be taken. For this, a financial
manager has to determine the proper mix of equity and debt and short-term and long-
term debt ratio. This is done to achieve minimum cost of capital and maximise
shareholders wealth.

(C) Choice of Sources of Funds

Before the actual procurement of funds, the finance manager has to decide the sources
from which the funds are to be raised. The management can raise finance from various
sources like equity shareholders, preference shareholders, debenture- holders, banks
and other financial institutions, public deposits.

(D) Utilisation of Funds

The funds procured by the financial manager are to be prudently invested in various
assets so as to maximise the return on investment: While taking investment decisions,
management should be guided by three important principles, viz, safety, profitability,
and liquidity.

(E) Disposal of Profits or Surplus

The financial manager has to decide how much to retain for ploughing back and how
much to distribute as dividend to shareholders out of the profits of the company. The
factors which influence these decisions include the trend of earnings of the company,
the trend of the market price of its shares, the requirements of funds for self- financing
the future programmes.

(F) Management of Cash

Management of cash and other current assets is an important task of a financial
manager. It involves forecasting the cash inflows and outflows to ensure that there is
neither shortage or surplus of cash with the firm. Sufficient funds must be available for
purchase of materials, payment of wages and meeting day-to-day expenses.

3. What are the financial manager's responsibilities?

Forecasting and Planning
The financial manager must interact with other executives as they look ahead and lay
the plans which will shape the firm’s future.
Major Investment and Financing Decisions
A successful firm usually has rapid growth in sales, which requires investments in plant,
equipment and inventory
Coordination and Control
The financial manager must interact with other executives to ensure that the firm is
operated as efficiently as possible. All business decisions have financial implications,
and all managers financial and otherwise need to take this into account.
Dealing with the Financial Markets
The financial manager must deal with the money and capital markets. Each firm affects
and is affected by the general financial markets where funds are raised, where the firm’s
shares and debentures are traded, and where its investors either make or lose money.
Risk Management
All businesses face risks, including natural disasters such as fires and floods,
uncertainties in commodity and share prices, changing interest rates and fluctuating
foreign exchange rates. However, many of these risks can be reduced by purchasing
insurance or by hedging.
4. On the form of business organization, thoroughly discuss the following;
A. Compare and contrast the different forms of business organizations.
Sole proprietorships are firms legally owned by only one person. Partnerships are firms
legally owned by two or more people. Corporations are firms legally owned by
stockholders who have purchased “shares” of the company in the hope that the value of
their shares will increase over time and pay dividends.
B. Why is corporation more suitable for large corporations?
Most large businesses are formed as corporations because of legal statutes that endow
the incorporated form of business organization with full entity status. What this means is
that corporations, having full entity status, have expanded powers of what can be
exercised and limited range of liability.