Narrative response on discussion – 1

Name: Jessica Micah Francesca P. Delos Santos          Date: February 11, 2021

Section: AC1A

A. What legal form of business organization is appropriate when raising large amounts of
capital? Please defend your answer.

In raising large amounts of capital, it is appropriate to establish a corporation as a legal form

of business. Corporation is defined as an artificial being that is established and created by the
law. It is owned by various shareholders who have purchased and own a portion of the firm.
Thus, corporations are immense enough to raise a large amount of capital.

To further explain the subject matter, a corporation was actually first organized by the
incorporators. After which, the ownership is transferred to various shareholders of the firm who
have either helped in establishing the corporation or have purchased a portion of the corporation.
The amount of capital solely relies on its initial investments. However, the capital may further
expand by raising its amount by depending on the possible investments of the shareholder but the
number of shareholders does not come in an instant.

The first action that a corporation must take first is to increase their credibility. They have to
prove how well they are doing in the field. They have to work well and must always aim for the
possible growth of the business. Thus, they need to let their name be known first by succeeding
in the field. Outsourcing and extension of connections may be of great help as well. This will
enable the firm to engage with people who are in the same field. Through this, they would be
able to meet people with the same interest who may be credible enough to have the means of
investing or purchasing stocks/shares. When such things happen, the corporation would be able
to raise more capitals and use this as a means of expansion of the business. However, this does
not end there. As shares are bought, it may be withdrawn as well. Thus, there is a need for the
corporation to actually maintain its performance and stability in order to prove to its shareholders
that they are performing well and are utilizing its capital effectively and efficiently.
 In contrast with sole-proprietorship, one of its disadvantages is the limited fund raising. Even
if they have the will and potential to expand, they are often hindered from doing so because of
financial challenges. As for the partnership, there  may have been a higher capital since it is
shared by at least 2 people, it is still not capable of raising such capital as the corporation could
since it is not as immense as the corporation.

Then again, one of the important matters that a corporation must keep in mind is that even if
their business is bigger than the two other legal forms of business, their business shall be well-
taken care of as the risks that may arise or are present could potentially ruin their reputation.
Hence, there is a need to hire credible board of directors and leaders for the purpose of expansion
and succession in accordance to the vision and mission of the company as well as the rules and
regulations mandated by the government in terms of the business context.

 
 B. What principles of financial management would apply under the topic of: difference
between the work of an accountant and a treasurer? Elaborate further.

The workload of an accountant and a treasurer is definitely opposing each other’s aspect of
workload. In fact, in terms of the principles of financial management, the principle of Cash-Not
Profit-is king has fully elaborated and thoroughly explained why each career has varied from the
other.

In terms of financial management, it actually focuses on having cash on hand at all times as
this is indeed an essential in all circumstances. The work of a treasurer is to be in-charge of
financial activities taking place in the business. Basically, it is mainly prioritizing the
management of cash within the company whether they shall take the expenditure or not. It
analyses how they would manage the finances in the firm and how they will be able to earn more
using their cash on hand. Technically speaking, in their perspective, they would only be able to
take certain actions or expenditures if cash is readily available at all times. They do not count
those monetary values that are part of the assets and other investments that are not currently
tangible in making present transactions. They act in accordance with this principle as this
explains the superiority complex of having cash on hand. If there is a certain liability or any
transaction that requires purchasing, only monetary terms could be used in order to settle the said
activity. Hence, it proves how cash is important above all the other assets of the company as this
will enable the firm to further expand and settle transactions that require a cash basis as a means
of closing the said transaction. Moreover, it has been proven that the treasurer is more focused on
the external facets as this requires more engagement with other people outside the firm.

On the other hand, the accountants’ perspective in this matter is totally opposing the belief of
the controller who is focused on the external facets whereas in accounting, they tend to focus
more on the internal facets. In accounting, the accountant’s job is more on the flow of money.
They are mainly focusing on how to evaluate and provide financial information in terms of
providing the financial position and financial performance of the firm. They mainly focus on
how well the company is doing. Their aim is mainly to generate more profit by analysing and
evaluating the company’s expenses. Hence, they consider every transaction that takes place in
the firm. Cash or not, they consider each entry in the transaction as this affects the whole assets
of the company. Cash is important as this has a role in every financial activity but it is not as
important in the aspect of the treasurer’s perspective whereas cash is the king and is showcasing
superiority in making any financial activities.

 
 C. What principle of financial management must be utilized when talking about a risk-
averse investor? Justify your answer.

Having a risk-averse investor may have actually matched up with multiple principles of
financial management as taking risks in terms of business context requires other principles to
consider and utilize as well, most especially that a fact of having a risk-averse investor was
stated.

However, if I will be evaluating this context, I would advise the investor to thoroughly utilize
his Trade off risk and return principle and all risks are not equal principle. It may seem
misleading for some, but in my perspective, I have enough validation of argument to actually
prove that each of them is just as essential as the other. Some may have thought of focusing on
one but I think a person would not be able to fully scrutinize the subject matter being if it will
only focus on the one and most common principle that matches the utilization of a risk-averse
investor.

The first principle that I think is accurate is the Trade-off Risk and Return. It is the best
principle to be utilized if the investor is a risk-averse in nature. The aforementioned principle
states that the higher the risk, the higher its return will be. Thus, if the investor has a high
tolerance in the aspect of taking risks, this principle is well suited for him and must be further
utilized in order to enhance his decision-making in the potential investments. This certain
principle will enable him to test his limits of how much risk could he take in the
projects/investments that he is eyeing. This will allow the investor to see and test how much risk
is available and how far he could possibly handle and manage in accordance to his capabilities
and extent of his willingness to invest in such. Moreover, this principle will actually enable the
investor to be guided accordingly as this will let the investor see in a wider context which
provides a brief outlook on the risks present that are part of the matters to be considered in taking
the said risks.

In my counter-argument, all risks are not equal principle and could be of best use in
utilization as well. Given the fact that the investor is actually more than willing to take risks in
investing, it means that there is also a need for him to fully understand and comprehend each risk
in order to evaluate and validate whether the risks he will be taking will allow him to open doors
for potential growth and opportunities. Taking risks does not end in the statement itself. It is not
just about the investor taking risks just because he pleases to do so. As assumed in the afore-
mentioned principle, the higher the risk that it is to take, the higher its return will be. Hence, if
the risk is high and its potential growth is in the line, then, it means that there is also a high
probability of losing the opportunity as well. Thus, the investor shall also learn to utilize the
principle of all risks not becoming equal. In spite of the fact that he is risk-averse in nature, he
also has to note that he is engaging in endless possibilities in terms of investments. He has to
comprehend thoroughly each risk that he is considering. Not only does he need to comprehend it
but he shall also make sure that there are numerous risky investments and it is just a matter of
weighing which he thinks is beneficial and is advantageous in terms of aiming for its possible
income/return in the future.