Ans.to.the.Que.

No-1

Ans: Financial management means planning, organizing,

directing and controlling the financial resources and
activities of business firm or organization. The person
who manage this activities is called a financial manager.
A financial manager has to accomplish some objective to
achieve organization’s goal. This objectives are:
1. Ensuring regular and adequate supply of funds:
Normally if a financial manager has to maintain a
business entity properly he has to ensure a regular cash
flow or regular fund flow. So, if the firm doesn’t have
proper fund they cannot do any sort of financial activity
and achieve organizations goal.
2. Ensuring adequate return to the shareholders: After
utilizing the fund financial manager must satisfy their
shareholders. He has to give proper return to their
investment. If the manager failed give a profitable return
then the shareholders/investors will be no longer
interested to invest in the company.
To ensure this return the manager need to focus on
three things:
 Earning Capacity: Many times we over promise beyond
our capacity but a good financial manager can never do
this, because if we cannot give the return we promised to
the shareholders they will lose interest in the business this
and this will put a negative effect on the business. So you
have to provide a return to your shareholder based on
your earning capacity.
 Market Price Per Share: Earning capacity depends on the
market price of the share. The better the market price of
the share, the better the earning capacity and the better it
will increase. In order to increase the market price per
share, the financial manager needs to increase his
managerial efficiency in internal activities.
 Expectation: The financial manager needs to keep his
expectation of return based on earning capacity and
market price per share. He cannot expect more return his
earing capacity and market price per share is low.

3. Ensuring optimum fund utilization: Optimization

means making the best or most effective use of a
resource. A financial manager needs to know to utilize
the fund of his firm in optimum level. He needs to utilize
the fund in such way that it reaches its top efficiency.
Once he ensure the optimum fund utilization it helps to
boost the objective of business finance that is the wealth
maximization. The better he can use the fund, the
greater the wealth maximization will be.
4. Ensuring safety: A financial manager needs to ensure
the safety of his investment before investing. He
shouldn’t invest in a place where the investment is
questionable. He needs to measure the risks of the
investment, understand its profitability to ensure the
safety of the investment.
5. Planning a sound capital structure: The capital
structure is the combination of debt and equity used by a
firm to finance its overall operations and growth. A
financial manager need to know how to plan a good
capital structure, to ensure the organizational goal.
 Ans.to.the.Que.No-2

Ans: In this question, the conflict that I have with my

manager is agency problem.
Agency problem is a one kind of internal problem in the
organization. Agency problem is a conflict of interest
between shareholders/owner and manager or agents.
In this question, I have a conflict with my manager. It is
an example of stockholders versus manager agency
problem.
If the manager owns less than 100% of the firm's
common stock, a potential agency problem between
mangers and stockholders exists. In this problem the
stockholder wants regular return without any kind of
risk. But manager wants to take risk because he thinks
more risk can get more return.
There are some ways to solve agency problem. They are:
1. Managerial Compensation: The stockholders/owner
can compensate the manager to avoid the conflict. The
shareholders can:
 Increase the manager’s salary.
  Give him a monthly or yearly bonus based on his
performance.
 Give him options to buy company stocks at a future
date and price.
2. Direct Intervention: The shareholders can directly
intervene in manager’s work. They can watch and dictate
every steps of mangers work. Shareholders can enforce
manager to improve his performance and give
suggestions or guideline regarding how to run the
business.
3. Threat of Firing: If the mangers doesn’t improve their
performance then the shareholders can threat them to
fire from their work. In this way the managers may
improve his work to keep his job.
4. Threat of Takeovers: If the managers doesn’t improve
their performance and the firm’s share is undervalued,
the stockholders might threat them to take over their
work. The stockholders can tell the managers to run the
business or they will bring another board of managers to
take over their work.