FINANCIA MANAGEMENT NOTES
SCOPE OF FINANCE FUNCTIONS
The functions of Financial Manager can broadly be divided into two: The Routine functions and the
Managerial Finance Functions
Require skilful planning, control and execution of financial activities. There are four important managerial finance functions. These are:
a) Investment of Long-term asset-mix decisions
These decisions (also referred to as capital budgeting decisions) relates to the allocation of funds among investment projects. They refer to the firm’s decision to commit current funds to the purchase of fixed assets in expectation of future cash inflows from these projects. ...view middle of the document...
It can also be referred to as current assets management. Investment in current assets affects the firm’s liquidity, profitability and risk. The more current assets a firm has, the more liquid it is. This implies that the firm has a lower risk of becoming insolvent but since current assets are non-earning assets the profitability of the firm will be low. The converse will hold true.
The finance manager should develop sound techniques of managing current assets to ensure that neither insufficient nor unnecessary funds are invested in current assets.
For the effective execution of the managerial finance functions, routine functions have to be performed. These decisions concern procedures and systems and involve a lot of paper work and time. In most cases these decisions are delegated to junior staff in the organization. Some of the important routine functions are:
a) Supervision of cash receipts and payments
b) Safeguarding of cash balance
c) Custody and safeguarding of important documents
d) Record keeping and reporting
The finance manager will be involved with the managerial functions while the routine functions will be carried out by junior staff in the firm. He must however, supervise the activities of these junior staff.
THE OBJECTIVES/GOALS OF A BUSINESS
1. Profit maximization – This is a traditional and a cardinal objective of a business. This is so for the following reasons:
* To earn acceptable returns to its owners. (i.e. Must not be less than bank rates + inflation + risk)
* So as to survive (through plough backs)
* To meet its day to day obligations.
2. To maximize the net worth i.e. the difference between total assets and total liabilities. This is important because:
* It influences company’s share prices.
* It facilitates growth (plough backs).
* It boosts the company’s credit rating.
* This is what owners claim from the company.
3. To maximize welfare of employees – Happy employees will contribute to the profitability. This includes:
* Reasonable salaries
* Transport facilities
* Medical facilities for the employee and his family
* Recreation facilities (sporting facilities).
4. Interests of customers – the company has to provide quality goods at fair prices and have honest dealings with customers.
5. Welfare of the society – the company has to maintain sound industrial relations with the society:
* Avoid pollution
* Contribution to social causes e.g. Harambee contributions, building clinics etc.
6. Fair dealing with suppliers. A company must:
* Meet its obligations on time
* Avoid dishonor of obligations.
7. Duty to the government: A company should:
* Pay taxes promptly
* Go by government plans
* Operate within legal framework.
OVERLAPS AND CONFLICTS
* Overlaps – when achieving ONE MEANS achieving the other
* Conflicts – when achieving ONE CANNOT allow the...