FINC 300 Assignment 1

The role of the financial manager is a complex one as it requires both specialized financial knowledge and the understanding of how the business operates. The financial managers are faced with a task of making a decision regarding capital budgeting. Capital budgeting is the process of that determines the success of an investment project (KIDA, MORENO & SMITH, 2001).  It is, therefore, important because a manager is able to make a decision of whether to accept, delay or abandon the project due to its economic viability. In order to come with such a decision a financial manager is supposed to determine the rate of return on the investment. The approval of a project is based on the rate of return but it is different in charitable projects as the business aims at creating goodwill and giving back to the community (KIDA, MORENO & SMITH, 2001).

Capital budgeting involves making decisions for the long term due to the nature of the investment. The financial managers seek to capitalize on the value of the firm into projects that yield positive net value for the suitable discount rate of the risk involved. The managers also ensure that the projects are funded appropriately (KIDA, MORENO & SMITH, 2001). They also ensure that scarce resources are allocated among competing opportunities through proper estimation such as time, size and the probability of the future cash flows of capital budgeting. Therefore managers are involved in capital budgeting by making capital investment decision which comprises of investment decision, financing decision and a dividend decision (KIDA, MORENO & SMITH, 2001).

Capital structure regards to how a firm funds its operation and development by a way of using various sources of financing. Debt is one form of funding which is made up of bond issues mostly for the long term, equity form which can be categorized as retained earnings, common stock or preferred stocks. Short-term debts include working capital can also be considered as capital structure (Brigham, 2016). A finance manager has the duty of raising funds as they are supposed to meet the obligation of the business. It is their mandate to ensure that the firm has enough liquid and cash as well as maintain a good balance between debt and equity.

Financial managers are also faced with the task of allocating funds. This is raising funds through different channels and how they are going to allocate them in a manner that will ensure that they are optimally used. This is done by a consideration of firm’s size and its growth capability, the status of the assets and the decision of whether they are going to be availed in long or short term and the mode in which the funds are being raised (Brigham, 2016). Due to the influence of such decisions, the managers are supported to form a proper and mixed allocation funds as it is one of the most important activity. Capital structure also requires the managers to plan for the profit as it is one of the prime functions of any given firm as it ensures the survival and the sustenance of an organization. The managers are required to understand the capital markets as the shares of an organization may trade in the stock exchange and how they should buy and sell securities. The managers are supposed to understand the capital structure in the capital markets due to the level of risk involved (Brigham, 2016).

Working Capital Management can be referred to the business capital of day to day operation. It is the net value of current assets less the value of current liability (Kim, 2011). Working capital is important for any business as it ensures that sufficient cash flows that can meet the operating expenses and the short-term obligation. Financial managers have a role of making sure that the firm is able to operate efficiently in its daily activity without difficulties. They are supposed to come up with strategies that will make sure the firm is able to generate income internally that can be used to meet the essential and the critical expenses of the business (Kim, 2011).

The financial managers have the duty of coming up with strategies that reduce the expenses of the firm and the firm will generate more income through its activities that will ensure that the form is financially stable and that the firm operates efficiently (Kim, 2011). The management of the working capital is important as it facilitates routine payments, purchase of basic materials and covering up any unexpected cost. The management of working capital is important as it is an indication of the company’s financial strength and an overall picture of good management (Kim, 2011).

 

 

 

 

 

 

 

 

 

 

Reference

Brigham, E. F. (2016). Financial management: Theory & practice. Cengage Learning.

KIDA, T. E., MORENO, K. K., & SMITH, J. F. (2001). The Influence of Affect on Managers' Capital-Budgeting Decisions. Contemporary Accounting Research, 18(3), 477-494.

Kim, K. A. (2011). Global corporate finance: A focused approach. Singapore: World Scientific.