ACFI205 Lecture 1: Introduction to Financial Management & Financial Planning 2022/2023

Roles managers play - ANS-- strategic management: develop objectives and formulate strategy to achieve objectives - operation management: day to day control over various business functions - risk management: identify and properly manage risks faced by a business finance functions - ANS-- financial planning: evaluate viability of proposed course through making projected financial statements - investment project appraisal: assessing profitability and riskiness of projects - financing decisions: identify and assess diff sources of finance - capital market operation: related to issues concerning pricing of loan or valuation of share price - financial control: monitoring plans put into action primary objective of firm - ANS-value maximisation/ shareholder's wealth maximisation wealth can come in two forms - ANS-through dividend and price appreciation is profit maximisation same as value maximisation? - ANS-no. The primary objective of a business is shareholder wealth maximization within a market economy shareholders provide funds to a business in the expectation that they will receive the maximum possible increase in wealth for the level of risk that must be face the term wealth . in this context is referred to the market value of the ordinary share the market value will intern reflect the future returns the shareholders will expect to receive overtime profit maximisation has: - lack of precision: op profit, profit before tax, profit after tax, profit available to shareholders ordinary share - lack of objectivity: example, accounting for depreciation, inventory, bad debts - time period: arbitrary reporting period choice - risk is ignored in profit calculation: shareholder can make risky decisions - opportunity cost is ignored stakeholder approach - ANS-firms work to meet the environmental demands of multiple stakeholders—employees, suppliers, and the community. problems with stakeholder approach - ANS-- lack of a simple, clear cut objectives for managers to pursue - multiple objectives can be conflicting - is stakeholder approach at the expense of shareholder wealth maximisation? Continues...