INTRODUCTION AND HISTORICAL BACKGROUND TO THE STUDY
Financial management involves all activities of a financial manger concerned with raising of capital, planning cash and credit requirements including the effective control of financial resource of a corporate body.
The activities could be segregated as follows
i) Converting of forecast into plans and budgets
ii) Planning the appropriate capital structure
iii) Raising cash from outside the business
iv) Forecasting the future availability of and requirements of cash.
v) Investing surplus funds
vi) Controlling cash balances and flows in accordance with plans and with changing circumstance.
Gray etal (1977)
With the emergence of finance as a separate field of study the emphasis was more or less on legal matters such as
Since most business firm’s objectives are profit maximization the search for profitability under imperfect/perfect competition continues to be the induction to improve the wealth of the owners.
This urge to implore and maximize, wealth has led to the study of financial management of which attribute factors can be socialized as follows:
b. Business growth
c. Research and development expenses
e. Competitor etc.
Based on the above background, some taught to were given a financial management to provide skillful planning control and execution of financial activities. The praising managers are interested in this subject because among the most crucial decisions of the firm are those which related, to finance and therefore need to understand financial management which provides them with conceptual and analytical insight of the capital funds and using the suppliers of fund are called the finance function of any firm.
GOALS AND OBJECTIVE/ROLES OF FINANCIAL MANAGERS.
Finance which is the life wire of any business organization and it is developed in 1900s since it concerns with the actual flow of money as well as any clam. Against money.
The financial manager subsequently decisions are made in much more co-ordinated marker directly responsible for the control process.
The principal responsibility of financial manager involves a theory of Evaluation of investment financial and dividend decisions with the objective of maximizing wealth. The financial manager studies the factors which influence both internal and external environment. Only sound financial decision based on analysis the planning and control activates therefore can help optimization of value of operations.
Optimization of profits and share holders wealth is one of those guiding objectives of business enterprise, which govern it allocation of resource and other financial decision of managers.
The financial manager, finally must be aware of the source available for financing the business and be guided by time selection and combination of these variables that is the financial managers determinant the principles of suitability. Financial manager determine is that of profitability and liquidity while suitability is the principle of time balancing between assets and liabilities that is using short term liabilities to finance short term assets and long term liabilities for finance long term assets , the financial manager is concerned with note T.P. Martin
a) Financial planning within the enterprise.
b) Allocation of fund
c) Financial controlling
This involves estimating and planning of the future flow of cash receipts and disbursement.
RAISING OF FUNDS
The raising of funds involves organizing and ensuring that fund necessary for carrying on the operations of the planning is available. The second fact of financial manager is the acquisition of fund. There is wide Varity of sources available for the acquisition of fund. Each has certain characteristic as cost, maturity availability, the encumbrance of assets and other terms imposed by the supplier of capital.
On the basis of these factors, the financial manager must determine the best mix financial for the firm.
Therefore, the financial manager has task of formulation and execution of suitable financial policies in the interest of the organization
The major purpose of such polices is to plan, coordinate, motivate and control those activities of the firm which are responsible for an efficient management of resources. An efficient financial manager thus serves as a valuable aid to the process of decision – making and a major contribution to the pale of Economic progress.
ALLOCATION OF FUNDS
Wise use of funds by allocating such funds in such project or ventures that would yield optimal returns ensuring efficient use of funds. The financial manager oversees the allocation of funds. Among attentive uses, the allocation must be in accordance with the underlying objectives of the firm, to maximize shareholders wealth. The role of financial manager has expanded from the management of working capital to long-term assets and liabilities.
He concerns with ways of efficiently managing these current assets in order to maximize profitability relatives to the amount of fund tied up in the assets.
Financial manager monitors financial operation to ensure that cash flows are proceeding according to plan.
A company is part of the financial community it’s financial management can be fully interpreted only with the context created by the working of financial institution and markets.
Since this project is concerned with the role of financial managers in a cooperate organization therefore, it is important to note the goals of any corporate organization.
a. MAXIMIZATION OF WEALTH:
The main objective of financial management is the maximization of owners wealth owners maximization is accomplished by maximizing the sum of the present value of the increased in the market value of the shares of stock lead by the shareholder. This apparent wealth maximization is the best Economic objective for shareholders as the owners and for the company whose primary interest is to shareholder/owners.
a) b. Profit Maximization: This is the second of frequently encountered goals of any business in fact, all business firms believed that as long as they are earning as much as possible while holding down cost they are achieving this goal of profit maximization. the in availability or the lack of human resources and the organizational self- imposed standard.
b) The eternal environment factor such as the political legal framework, cultural and social values the Economic climate technological trend and investors at attitude.
It is therefore imperatives that financial management should take cognizance of environmental factor that effect their decision.
STATEMENT OF PROBLEM
There have been unprecedented increase in the quest for the answer of the following questions posed in order to clarify the duties of financial managers which is the prospect rank of a student studying finance.
What is managerial finance? How important is finance functions to the company; If the financial manager is responsible for the performance of certain tasks does this mean that his actions are designed to accomplish the firms objectives? What is the financial managers definition of a far price and how it is related to his firms return and investment capital; one may logically ask, why are we interested in these cash flows, if they do not affect profit, why their profit effect not be taken directly into account.
In the analysis? What tools and techniques are available to him and how does one go about measuring his performance? On a general scale do they have any operational meaning? That is how can managerial finance be used to further national goal?
Having identified these questions, the provisions of the possible answer to be the aforemention questions constitute the area of consideration of this project.
A stated ”The financial manager must find a rational bases for answering the following three questions.
a. How large should an enterprise be and how fast it grows?
b. What should be the composition of it’s facility
c. In what form should it held it’s Assets.
“The question stated above related to three bound decision area of financial management, investment financing and dividend decisions (2)
Therefore the above roles of financial management become important that the primary researcher conducted on a named company serves dual purpose. This not only serves as part of the tool in answering the questions but it mainly used to unfold the extent the financial manager of the company is executing his duties according to the project.
SIGNIFICANCE OF THE STUDY
The purpose of this project, the role of financial manager in corporate organization is to equip the practicing financial managers, financial controllers directors of finance treasures students of finance and reader with a basic understanding of financial decision.
The financial manager caries out financial decisions in manner that the wealth of shareholders is maximized through the following:
a. Current Asset management
b. Capital budgeting Decision
c. Dividend Decision
d. Financial Decision.
a. CURRENT ASSET MANAGEMENT:
Financial manager has every right to manage the long term assets, and also the duty to mange current assets efficiently to safeguard the firm against liquidity or insolvency. Investment in current assets affects firm’s profitability: liquidity and risk, if the firm close not invest sufficient fund in current assets it may become liquid. But it would less profitability, as idle current assets would not earn anything’s. In order to ensure those neither insufficient nor unnecessary fund are invested in current intact he should develop sound techniques of managing current assets.
b. CAPITAL BUDGETING DECISION
Capital budgeting is investment decisions of the firm to have it fund invested in long-term project in anticipation of expected flow of future benefit over a period of years.
These decisions could be either to mechanize a process, replace a machine with another modern type, selecting between two machines, production of new product or business expansions it’s features are:
i. Investing current funds for future benefits
ii. The period of investment which involves long term activities
iii. To potential benefit which will accrue to the firm over a period of time
c. DIVIDEND DECISION:
The financial manager must determine the optimum dividend payment ratio; he should consider the questions of dividend stability stock dividend and cash dividend:
The financial manager must decide whether the firms should distribute all profits or retain the balance.
d. FINANCIAL DECISIONS:
The financial manager must determine the time the method and who to acquire fund to meet the firm’s investment need. The significant issue before him is to determine the proportion of equity capital and debt capital. A proffer balance will have to be struck between return and risk once the financial manager is able to determine the best combination of debt and equity, he must raise the appropriate amount through best available sources.
The company uses both short and medium term sources of fund to financing the company’s business and also as a sources of their working capital.
The method used by the company in forecasting when additional funds is needed to support their current, sales volumes and also for future profits planning’s.
While they apply financial ratios in evaluating and understanding of the performance or the result of their business operations.
The company’s objectives and policies are established towards furtherance of their budgeting system.
DEFINITION OF TERMS
1) Capital Budgeting: In this context means the whole process of planning expenditure whose returns are expected to cover a serves of years.
2) Cash flow management: The ability to manage efficiently the movement of cash in and outside the corporate organization (Accelerate cash in flows and decelerate cash out flows.
3) Liquidity Decision: current assets of the firm should be managed very efficiently to prevent the firm from becoming insolvent or illiquid.
4) Interpretation: Analyzing and giving full details of working of financial institution and markets