People are making decisions all the time some decisions involve relationship with other people, some decisions involve purchases of good and services, some decisions involve the commitment of time to activities. Corporate bodies are also engaged in making decisions. The fiercely competitive nature of modern economy makes it a must for corporate bodies to make certain fundamental decisions, in order to survive failure or inability to make timely and correct decisions would result to the imminent collapse of the corporate body.
The most important activities of a business firm are; finance, production and marketing. The firm secures capital it needs and employs it a (finance activity) in activities, which generates returns on invested capital (production and marketing) activities. A business firm thus is an entity that engages in activities to perform the function of finance, production and marketing.
A corporate body requires a number of real assets to carry on, its business real asset can be tangible or intangible, plant machinery, offices, factories, furnitures and building are examples of tangible assets while technical know-how, technological collaboration, patents and copy rights are examples of intangible assets. The firm’s sells financial assets or securities, such as shares and bonds debentures to investors in the capital markets to raise necessary funds. Financial assets also include lease obligations and borrowing from banks, financial institutions and other sources of funds. Applied to assets by the firms are called capital expenditures or investments. The firms expect to receive returns on its investments and distributed returns to investors. These processes, of raising funds, investing them in assets and distributing returns are known respectively as financing, investment and dividend decisions. These financial decisions or functions are not sequential; the firm performs them simultaneously and continuously.
There are two types of funds that a firm can raise; equity funds and borrowed funds. A firm has to sell shares to acquire equity funds. Shares represents ownership rights of their holders. Buyer and shares are called shareholders, and they are the legal owners of the firm whose shares they hold. Shareholders invests their money in the shares of a corporate body is the expectation of a return on their invested capital. The return on the shareholders capital consists of dividends and capital gain. Shareholders make capital gains by selling their shares. Shareholders can be of two types. Common and preference. Preference shareholder receive dividend at a fixed rate and they have a priority over common shareholders. The dividends rate for common shareholders is not fixed, and it can vary from year depending on the decision of the board of directors. The payment of dividend to shareholders is not a legal obligation; it is an absolute discretion of the board of director.
Another important source of securing capital is borrowed funds. Borrowed funds are obtained from creditors or lenders. Lenders are not owners of the company. They make money available to the firms on lending basis and retain title to the funds lent. The return on loans or borrowed funds is called interest. Loans are furnished for a specific period at a fixed rate of interest.
Payment of interest is a legal obligation. The amount of interest is allowed to be treated as expenses for computing corporate income taxes. A firm may borrow funds from banks, financial institutions debentures holders e.t.c.
A company can also secure funds by retaining a portion of the returns available for shareholders. This method of acquiring funds is called retaining earning. The retained earning are undisturbed returns on equity capital. They are therefore, rightfully a part of equity capital. The retention of earnings can be considered as a form of raising new capital. If a company distributes all e earning to shareholders, then it can reacquire new capital by issuing new shares.
The funds raised by a company will be invested in the available investment opportunities. Each investment opportunity available to a company is called investment projects, the on going projects may also involve outlays of each to maintain or to increase their profitability. It would be revealed that generation of revenue a production activity is possible only when funds are invested in projects.
There exits an inseparable relationship between the finance functions on the other. Almost all kind of business activities directly and indirectly involves the acquisitions and use of money. For example, a recruitment and promotion of employees in production is clearly a responsibility of the production department; but recruitment and promotion of employees requires payment of wages and salaries and other benefits, and thus, involve finance. Similarly, buying a new machine or replacing an old machine for the purpose of increasing productive capacity plenty supply of funds, will be more flexible in formulating its production and marketing decisions under such a situation.
STATEMENT OF PROBLEM
Finance is the blood of any organizations without adequate management of finance; the survival of any organization is endangered. It is not surprising that corporate finance occupies a central place in the decision making process of corporate organization.
The statements of problem are as follows:
1. Corporate financial management is viewed as restrictive, while making decisions due to its complex and involving theoretical framework.
2. Do corporate bodies actually rely on the principles and concepts corporate financial management while making decisions.
3. Are the techniques and methods of corporate financial management actually effective and efficient.
4. What impact financial management ha on the overall decision-making process of companies.
OBJECTIVE OF THE STUDY
This project is aimed at highlighting and examining the roles played by corporate financial management in the decision making policy of corporate bodies specifically, in Union Bank of Nigeria Plc. Enugu branch.
SCOPE OF THE STUDY
It is obvious that this project topic is so vast. One might write volumes without exhausting the topic. Consequently. In order to enhance in-depth study of the role played by corporate financial management, union Bank of Nigeria PLc, Enugu has been chosen as a case study.
SIGNIFICANCE OF THE STUDY
The “Modern” thinking in financial management gives greater importance to management decision-making.
This project will educate readers on how corporate financial management can be used to solve complex management problems.
The pedagogical approach of the researcher will enable students, practitioners to have a sound understanding of how financial decisions can be made to be effective and useful to the corporate body and also to evaluate their implications to shareholders and other interested parties.
Finally, readers will have an understanding of the theory of financial management, which will provide them with conceptual and analytical insights to make decisions skillfully.
DEFINITION OF TERMS
Financial management : These are incorporated business or incorporated business unit, recognized by law as a separate entity from its owners. They are more widely known as companies. The term company will be used occasionally in this work to designate corporate bodies.
Decision-making: This involves choosing between future uncertain alternatives.
Polices: Are steps to be taken by a company to achieve its given aim polices of a company. Policies of a company are its objectives.
Corporate financial management: This refers to financial management applied to the solving of the problems of corporate bodies.
Hypothesis 1 formation of hypothesis
Ho: corporate financial management is relevant in the policy making decision of a corporate body
H1: Corporate financial management is not relevant in the policy making decision of a corporate body.
Ho: An effective and efficient corporate management is achieved through adequate management financing policy.
H1: An effective and efficient corporate management is not achieved through adequate management financing policy.
ORIENTATION ON CHAPTER TWO
Development of corporate financial management. SOLOMON EZRA (1986) expressed that financial management in its essential and basic principles is probably as old as man.
Types of investment Decisions
Drury (1992) emphasized that investment decisions are of difference types. They include.
I) Machination of a process
II) Replacing and moderning a process.
Importance of capital Budgeting.
Since capital budgeting are among the most crucial and critical business decisions specials are should be taken in their treatment. T.Lucey (1999) stated reasons for placing greater emphasis on the capital budgeting decisions.
Dew JOEL (1951), emphasized that because of the almost importance of the capital budgeting decision a sound appraisal methods should be adopted to measure with the economic worth of each investment project. The investment evaluation criteria to be used should at last posses the following characteristics:
ACCOUNTING RATE OF RETURN METHODS
DEAN JOAL (1951), also expressed that accounting rate of return method uses accounting information as revealed by financial statements to measure profitability of the investment proposal.
EVALUATION OF IRR METHOD.
The internal Rate of Return method is a theoretically sound technique to appraise an investment worth of a project (Dean Joel. It possesses the following merits.