Financial Management Decisions and Shareholders

This assignment examines the role of financial management in achieving organizational goals, particularly highlighting its impact on shareholders. It delves into key financial decision-making areas like investment, financing, and dividends, analyzing how factors such as cost of capital, risk, cash flow, and market conditions influence shareholder profitability. The assignment concludes by emphasizing the importance of strategic financial planning for maximizing shareholder value.

FINANCIAL MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY ..................................................................................................................................3
Purpose of financial management ..............................................................................................3
Implication of three main decision .............................................................................................3
Factors within each decision affecting the financial position of the shareholders......................5
CONCLUSION ...............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
It is the way the organization is able to manage the financial resources in order to achieve
the organizational goals and objectives. The financial statement is prepared in the organization
for identifying the profitability and performance of the organization. In this include the process
of planning and monitoring financial resources. In this study, it will include purpose of financial
management. Also, It will consist of Implication of the three main decision from the
shareholder’s perspective. the financial position. Furthermore, it will provide information about
the factors within each decision may affect the financial position of the shareholders.
MAIN BODY
Purpose of financial management
The purpose of financial management is to provide the organization with best utilization
of the financial resources in order to achieve the goals and objectives of organization. With the
help of financial management, the firm is able to allocate the operational efficiency of the
organization. The financial management help in managing the resources by allocating them in
proper way to acquire better result. Financial management assist in making effective financial
decision which are required for improving the operation and getting the desired outcome for the
growth and success of the business (Bekaert & Hodrick, 2017). The financial management main
purpose is to manage the funds of the organization to achieve the goals and objective in the
effective and efficient manner.
Also, financial management help in making financial planning For the future which will
assist in making the right use of the funds by identifying the various requirement of the funds in
the organization for performing various operations (Mestry, 2018). It help in identifying the
ways through which the organization is able to acquire the finance for performing various
activities of the concern which are required for increasing the profitability of the concern. By
allocating the resources in the best manner possible the firm is able to enhance its performance
and profitability.
Implication of three main decision
There are three types of decision which are related to finance which are based on the
shareholder views consist of the following:

 Investment decision: This decision is also known as capital budgeting decisions. The
shareholders of the company required that they invest in the most profitable business
which provide them higher return (Cornwall, Vang & Hartman, 2016). It is required that
the organization utilize the resources in the best possible manner such as for making
investment in purchase of assets and any other investment decision which will assist in
utilizing the investment made by the shareholders in the effective and efficient manner to
derive returns. The three main decision which are implied for deriving the effective
results (Renz, 2016). The firm should make the investment decision in the most effective
way to reduce the chances of losses. The decision involved investment of funds in the
assets.
 Financing decision : It is related to borrowing and allocation of resources in the
organization for performing various business activities (Finkler, Smith & Calabrese,
2018). The financing decision made by the organization help in getting the funds for
performing the operations. The financing decision is relating to making the right decision
regarding borrowing the funds there are different ways through which the firm can
borrow the funds such as equity, debts financing etc. The organization can borrow the
funds through equity in which it provide issue the equity shares to the shareholders of the
company which will assist in making the arrangement for the funds for performing
activities (Barr & McClellan, 2018). The investment decision is based on the financing
decision because for making the investment it is required to acquire or arrange for the
funds for investment.
 Dividend decision: It refers to the decision regarding distribution of the profits earned by
the organization. The decision regarding the distribution of the profit to shareholders or to
retain them in business for the future business activities of the firm. It is the decision
regarding sharing the profit to the shareholders that investment capital in the firm. The
decision is taken regarding whether to share all the profit with the shareholders to retain
some part of the profit for the business reinvestment (Zietlow and et.al., 2018). The firm
by paying the shareholders with higher dividend assist in retaining them in business and
investing more capital in business which is beneficial for the shareholders because higher
dividend paid by the organization to its shareholders increases their wealth and the

returns on the capital invested by them. The dividend decision are based on the dividend
policy of the company which states the part of the profit which will be shared as dividend
to the shareholders .
Factors within each decision affecting the financial position of the shareholders
Investment decision factors: There are various factors which are considered while
making the investment decision that consist of investment criteria , project identification, risk
involved in the investment, return generated through that investment, future profitability, cost etc
(Moutinho & Vargas-Sanchez, 2018). This factor affect the financial position of the shareholders
because it the risk involved in the investment is high than the changes of the acquiring higher
return reduces.
Financial decision factors: The factors of financing decision which may affect the
shareholder financial position consist of cost, risk, cash flow, market condition etc (Karadag,
2015). because if the cost of acquiring the funds is high it will reduce the profitability of the
business and thus the financial position of the shareholder will also be affected.
Dividend decision: The factors of dividend decision includes the earnings, dividend
policy of the company, shareholder preferences etc (Mao and et.al., 2017). The dividend decision
factors affect shareholder financial position because if this factors are having adverse impact on
the payment of dividend to the shareholder than it will reduce their profitability.
CONCLUSION
From the above assignment it has concluded about the purpose of financial management
which is to utilize the financial resources of the company in the effective and efficient manner to
achieve the organizational goals and objectives. It has included the various decision making
involved in the financial decision making purpose with the perspective of shareholders which
consist of investment, financing and dividend decision. There are various factors which affect
the financial position of the shareholders such as dividend policy of the company, cost of
acquiring funds, risk associated with the investment etc.

REFERENCES
Books and journals
Barr, M. J., & McClellan, G. S. (2018). Budgets and financial management in higher education.
John Wiley & Sons.
Bekaert, G., & Hodrick, R. (2017). International financial management. Cambridge University
Press.
Cornwall, J. R., Vang, D. O., & Hartman, J. M. (2016). Entrepreneurial financial management:
An applied approach. Routledge.
Engel, L., Bar, Y., Beaton, D. E., Green, R. E., & Dawson, D. R. (2016). Identifying instruments
to quantify financial management skills in adults with acquired cognitive
impairments. Journal of clinical and experimental neuropsychology. 38(1). 76-95.
Finkler, S. A., Smith, D. L., & Calabrese, T. D. (2018). Financial management for public,
health, and not-for-profit organizations. CQ Press.
Karadag, H. (2015). Financial management challenges in small and medium-sized enterprises: A
strategic management approach. EMAJ: Emerging Markets Journal. 5(1). 26-40.
Mao, D. M. and et.al., (2017). Financial influences impacting young adults’ relationship
satisfaction: Personal management quality, perceived partner behavior, and perceived
financial mutuality. Journal of Financial Therapy. 8(2). 3.
Mestry, R. (2018). The role of governing bodies in the management of financial resources in
South African no-fee public schools. Educational Management Administration &
Leadership. 46(3). 385-400.
Moutinho, L., & Vargas-Sanchez, A. (Eds.). (2018). Strategic Management in Tourism, CABI
Tourism Texts. Cabi.
Renz, D. O. (2016). The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Zietlow, J. and et.al., (2018). Financial management for nonprofit organizations: policies and
practices. John Wiley & Sons.