Financial Calculation Report: Analyzing the Role of Finance - Task 4

This report provides a comprehensive overview of financial management, focusing on financial calculations and the various roles of finance within an organization. It begins with an introduction to financial management, emphasizing the importance of managing financial resources to achieve business objectives. The report includes a practical financial calculation, demonstrating the Net Present Value (NPV) of an investment proposal. It then delves into the core functions of the finance department, including investment decisions, financial decisions related to capital structure, dividend decisions, and liquidity management. Each function is explained with examples and considerations. The report concludes by summarizing the key takeaways, highlighting the significance of sound financial management in achieving profitability and organizational goals. References to relevant literature support the analysis.

TASK 4

Contents
INTRODUCTION...........................................................................................................................3
TASK 4............................................................................................................................................3
Financial calculation...............................................................................................................3
Role of finance.......................................................................................................................4
CONCLUSION................................................................................................................................5
REEFRENCES................................................................................................................................6

INTRODUCTION
In modern business world, there is a need of proper managing and controlling of financial
resources and assets which that ease in reaching the set targets in specific time frame. The
systematic process of handling and making proper and effective use of financial resources is
known as financial management (Roberts, 2015.
In order to understand the importance of FM, the calculations are made on assumption basis
and role of finance are discussed.
TASK 4
Financial calculation
In business scenario, various financial calculations are performed by the manager in order
to determine the overall financial strength and status of company during a year. Different form of
financial statement and record are prepared which help in easy analysis overall company
performance that further ease the process of making financial decision (McFarland, 2015). For
example the calculation of NPV (This can be defined as a technique for measuring the actual
value of any given project) is computed underneath:
Initial investment = 150000
YEAR Discount Factor Cash Flow Computation
1 0.971 55230 53628.33
2 0.943 70045 66052.43
3 0.915 88375 80863.12
4 0.888 79870 70924.56
5 0.863 57555 49669.96
Decommissioned 0.863 45000 38835
TOTAL 359973.4
NPV 359973.4-150000=209973.4
The above table shows the calculation net present value of a proposal in which initial
investment is about 150000. The PV factor is 10% and the total cash flow after five year from
this investment is 359973.4. Thus, the total NPV after 5 year will be 209973.4 which states that

the investment proposal must be accepted as it will give higher results than the actual investment
made.
Role of finance
There have been various important functions which are performed by finance department
within an organisation. A finance director must track routine accounting details like cash receipts
and payments and guarantee that the organization has adequate cash and fulfil company
liabilities (Role of finance, 2020). Some of these are discussed underneath:
Investment decision: This is the most essential aspects of finance which related with
intelligent allocation of resources in order to make long term investments. The practice is also
recognized as the budgeting of money in acquired period. Capital allocation in these long-term
resources is necessary in order to achieve optimum yield in the potential time. There are also the
two dimensions of investment judgment:
1. Assessment of new return in terms of sustainability and profit margin.
2. Contrast of cut-off point against existing investments and leading investment.
Thus there are problems in estimating the anticipated return because the possibility is
unpredictable. The risk factor that needs to be considered into account falls together with
complexity. Hence it is necessary to consider both anticipated benefit and the risk associated
when evaluating the investment option available for company. In addition, plough bank decisions
are also made by the finance department of company as they use to invest again the 70 % of the
profit earned during a period. This help in increasing the business operation and raising the
overall profit margin by giving quick returns from the investments. Investment decisions is not
only relevant with allocation of funds to long-term investments, as well as it involves decisions
to allocate funds gained by the selling of those investments that are less attractive and less
competitive.
Financial Decision: Another essential role that a finance division play is related
with financial judgment. It is crucial to make smart decisions as to when, where, and how a
company will be collecting funds. Several forms and platforms can be used to procure the
money. Generally speaking, it is important to retain a reasonable equity capital ratio. This
combination of debt and equity is recognized as the capital structure within a company. In the
other hand, debt accumulation impacts a shareholder's cost and return. This is more expensive
while the yield on bond funds can improve (Ford and Leonidou, 2013). It is also stated that a

good financial system is one that succeeds at optimizing shareholder value with minimal risk. In
this kind of situation the company's stock equity would be maximized and thus an optimal capital
markets would be reached. There are many other instruments, apart from equity and debt that are
used to determine a company structure of the company.
Dividend decision: Earning income or even a good return seems to be a general goal among
all the companies. However in the context of profitability, the main role that a financial manger
plays is to determine whether to assign all the income to the stakeholder or preserve total profits
or even allocate specific portion of the income to the shareholders and keep another half in the
company. This is the duty of the financial officer to agree on an optimal dividend strategy which
will optimize the company's stock value.
Liquidity function: Maintaining a company's liquidity status is very critical for preventing
insolvency. The performance, profitability and threat of the company are all related to the
investment in capital assets. It is necessary to reinvest enough resources in existing assets to
sustain a balance among profitability and liquidity. This is because total assets gain little for
companies; a fair estimate must also be made before spending in existing assets. If company are
unprofitable, existing investments must be appropriately priced and dispersed of from time to
time (Kennedy, 2018).
CONCLUSION
In the end of report, it is concluded that the science and art of handling the resources of a
company so that it can achieve its objectives in specific time frame to increase the overall
profitability. Investment decisions make wise choices to decompose amortized properties that do
not add interest and use those assets to protect other valuable assets. Throughout the case of
competitiveness it is standard practice to pay annual dividends one approach is to issue bonus
stocks to current shareholders.

REEFRENCES
Books and Journals
Roberts, R., 2015. Finance for small and entrepreneurial business. Routledge.
McFarland, B. J., 2015. International finance for REDD+ within the context of conservation
financing instruments. Journal of sustainable forestry 34(6-7). pp.534-546.
Ford, I. D. and Leonidou, L. C., 2013. Research developments in international marketing. New
Perspectives on International Market-ing, edited by SJ Paliwoda. pp.3-32.
Kennedy, S. F., 2018. Indonesia’s energy transition and its contradictions: emerging geographies
of energy and finance. Energy research & social science. 41. pp.230-237.
Online
Role of finance. 2020. [Online] Available Through:
<https://opentextbc.ca/businessopenstax/chapter/the-role-of-finance-and-the-financial-manager/
>.