Financial Management: Stakeholders, Agency Theory Report

This report provides a comprehensive overview of financial management, starting with its nature and purpose within a business. It defines financial management as the procurement and efficient utilization of funds to achieve organizational objectives. The report explores the functions of financial management, including forecasting, investment decisions, and cash management. It then delves into the purpose of financial management, emphasizing its role in financial planning, fund acquisition, and proper fund allocation. The relationship between financial objectives (profit and wealth maximization) and corporate objectives (broader organizational goals) is examined, along with the importance of corporate strategies in achieving these objectives. The report also discusses stakeholder management, highlighting the role of management in meeting stakeholder needs and the application of agency theory in aligning the interests of shareholders and executives. Finally, the report concludes by summarizing the key findings and emphasizing the importance of financial management in achieving organizational goals.

FINANCIAL MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................3
Nature and purpose of the financial Management functions of a business:................................4
Purpose of financial Management:..............................................................................................4
Relationship between financial and corporate objectives and corporate strategies:...................5
Discussion on the role of management in meeting the stakeholders need and application of
agency theory:.............................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Every business concern in the world needs finance for meeting the economic
requirements of the business (Aggarwal and Rivoli,1990). Finance is like a
lifeblood for a business to conduct its operations effectively and efficiently. It does
not matter what is the size of the organisation , every business needs funds for the
operation. It is very important to perform financial management in order to succeed
and make profits and ultimately achieving the objectives of the organisation.

Nature and purpose of the financial Management functions of a business:
Financial management can be defined as an integral function of a management of a
business which is concerned with the procurement of funds from different sources such as equity
, debentures and other long term loans and utilising that fund in a efficient manner for the
achievement of organisational objectives (Amihud and Mendelson, 1988).
The nature of financial management is related with the functions, its scope. Financial
management is one of the important function of management and it is related with variou
functional departments such as production, marketing, personnel etc. The nature of financial
management is discussed below:
 Financial management helps in forecasting financial requirements of the organisation. It
is the feature of financial management to find out how much of funds are required to
acquire the fixed assets and to properly fund the raw material requirement and other
operational requirements of a business concern.
 The nature of financial management enables the business organisations to take best
investment decisions among the available investments which gives more return than the
cost of capital. The financial manager must have good capital budgeting skills to choose
the best projects among the available that means the project with the highest NPV.
 The another feature of financial management is cash management. The management of
cash plays a major role in finance because it leads to efficient utilisation of cash and also
helps in the maintaining the liquidity to manage the operating expenses and short term
obligations of business.
Purpose of financial Management:
Finance is like the blood of an organisation. As a body needs blood , an organisation needs
finance for the proper functioning of the business entity (Crutchley and Hansen, 1989 ).
Every business concern needs to maintain adequate finance for carrying out the activities which
are necessary for achieving the organisational objectives. Some of the leading importance of
financial management are as follows:
 Financial planning: Financial management helps in estimating the financial
requirements of the company and also in financial planning regarding various operations
of the departments and ultimately helping in the promotion of business.

 Acquisition of funds: Financial management is mainly concerned with the acquisition
of funds from different alternative sources such as Equity, Debentures, and Long term
loans. The financial manager has to decide which of the above sources is cheapest for the
company according to the structure of the company.
 Proper utilisation of the funds: Financial management is concerned with the proper use
and allocation of funds in those activities where the maximum return is possible which
decreases the overall cost of capital and increases the value of the firm.
Relationship between financial and corporate objectives and corporate strategies:
Financial objectives are those that are related with the effective and efficient use of
finance and utilising that fund in a manner which is most profitable to the organisation. The
financial objectives of a company are the profit maximisation and wealth maximisation. On the
other hand, corporate objectives are those that are related to the whole of the organisation. The
corporate objectives are set by the top management and they provide the focus on the detailed
objectives of the organisation and not just the financial objectives. The corporate objectives
focuses on the performance and results that are desired by the business. Corporate objectives
focuses on number of key areas where the attention is required rather than focusing on a single
objective. ( Gitman and Forrester, 1977)
Corporate strategies basically means a vision of a company and its tactics to outperform it's
competition in the market. A corporate strategy is long term objectives that the company seeks to
achieve and thereby creating corporate value and motivating the employees of the organisation to
achieve the customer satisfaction. Corporate strategy is a continuous effort to keep the investors
engaged in trusting their money in the company, which in turn will increase the equity of the
company. Those organisations who manage in delivering consumer satisfaction unfailingly are
the ones who revisit corporate strategies in order to improve the results ( Scottand Martin,
1975).
Discussion on the role of management in meeting the stakeholders need and application of
agency theory:
Stakeholders are persons who are associated with your organisation and they are affected by tha
actions, policies and objectives of the organisation in a direct or indirect way. Example of some
of the stakeholders are creditors, government, employees etc. Stakeholder management means

creating positive relations with them and proper management of their interest, expectations and
their objectives in order to manage the relationships with them. To assist the interest of
stakeholders the following components define the rights, responsibilities and power of every
stakeholder group:
Legal Infrastructure: This infrastructure defines that a legal framework should be designed for
them to protect their rights and remedial actions should be taken in case of violations.
Organisational infrastructure: This infrastructure is related with the internal systems and
governance practices which is used to maintain relations with them. ( Laeven, 2003 )
Governmental infrastructure: This infrastructure is related with following the rules and
regulations imposed by the government on the organisation.
Agency theory: Agency theory is a framework for the formation of governance and
implementing controls in a organisation. Agency theory is related with solving the problems that
exist in the relationship of agency due to goals that are not aligned and different levels of
aversion for risk. The most common agency relation is between the shareholders and company
executives ( Bodie ,1992).
CONCLUSION
It has been concluded from the above project report that financial management
plays a important role in the acquisition of funds, and their proper allocation for
achieving the goals of the organisation. The financial objectives of the company
focuses in achievement of financial goals of the company such as procurement and
their proper use whereas the corporate objectives focuses on the overall objectives
of the organisation. Corporate strategy is vision of the company and tactics to
outperform the market. Stakeholders management is the management of interests
of various parties who are affected by the functioning of business.

REFERENCES
Books and Journals:
Aggarwal, R. and Rivoli, P., 1990. Fads in the initial public offering market?.
Financial Management, pp.45-57.
Amihud, Y. and Mendelson, H., 1988. Liquidity and asset prices: Financial
management implications. Financial Management, pp.5-15.
Crutchley, C. E. and Hansen, R. S., 1989. A test of the agency theory of
managerial ownership, corporate leverage, and corporate dividends.
Financial Management, pp.36-46.
Gitman, L. J. and Forrester Jr, J. R., 1977. A survey of capital budgeting
techniques used by major US firms. Financial management, pp.66-71.
Laeven, L., 2003. Does financial liberalization reduce financing constraints?.
Financial Management, pp.5-34.
Merton, R. C. and Bodie, Z., 1992. On the management of financial guarantees.
Financial Management, pp.87-109.
Scott Jr, D. F. and Martin, J. D., 1975. Industry influence on financial structure.
Financial Management, pp.67-73.