Financial Management Report: M&S PLC, Policies, and Agency Theory

This report provides an in-depth analysis of financial management practices, focusing on M&S PLC as a case study. It begins by exploring the role of management in meeting stakeholder objectives, including creditors, employees, and shareholders, and applies agency theory to analyze the i...Read More

FINANCIAL MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
1. Discussing management's role in meeting stakeholder objectives and application agency
theory in financial management..................................................................................................1
2. Discussing and defining role of fiscal, monetary, interest rate and exchange rate policies in
accomplishing macroeconomic policy targets............................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Financial management is managing funds, working capital in that way by which financial
viability of company can be attained. Present report deals with M&S PLC, giant in retail sector
and financial management is of utmost important to it as operations are handled on large scale.
Report will enumerate management's role in meeting stakeholder objectives and also agency
theory would be applied for analysing impact of financing, dividend and investment decisions in
the best way possible. On the other hand, various types of policies such as fiscal, monetary,
interest rate and exchange rate policies implemented by UK government for achieving
macroeconomic policy targets will be discussed.
1. Discussing management's role in meeting stakeholder objectives and application agency
theory in financial management
There are various stakeholders in M&S PLC such as creditors, employees, government,
shareholders and management has the role to meet their objectives in the best way possible. It
can be analysed that they should be provided with up to date financial statements to them (Bayar,
Huseynov & Sardarli, 2018). It involves cash flow statement, balance sheet, income statement,
statement of changes in equity so that overall performance of M&S PLC can be provided to them
with ease. The fundamental financial objectives of organisation are liquidity, efficiency,
solvency, profitability and stability position should prevail in company by seeking this,
stakeholders can take enhanced decisions. Thus, stakeholders' needs and objectives are
effectively met.
Agency theory is one of the important theory which is a supposition explaining
relationship between principals and agents in the best way possible. It is concerned with
effectively resolving issues which may exist when goals are not perfectly aligned or various
aversion level to risk. Main agency relationship in financial management occurs between M&S
PLC management regarded as agents and shareholders termed as principals. It aids in
achievement of organisational objective as high standard principal-agent model is being used and
furthermore, minimisation of costs can be accomplished.
This has an impact on dividend, investment and financing decisions. Investment
decisions may be impacted as M&S PLC in order to enlarge its operations and desired to expand
in new markets. This will have direct effect on current short-term profitability but will have
1

increased future growth (Burtonshaw-Gunn, 2017). However, shareholders will have lower or no
dividends as current capital growth cannot be attained by which they may be unaware of these
plans. Hence, agency theory resolves such problems between principals and agents.
Financing decisions are also impacted up to a high extent. This is evident from the fact
that when M&S PLC makes call to shareholders to provide payments to organisation so that
funds can be utilised for financing activities. In this situation, agent is using investment made by
principal, even though, agent is a decision-maker and they are at no loss or risk as amount of
funds are financed by shareholder regarded as principals and they will have to bear the burden.
Thus, by giving financial support to firm, executives use funds at their own discretion. Agent
may have distinct limit of risk tolerance in comparison to principal because of uneven risk has
been distributed. Limitations of agency theory involves that
 Theory has less powerful in certain situations when there are complexities in company's
agent and principal relationship.
 Moreover, it is much descriptive in nature rather than practical.
 Behaviour of principal-agent cannot be analysed and judged because of its descriptive
nature.
2. Discussing and defining role of fiscal, monetary, interest rate and exchange rate policies in
accomplishing macroeconomic policy targets
Fiscal policy-
It is the mean by which UK government adjusts spending level and tax rates to
effectively monitor and influence economy level. The main role of fiscal policy is to increase
aggregate demand and channelise budget surpluses to diversify it to periods of recession (Fatás,
2018). By this way, UK government effectively maintains economic growth quite effectually. It
has one of the important role in accomplishing macroeconomic targets as government is able to
channelise the funds in effective manner for increasing disposable income of people.
Monetary policy-
The monetary policy can be defined as liquidity management of the nation for creating
economic growth. In simple words, objective of monetary policy is to effectively manage
inflation (Eichenbaum, Johannsen & Rebelo, 2017). Another objective is to reduce
2

unemployment in the country. For managing inflation, Contractionary monetary policy is applied
while for minimising unemployment and avoiding recession, expansionary type of monetary
policy is implemented by government of UK. One of the important link between monetary
policy and fiscal policy is both of them go hand in hand. Moreover, bank reserves of economy
are also managed quite effectually with the help of monetary policy.
Interest rate policy-
Interest rate policy is a type of interest rate which is set by monetary authority of country
in order to manage and influence various variables (Borio & Gambacorta, 2017). These include
consumer prices, credit expansion and exchange rate etc. The main objective and role of interest
rate policy is to influence variables and provide the base of policy rate which is then adopted by
financial institutions and banks. It can be identified that banks then offer products or services to
their clients on such interest rate policy base and leading to achieve equilibrium in economy,
thereby, attaining macroeconomic policy targets.
Exchange rate policy-
Exchange rate policy is implemented by country for managing its currency in respect to
other foreign currencies and foreign exchange rate market as well. It is required to be managed
effectively as sudden downfall in international currencies might major impact on domestic
currency and could get depreciate in foreign exchange market (Exchange rate policy. 2018).
Main role of exchange rate policy is to deliberately altering exchange rate for influencing
macroeconomic environment which may be regarded as a variant of monetary policy. Thus, it is
required that external value of domestic currency should be maintained in effective manner so as
to maximise value in respect of aggregate of exports.
CONCLUSION
Hereby it can be concluded that financial management is crucial for the perspective of
M&S PLC which is operating on large scale. Funds and investment are to be channelised in that
manner through which maximum benefits can be attained. Dividend, investment and financing
decisions have major impact on company and as such, agency theory is useful tool for resolving
issues between principals and agents. Moreover, various types of policies that are implemented
by government of UK for maintaining economic growth provide better efficiency and
productivity to nation.
3

4

REFERENCES
Books and Journals
Bayar, O., Huseynov, F., & Sardarli, S. (2018). Corporate Governance, Tax Avoidance, and
Financial Constraints.Financial Management.47(3). 651-677.
Borio, C., & Gambacorta, L. (2017). Monetary policy and bank lending in a low interest rate
environment: diminishing effectiveness?. Journal of Macroeconomics. 54. 217-231.
Burtonshaw-Gunn, S. A. (2017). Risk and financial management in construction. Routledge.
Eichenbaum, M., Johannsen, B. K., & Rebelo, S. (2017).Monetary policy and the predictability
of nominal exchange rates (No. w23158). National Bureau of Economic Research.
Fatás, A. (2018). Fiscal policy, potential output and the shifting goalposts (No. 13149). CEPR
Discussion Papers.
ONLINE
Exchange rate policy. 2018 [Online] Available Through:
<http://www.economicsonline.co.uk/Managing_the_economy/Exchange_rate_policy.html
>
5