Financial Management Report: Macroeconomic Policies and Agency Theory

This report provides an overview of financial management, focusing on the application of agency theory and its impact on shareholder wealth maximization and business sustainability. The report details the role of management in implementing policies to increase share value, including dividend-related, finance, and investment decisions. Furthermore, it explores the roles of monetary and fiscal policies in macroeconomics, including investment allocation, savings mobilization, and interest rate management within monetary policy, and capital formation and investment enhancement within fiscal policy. The report highlights how these policies are used to achieve economic stability and growth, emphasizing their importance in achieving business objectives.

Financial management

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
1. Agency theory and role of management.................................................................................1
2. Policies with their role in macroeconomics............................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
In the company it is very necessary that appropriate plans shall be made in respect of
finance and all of this is performed with the help of financial management. It will be possible for
all to carry out operations in most controlled, directed and organised way (Bamford and
Forrester, 2015). There are various policies with the help of which benefit can be provided to all
stakeholders and one such is agency theory which will be described in report below. Also the
policies in relation to exchange rate, fiscal and monetary issues are to be explained so that
objectives can be achieved in best possible manner.
TASK
1. Agency theory and role of management
In every business it is very essential that funds shall be collected or developed as all the
operations can be performed only by the use of them. This will be help in achieving all the
targets and it is very important that all of them shall be identified and understood in proper
manner so work can be performed accordingly. Some of the main aims are as follows:
 Maximisation of profits: This is the most important aim for which business is
established and it is to be seen that company is operating in manner by which this can be
attained and not only for a short duration of time but for long term gains. It is needed that
such decisions are made by which it can be done.
 Maximisation of wealth: Under this focus is given on increasing of wealth by which
shareholders will be given additional benefits (Burns, 2014). For this purpose maximum
amount possible is given to them in form of dividends.
 Business sustainability: Everyone wants that their entity continues for loner duration
and this can be attained only if proper decisions are made as adverse impact will have to
be borne if decisions proves out to be wrong.
Selection of best project, funds allocation, division of labour are some of the important
decisions that are to be made in all processes.
For the increasing of wealth of shareholders various functions will have to be performed
by which earnings can be made and they are then used to pay dividend to them. Some of the
elements that are to be taken into consideration in this are as follows:
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 The retained earnings will have to be checked as this is the amount which is kept the
business with itself to be used in case of emergency.
 Timing shall be noted in respect of all the cash flows which are taking place in business.
 All the cash transactions involve some of amount of risk so it is required that level of it
shall be identified.
The main policy which can be adopted by management to provide shareholders will some
benefits is that such practices shall be used which will lead to increase in value of shares
(Craighead and Meredith, 2008). Impact will also be made by the decisions which have been
taken by managers and they tame many such decisions which consists of dividend related,
finance and investment decisions. Contribution of management in all this can be understood by
following points:
 It is necessary that proper balance shall be established between retention and payout ratio
and for that all the required policies in relation to dividend are undertaken by them.
 In order to ensure that liquidity is there, they try to maintain appropriate amount of
working capital.
 Funds are needed and they have to be obtained from various sources so such means is
selected by which least possible cost is incurred and savings are made.
All the work should be performed with full efficiency and so shall be done by those who
are expert and this is done with the use of agency theory. In this functions are carried out by
some third party who is hired. But in this proper check system shall be established to note that
agents are working for benefit of company and not for their personal interest. All the goals will
be attained by the use of it.
2. Policies with their role in macroeconomics.
Monetary and fiscal are the two main categories of policies that are used by companies.
They are used so that targets can be attained which includes reduction in unemployment and
inflation rates.
Monetary policy: The concept of it is related to credit control which government of any nation
adopts. For the control and management of supply of money, responsibility is on central bank.
By them basic economic policies are adopted and employment rate is improved (Evans, 2011).
By use of them savings that are made by investments are increased.
Role of Monetary policy:
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 Investment allocation: Different proposals are there in which investment can be made
and so allocation should be made in such manner by which productivity and earnings can
be enhanced.
 Savings mobilisation: All the savings that are to be made is to be mobilised so that the
available funds can be used for production and making of important investments.
 Interest rates: When any loan is taken for use of funds, there is some amount which is to
be paid as interest so such policies shall be there by which this amount can be reduced as
otherwise cost is increased.
Fiscal policies: Under this those rules are involved by which earnings are raised by using
taxation and other measures (FINANCIAL MANAGEMENT, 2017). Economy is affected by them
as all the revenues and expenditures of government are considered in them. Economic stability
and growth are main aims of this.
Role of fiscal policies:
 Formation of capital: For this profits are maximised so that stability can be achieved as
amount is retained which can be used in case of some issue.
 Enhancement in investment rates: Here interest rate related to capital investments are
adjusted as by that employment is affected and it shall be ensured that spending are lower
then investment.
CONCLUSION
From the above report it can be concluded that main tool of organisation is financial
management which helps in effective maintenance of funds. Agency theory application has been
identified which leads to increase in shareholders wealth. Impact of various policies such as
monetary or fiscal is also explained.
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REFERENCES
Books and Journals
Bamford, R.D. and Forrester, L.P., 2015. Managing planned and emergent change within an
operations management environment. International Journal of Operations & Production
Management. 23(5). pp.546 – 564.
Burns, P., 2014. New Venture Creation. Palgrave / Macmillan.
Craighead, W.C. and Meredith, J., 2008. Operations management research: evolution and
alternative future paths. International Journal of Operations & Production
Management. 28(8). pp.710-726.
Evans, V., 2011. FT Essential Guide to Writing a Business Plan: How to Win Backing to Start
Up or Grow Your Business. FT/ Prentice Hall.
Online
FINANCIAL MANAGEMENT. 2017. [Online]. Available
through<http://www.netsuite.co.uk/portal/uk/products/erp/financialmanagement.shtml>
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