Corporate finance essay
Corporate finance integrates a various aspect of fiscal policy for the effective functioning of the holistic corporation. Corporate finance is centrally concerned with maximizing the value of shareholders through strategic financial planning and outright implementation. As such, corporate governance entails mechanisms by which firms are directed and controlled involving transparency, ethical behavior, equity, and integrity. Risk management is most important process on corporate finance. Firm financial structure interacts with risk management in its established policy of dividends as well as optimal firms’ financial structure. As such, the absolute role of corporate risk management essentially requires a better comprehension of the corporate capital structure, dividends, and investment policies consideration in conjunction. Therefore, risk management interacts with cash management, investment policy and capital structure in a level of success in the corporation.
Besides, risk management elevates organizational value by minimizing bankruptcy prospects. Dividend policy is closely associated with risk management. Thus, when cash balances are minimal in a financially constrained organization, the firm may decide to follow strategy involving low risks (Ehrhardt & Brigham, 2017). As such, it is quite vital for the firm to identify potential risk, evaluates its probable impact and initiate controls and policies to effectively manage them. Consequently, corporate governance is related to the board of directors, shareholders and corporate executive, for instance, apple the governance diversified it services and products making the corporate to be dramatically competitive attributed to novel new products, innovation, and technological advancement. The organization possessed crucial governance strength that incorporates financial strategies through the diverse market structure.
Effective corporate governance needs precise and clear comprehension of roles and responsibility of the board, shareholders, and management who are critical corporate actors. The CEO in corporate governance is accountable for the development of strategic long-term goals and effective execution of predetermined plans in the corporation. Thus, corporate governance integrates cash management, financial policy and capital structure in internal control, accountability and fosters accessibility to financial markets and capital increasing revenue margin for the corporation. On the other hand, according to Brealey, Myers & Marcus (2017), poor corporate governance deteriorates financial obligation of a corporation leading to financial distress. Therefore, ineffective strategies in corporate governance make the corporation vulnerable to various risks, for instance, J. C. Penny Company faced liquidity issues probable to bankruptcy.
Nonetheless, the company asserted that they will pay the taxes. According to Ehrhardt & Brigham (2017), corporate financial strategy assimilates decisions of risk management in the company is generating the value of the shareholder. It encompasses evaluation of equity and debts decisions respective to cash management and taxes. The financial strategy entails assessing distinctive types of equity and debts as well as share repurchases and dividend policies that ensure the organization thrives. For proper and effective assessment, managers should involve all the concerned stakeholders so that the planning can be done effectively. The plan is important for apportionment and allocation of funds; the strategic plan will guide the expenditure of the firm. For instance, in a private organization selling hardware, they scheduled the level of production so as to project the firm’s costs making it stable and eliminate uncertainty.
Nonetheless, level production was accompanied by seasonal sales which were also respective to the inventory the organization experienced financial setbacks. This resulted to increase in inventory which will ultimately decrease the cash balance. Consequently, the sales decreased which depicted an increase in inventory holding costs. Liquidity is simply the assets which can easily be converted to cash. There is a danger of a firm being highly liquid and there is a danger of a firm is less liquid. Liquidity level of a firm depends on the type of business a firm is engaging. Banks will be more liquid than factories because of the type of business they are engaging in. when a firm is more liquid, mismanagement of resources will be more than a firm which is less liquid.
This is trending today because many companies have lost sight of the core reason for their existence. Conflict of duties and roles among the managers and staff in the company will ultimate results to struggling for power and increase in organizations politics. This retards the growth of the business since decisions are not objective but rather subjective, the subjective decision is usually biased and doesn’t provide a good environment for growth and development of the firms. Workers cannot give their best in such environment and the productivity of the workers will ultimately go down. A company uses resources to pay for the workers and to put structures and facilities around. The financial policies should also highlight the type of ratios that will be used in preparing financial statements and who are the signatories of the accounts of the company.
Rules of expenditure should be very clear and well communicated to all the stakeholders. Finances are sensitive, policies should, therefore, be sensitive to all the loopholes so that all loopholes will be detected, and measures clearly stated in the financial policy. According to Bierman (2017), capital structure relates to corporate financial strategy in the developing of an efficacious strategy that orients with corporate internal operations. Capital structure involves internal financial of the company operations either from retained earnings, common stock and long-term debt. Some workers are optimistic and may take advantage of any loss incident, or they may plan for one so that they may carry out their malicious plan. Using of software is advantageous; unlike paper documentation which is slow and cumbersome, software is fast and easy.
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