Decisions of Financial Managers and Relationship with Their Primary Objective

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The success or failure of a business is determined by a variety of people and variables. The financial manager of any firm plays an important role in capital budgeting, working capital management, and capital structure decision making. The major objectives of the financial management serve as the foundation for these decisions. As a result, the Chief Financial Officer should be well-versed in the firm's operations. His responsibilities include overseeing the company's daily operations and finances. Therefore, the decisions that he should make are the decisions on the capital investment relating to products and services and ideas that would provide revenue and profit to the business and its shareholders (Financial management, 2014).

Moreover, the financial manager makes decisions in the process of the long and short term investments of the firm. This decision would be made possible by making relevant projections basing on careful analysis. For instance, in the case of an investment on a new product, the project manager should determine the prediction of the amount of the return of the investment. He should consider the investment capital and the total expenses for the investment. Thus, the financial manager has the role of making the appropriate financial decisions that would help in achieving his goal of ensuring the financial success of the business and attain profit maximization of the company shareholders.

Ethical Issues That Financial Managers Face

The financial manager maintains the ethical practices in the organization from the moral standpoint. Lack of this maintenance would result in negative impact on the firm including legal repercussions. There have been several big companies which have been exposed for reporting their profits without accountability, transparency, and honesty. Their aim could have been to maintain their bottom line through the use of faulty accounting to hide losses by the financial managers (Financial management, 2014). This scenario is one of the ethical issues that the financial managers could potentially face while reporting the financial positions for their companies. Downplaying of losses and over-reporting the business assets with the purpose of inflating the firm image and profits over its competitors is a clear ethical issue that needs to be addressed.

Alternatively, companies might do “creative” accounting and avoid disclosing of financial information. This act amounts to financial fraud and brings concerns on the ethical conducts of the financial managers in the companies that want to appear as the best competitors in their market by postponing financial ruin.

Fortunately, financial managers can address this ethical issues and still achieve their goals of maximizing the shareholders’ profits. Although it can be a challenging responsibility, financial managers must maintain the disclosure of all the financial information of their companies as per the rules and regulations of accounting. These rules would help minimize the risks and costs of financial misconduct, hence maintaining the ethical behavior in the field of finance and prevent outweighing of benefits.

Federal Safeguards Reducing Financial Reporting Abuse

Sarbanes-Oxley Act of 2002 states that “corporate advisors who have access to or influence on company decisions are held legally accountable for any instances of misconduct “This Act provide specific protection to investors through the improvement of reliability and accuracy of corporate disclosure and place the responsibility for accurate and complete financial reports before the senior executives. The downside of the Sarbanes-Oxley Act is that it is an expensive process that consumes more time in the creation of the financial reports necessary for enhancing compliance. It thus makes it hard for small firms to enter the stock exchange market. It is however and appropriate Act in safeguarding since it provides the shareholders and investors with protection from potential misdeeds of financial managers (Norris, 2017).

Federal regulations were made strict to make difficult for companies to avoid exposing their debts and assets to their shareholders. For this purpose, the Securities and Exchange Commission laid down the rules with the aim of bringing change to practices in environments with financial scandals. On the other hand, Financial Accounting Standards Board (FASB) introduced new regulations governing accounting. Further, there has been program implementation concerning the financial scandals that are happening. All these safeguards ensure that the financial reporting are made by the required procedures of accounting

These federal safeguards are appropriate since they make the financial managers afraid of placing themselves at risk of losing their reputations and livelihoods. Disgruntled employees and competitors become privy to information that surrounds violations of securities laws.

Investment Options

Going Public

When a private is going to the public, it means that the company is starting to issue its stock to the public. There are advantages and disadvantages related to the private company going to public or Initial Public Offering (IPO). The reason for a private company going to the public is the desire to grow. The first time in which the corporation issues its stock to te public is the initial public offering. It means that the public can then buy and sell the stock from the company in the public exchange market. This step can make the business stakeholders make more profits since more people will get more knowledge about the enterprise (Klein, Dalko, & Wang, 2012).

Moreover, it becomes easy to raise funds because going to the public makes the company more legitimate. The chances that investors would give money to public enterprises are high due to the small risks from the requirement to fill Securities and Exchange Commission (SEC) that obligates the company to provide the security.

One of the disadvantages of going to the public is that the firm will lose the control of interests of the enterprise. The financial managers will be required to report to the shareholders, stockholders, and board of advisors who can pressurize them to maximize profits. Another drawback is that there will be more risk that the company will face as it grows.

In general, a private company going to the public can either be a good way to make more money and expand the profile of the enterprise. However, it is a costly way to become and remain in public trading since the owners lose individual control of the business.

The Largest U.S. Stock Markets

The stock exchange is the open platform of trading company shares. The most active and the biggest stock market in the world is in the US. The types of stock market are over the counter markets and the organized security exchanges. The largest stock market is the New York Stock Exchange (NYSE) which combines the two types of the stock exchange by use of electronic trading and the trading on the floor.

The New York Stock Exchange (NYSE) differs from the National Association of Securities Dealers Automated Quotations (NASDAQ) which is strictly electronic. Also, NASDAQ is the dealer’s market whereby the participants in the market sell and buy from one another through a dealer. On the other hand, the NYSE is an auction market that allows the participants to buy and sell between one another through auctioning (Klein, Dalko, & Wang, 2012).

Because of the kind of trading in NASDAQ, it makes it the smartest private investment. It is a market that is typically a high-tech. Moreover, the stocks in NASDAQ have the potential of growing which makes it provide a high rate of returns to the investors. Future growth in the technology sector is always a good investment that one can venture.

Investment Products

There are various ways of investment. One of them is the buying of fixed-income securities or bonds. These securities give the investors opportunity to lend their money to the government or firms. The advantage of bond investments is that bonds are reliable and safe investments si8nce they yield interest on the principal amount invested. However, the yield can be small in most cases.

Another way of investment is investing in stock markets. Investors can buy shares on the stock exchange of NASDAQ or NYSE stocks. Buying stocks makes the investors to be part of the stakeholders of the company and therefore can receive dividends from the profits that the company makes at any given period. Therefore, the investors are in a good position to make lots of money if the business in which they invest make significant profits. However, investing in this kind of stock market is risky since the stocks are not reliable. Investors risk losing their investment because there is no guarantee of dividends when the company makes little or no profit (Klein, Dalko, & Wang, 2012).

Moreover, Exchange Traded Funds and Mutual Funds are the other options for investment and can be bought from firms that specialize in this type of investments. Mutual funds combine bonds and stocks allowing investors to virtually invest in all the securities available in the financial markets. The goal of investment uses professional management of mutual funds shares. This control saves the energy and time for investors in managing their funds with the help of knowledgeable and entrusted personnel. However, there is a limit of buying and selling shares from the mutual fund only (Klein, Dalko, & Wang, 2012).

The difference between the Mutual Funds and Exchange Traded Funds is that those shares are owned from buying and selling in stock exchange market in Exchange Traded Funds. Both of them, however, offer a cost-effective way of diversification of investment and reduce the risk faced by investors.


Financial knowledge is essential for the implementation of the budget of any business. Therefore, financial managers should have the relevant experience to make finance and investment decisions. These decisions should be made under the guidance of accounting policies.


Financial management. (2014). London.

Klein, L., Dalko, V., & Wang, M. (2012). Regulating competition in stock markets. Hoboken, N.J.: Wiley.

Norris, F. (2017). Accounting Rules Changed to Bar Tactics Used by Enron. Retrieved 24 March 2017, from used-by-enron.html

May 10, 2023

Business Economics

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