AHMADU BELLO UNIVERSITY

DISTANCE LEARNING CENTRE

ZARIA, NIGERIA.

MASTER IN BUSINESS ADMINISTRATION (MBA)

BUAD 804: CORPORATE FINANCIAL MANAGEMENT.
AN INDIVIDUAL ASSIGNMENT

SUBMITTED BY

AYOKUNLE AJETUNMOBI - P19DLBA80565

PHONE NUMBER: 08028999294
EMAIL: hay_whai08@yahoo.com

Question
As a newly appointed Finance Manager of one of the fastest growing Information Technology
firm, you are invited to make a presentation before the management team on the following:
i. financial manager and corporate organization (7 marks)
ii. Quantification of firm financial performance (7 marks)
iii. Users of financial information (6 marks)
Total marks 20

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 INTRODUCTION
A myriad of unexpected issues will sprout up for business owner that can create insurmountable
challenges – many of them financial in origin. Whether it’s insufficient cash flow or not getting
accurate reconciliation reports on a monthly basis, many small business problems are
preventable with the right reporting and visibility.

Any company, whether it’s a small-town bakery or General Motors, needs money to operate. To
make money, it must first spend money—on inventory and supplies, equipment and facilities,
and employee wages and salaries. Therefore, finance, finance manager is critical to the success
of all companies. It may not be as visible as marketing or production, but management of a
firm’s finances is just as much a key to the firm’s success.

FINANCIAL MANAGER AND CORPORATE ORGANIZATION

Finance managers are accounting professionals who are responsible for the financial wellbeing
of a company or organization. Finance managers may advise upper management or corporate
officers to determine how and where the company's assets are acquired and allocated. Finance
managers create detailed financial reports and statements using a wide array of skills.
Types of Financial Manager
• The top Financial Manager within a firm is usually the Chief Financial Officer (CFO).
• Treasurer – Oversees cash management, credit management, capital expenditure and financial
planning.
• Controller – Oversees taxes, cost accounting, financial accounting and data processing
Role of a Financial Manager
Financial managers have a complex and challenging job. They analyze financial data prepared by
accountants, monitor the firm’s financial status, and prepare and implement financial plans. One
day they may be developing a better way to automate cash collections, and the next they may be
analyzing a proposed acquisition. The key activities of the financial manager are:

 Financial planning: Preparing the financial plan, which projects revenues, expenditures,
and financing needs over a given period.
 Investment (spending money): Investing the firm’s funds in projects and securities that
provide high returns in relation to their risks.
 Financing (raising money): Obtaining funding for the firm’s operations and investments
and seeking the best balance between debt (borrowed funds) and equity (funds raised
through the sale of ownership in the business).

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  Provide information about the interest rates at which the company is willing to take loans.
 Recommendations about taking short-term loans or self-financing.
 Recommendations of long-term debt increase or issue of share; or a combination of both.
 Availability of risk management techniques.

QUANTIFICATION OF FIRM FINANCIAL PERFORMANCE

Financial performance is a subjective measure of how well a firm can use assets from its primary
mode of business and generate revenues. The term is also used as a general measure of a firm's
overall financial health over a given period. Analysts and investors use financial performance to
compare similar firms across the same industry or to compare industries or sectors in aggregate.

A company's financial performance tells investors about its general well-being. It's a snapshot of
its economic health and the job its management is doing—providing insight into the future:
whether its operations and profits are on track to grow, and the outlook for its stock.

Financial quantification are commonly known as short-term measures and purely based on the
past. Their significance is in measuring performance from four key areas, including, efficiency,
liquidity, profitability and capital structure (Lodewyckx et al. 2007: 456-457). Each financial
measure stands for a unique purpose. While profitability informs users of financial statements
about the performance of an organization, whether making profits or losses, efficiency informs
users on how business resources are utilized and managed. Below are some measures of a firm
financial performance:

Statement of Profit and Loss and Other Comprehensive Income: The fundamental role
of the statement of profit and loss and other comprehensive income is to exhibit the business
performance during an accounting cycle. This statement includes in-come earned and
expenditures incurred during the financial year (Sowden- Service 2011: 44).

Statement of Financial Position: Statement of financial position is typically a report of

business assets, liabilities well as its equity (net worth) (Sowden-Service 2011: 40).The role
of this statement is to categorically present current and non-current assets and current and
non-current liabilities in the statement of financial position, unless a presentation based on
liquidity provides an illustration of information that is more reliable and relevant (Oberhol-
ster et al. 2011: 40).

Cash Flow Statement: Cash flow statement encompasses cash flow from financing, investing,
and operating activities. Its main purpose is to display useful information on historical changes in
cash and cash equivalents (Oberholster et al. 2011: 489). The cash flow from operating activities

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inform the users about the amount of cash from sales of the company’s goods and services, less
the amount needed to make or buy and sell those goods and services.
Cash Conversion Cycle: Hausman (2002: 11) writes that conversion cycle time measures how
long it takes for an entity to pay trade payables (creditors), how long it takes for trade receivables
(customers) to pay their debts, and how long the inventory stays before it is converted into cash
and can also be measured in days and months.

USERS OF FINANCIAL INFORMATION

The users of the financial information are the ones who read the financial statements of the
company because they have an interest in the company directly or indirectly. These people can
be internal or external where the internal users are those that are the part of the management of
the company such as managers and other professionals whereas the external users are the
outsider to the companies but have some kind of interest in the companies such as shareholders,
lenders, creditors etc. These users are very important for the company because without these
users it is not possible for any company to survive in the market because they are the source of
raising funds and getting business so the financial statements should be published and made in a
form that is understandable to all such users. The table below identifies the user groups
(stakeholders) of financial information and gives likely reasons for the user groups to refer to
financial statements:

Main Users Reasons for use

Investors To assess past performance as a basis for future investment

Employees To assess performance as a basis of future wage and salary negotiations.

To assess performance as a basis for continuity of employment and  job
security

Lenders To assess performance in relation to the security of their loan to the company

Suppliers To assess performance in relation to them receiving payment of their liability

Customers To assess performance in relation to the likelihood of continuity of trading

Governmen To assess performance in relation to compliance to regulations and assessment

t of taxation liabilities
Public To assess performance in relation to ethical trading

Rating To closely examine a firm’s accounting information in order to derive a credit

agencies rating for the firm as a whole or its various security issuances.
Union To see the firm’s financial information in order to set a bargaining position that

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 they believe the company can afford to pay.

CONCLUSION

The users of the financial statements are the ones who have an interest in the financial statement

of the company. They are insiders as well as outsiders. The financial statements are used to

analyze the financial position of the company i.e. the company’s ability to stand in the market

and it’s earning potential. The companies are required to publish their financial statements with

full disclosure that are useful for such users.

In conclusion, a large group of individuals and organizations need access to an organization’s

financial information, which is why the accounting standards require the presentation of a rich

set of information, both within a firm’s financial statements and the accompanying disclosures.

REFERENCES
1. Lodewyckx E, Lotter W, Rhodes N, Seedat C, Claase L2007. Financial Accounting: Fresh
Perspectives.Pinelands, Cape Town: Maskew Miller Longman.

2. Sowden-Service C 2011. Gripping GAAP. 12th Edition.Pietermaritzburg: Lexis Nexis.

3. Frazer, L.M. and Ormiston, A. (2009) Understanding Financial Statements (8th Edition). New
Delhi, India: PHI Learning Private Limited ISBN-978-81-203-3022-1.
4. Oberholster JGI, Koppeschaar ZR, Jansen van Rensburg C, Binnekade CS, Hattingh M, de
Klerk M, Rossouw J, Du Toit E 2011. Introduction to IFRS. 4th Edition. South Africa:
LexisNexis.

5. Hausman WH 2002. Supply chain performance metrics. In: C Billington, T Harrison, H Lee, J
Neale (Eds.): The Practice of Supply Chain Management. USA: Stanford University, pp. 1-14.