ONLINE EXAM

A. STUDENT/S TO COMPLETE
Program Name: MBA- Project Management Course Name: Strategic Finance Management

Student ID Number: 20231374 Student Names: Ayanda Khumalo

Postal/ Email Address: ayahkhumalo@gmail.com Phone Number:+263775190413/+263719280179

Date Submitted: 04/11/23 Lecturer Name:

Declaration
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of assessing this item:
Communicate a copy of this assessment item to the University for Marking
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Student Signature:

Date: 03/11/23

B. MARKER TO COMPLETE
Mark/Grade

Lecturer’s Comments
QUESTION 2
You are financial analyst working for a consulting firm specializing in corporate finance. In this scenario you are
advising a new start-up company that is in the process of defining its business objective and financial strategy.
Your task is to guide the company in understanding the role of finance function and choosing the most
appropriate objective of the business.
1. Discuss the fundamental role of the finance function within a business, explaining how financial
management influences various aspect of the organisations operations.
2. Identify and discuss potential objectives that the start-up company can consider as its sets its financial
goals. Provide at least three objectives and outline the advantages and the disadvantages of each
Table of Contents
Introduction .............................................................................................................................................................. 4
Problem statement .................................................................................................................................................... 4
Objectives ................................................................................................................................................................. 4
Methodology ............................................................................................................................................................ 5
Literature review ...................................................................................................................................................... 5
Agency theory ...................................................................................................................................................... 7
Stakeholder Theory .............................................................................................................................................. 7
Discussion of the solution to the problem statement ................................................................................................ 8
Conclusion .............................................................................................................................................................. 14
References .............................................................................................................................................................. 16
Introduction
All the traditional finance literature confirms that investors should be rational, risk-averse individuals who
formally analyse one course of action in relation to another for maximum benefit, even under conditions of
uncertainty. What should be (rather than what is) we term normative theory. Investors maximise their wealth by
selecting optimum investment and financing opportunities, using financial models that maximise expected
returns in absolute terms at minimum risk.

Change is the new norm for a new organisations due to seismic shifts in the level of competition, customers’
expectations, the global political outlook and fast-paced technological change. These changes present both risks
and opportunities, they will impact the organisation and the finance function within it. Driven by changing
competitive environments and business models, Enterprise Performance Management (EPM) is evolving rapidly
and for startups there there’s gross need for it to be introduced. The essence of finance business objectives is to
align strategy and priorities to operational execution and resource allocation, and to provide actionable insights
on performance. Broad-based information and analysis is needed to manage risk, execute business strategies and
deliver operational excellence. The key question is whether the finance function and its professionals are able to
provide what the business needs.

It is advisable to introduce Enterprise Performance Management as it requires an effective contribution beyond

reporting on financial performance and financial metrics based on income statement or balance sheet
components. The finance function has to enable decisions across the organization, requiring deeper, clearer
insight into operations, customers, markets, and the external business environment. To seize the opportunities
that Enterprise Performance Management and business analytics present requires an operationally grounded and
data-driven perspective to decision support.

Problem statement
Startup businesses want information and insights to help them penetrate and respond quickly and more
confidently to the changing competitive environment and uncertainty, and adapt and execute strategic and
operational plans. It is critical as a financial consultant in business to become effective business partners and
value enablers in the new market space.

The challenge for finance team is to be able to streamline its activities and processes in order to deliver added
value through enterprise performance tools. The rapid development of technology, data and analytics creates
both tremendous pressure and expectation, along with opportunity.

Objectives
Our role at the global level is to support organisation working in private and public sectors. Consequently, to
explore how as a consultancy can ensure relevance in this space should help inform organizations on the skills
and competencies needed for continued relevance to organizations, capital markets and societies. A critical steps
is to:
 Finance leaders to develop a vision and plan to guide the finance function toward long term value
creation in a multicapital world.
 Introducing involvement in core enterprise activities to help the finance function to develop a clearer
mandate and position as a business partner to other organizational functions
 Achieve a deep understanding of both the external environment and the organization’s resources and
underlying processes to deliver timely, action oriented, and decision relevant insights on economic
realities and value drivers. This requires an operationally grounded perspective and causal approach to
creating information to support decisions across the organization.

Methodology
 Online Research
 Several quantitative methods of analysis (e.g. logistic regression, Mann-Whitney analysis, multiple
regression) were employed in prior literature concerning this topic. logistic regressions is therefore less
applicable than linear regression

Literature review
From our introduction with a portrait of rational, risk averse investors and the corporate environment within
which they operate. However, a broader picture of the role of modern financial management can be painted
through an appreciation of its historical development. Chronologically, six main features can be discerned:-
Traditional, Managerial, Economic, Systematic, Behavioral.

Post Modern traditional thinking predates the Second World War. Positive in approach, which means a concern
with what is (rather than normative and what should be), the discipline was Balance Sheet dominated. Financial
management was presented in the literature as merely a classification and description of long term sources of
funds with instructions on how to acquire them and at what cost. Any emphasis upon the use of funds was
restricted to fixed asset investment using the established techniques of payback and accounting rate of return
(ARR) with their emphasis upon liquidity and profitability respectively

Economic theory, which was normative in approach, (J, Hirshliefer, 1958) came to the rescue. Spurred on by
post-war recovery and the advent of computing, throughout the 1950s an increasing number of academics (again
mostly American) began to refine and to apply the work of earlier economists and statisticians on discounted
revenue theory to the corporate environment. The initial contribution of the financial literature to financial
practice was the development of capital budgeting models utilising time value of money techniques based on the
discounted cash flow concept (DCF). From this arose academic suggestions that if management are to satisfy the
objectives of corporate stakeholders (including the shareholders to whom they are ultimately responsible) then
perhaps they should maximise the net inflow of cash funds at minimum cost.

Systematic proponents, whose origins lie in management science, still emphasise the financial decisions-
maker’s responsibility for the maximisation of corporate value. However, their most recent work focuses upon
the interaction of financial decisions with those of other business functions within imperfect markets. More
specifically, it questions the economist’s assumptions that investors are rational, returns are random and stock
markets are efficient. All of which depend upon the instantaneous recognition of interrelated flows of
information and non-financial resources, as well as cash, throughout the system.

Behavioural scientists, particularly communications theorists, have developed this approach further by
suggesting that perhaps we can’t maximise anything. They analyse the reaction of individuals, firms and stock
market participants to the impersonal elements: cash, information and resources. Emphasis is placed upon the
role of competing goals, expectations and choice (some quantitative, others qualitative) in the decision process.

Post-Modern research has really taken off since the millennium and the dot.com-techno crisis, spurred on by
global financial meltdown and recession. Whilst still in its infancy, its purpose seems to provide a better
understanding of how adaptive human behaviour, which may not be rational or risk-averse, determines
investment, corporate and stock market performance in today’s volatile, chaotic world and vice versa.

According to the average company lifespan of an S&P500 company is now under twenty years (Technology
killing off corporate America). In response, organizations need to understand their changing environment,
challenge their business model and operational assumptions, and continuously evaluate performance and plans.
The finance function should play a major role in meeting this challenge.

Additionally, integrated thinking and reporting are creating a demand for a broader, and increasingly non-
monetary perspective of enterprise performance through a “capitals” or “resources” perspective.

Information and insights need to be provided in the context of a business and operational environment that is
continually changing. For example, the fundamental changes to the retail sector with the rise of online channels
require business partners to provide insights on changing industry dynamics and customer expectation and
demand, impact on revenues, costs and profitability, changes to marketing investments, and supply chains to
support new channels. Digital or smart manufacturing provides data and information throughout the product life
cycle which in turn transforms sales, marketing, services and the nature of the relationship with customers.

In recent years, the subject of corporate financial goals has attracted much attention as the importance of an
organization's interactions with its uncertain environment and concern for the welfare of individuals and groups
of which it is composed have been generally recognized. In an uncertain environment and multiple
constituencies of the firm, the process of setting the financial goals from managerial perspective is unlikely to be
directed exclusively towards Shareholder Wealth Maximization. For example, (Crew, M.A, 1975) points out the
following in this regard: .the objective traditionally assumed to be pursued by industrial organizations was the
maximization of profits. However, recent thinking has emphasized the fact that the benefit created by a firm
accrue to not only to shareholders but also to employees, the government, the community, suppliers, customers.

This has led to the amendments in traditional theory. Modern financial theory has substituted maximization of
wealth or value added as the firm's objective and recent research by behavioral scientists, system analysts,
economists and accountants has undermined the theory that firms presume a single financial objective

Further, it is unlikely that managers in practice set the financial goals in precisely defined terms in a dynamically
changing environment. It is a common knowledge that in companies’ shareholders contribute the equity capital
and therefore are its legal owners. One may thus be tempted to argue that the firm’s financial goals should be set
keeping in mind only the shareholders' interest. Even if this were true, the lack of knowledge about shareholders
and their preferences is one of the problems in setting the financial goals. There is no systematic study which
attempts to highlight the concerns of the shareholders. One preliminary attempt in this direction is by Fisons
Limited (UK) (A, Sheel, 1994). The two surveys conducted by the company revealed that its shareholders were
primarily concerned about the dividends and growth, Fisons' reputation, and its means of achieving the results.
Further, the results suggested that improved shareholders' relations had beneficial effects on the company's share
price. The Fisons study also attempted to reconcile its shareholders' goals with the company goals. Growth in
earnings per share was agreed by both the Fisons management and institutional shareholders as being primary.
The other goal for judging Fisons' performance was stated to be the return on capital employed (ROCE),
followed by the goals of share price appreciation and increase in dividends.

Agency theory
in agency relationship originates when shareholders (principals) hire organisation executives or managers
(agents) in order to delegate rights, tasks and responsibilities to them. The relationship between principals and
agents is regulated in a mutuality agreed-upon employment contract which specifies all the rights, tasks and
responsibilities assigned to managers (Baiman, S, 1990). Nonetheless, such contract can hardly govern and
regulate all personal incentives of managers (agents). This complication lies at the heart of the agency theory.
The main assumption in the principal-agency theory is that both managers and shareholders are assumed to be
self-motivated. The primary objective of shareholders is to maximize their wealth. The interest of shareholders
(principals) is probably disparate to those of managers (agents) who plausibly own less shares of the organisation
and prefer to serve their own interest at costs of shareholders (Baiman, S, 1990)

Stakeholder Theory
In 1963, the Stanford Research Institute first proposed the concept of stakeholders. In 1965 American scholar
Ansoff first introduced the term to management academia and economy academia, thought that "To specify a
desired business goals, we must comprehensively and balanced consider the conflicting claims between many
business stakeholders, they may include managers, shareholders, workers, suppliers and distributors." [3]Since
1980, the impact of stakeholder theory began to expand, and promote to change the business management idea
and mode. Any business has many stakeholders, as a multi-stakeholder organic combination, its financial
management objectives are bound to be affected by various stakeholders‟ will. Business stakeholders generally
include:
(1) Business owners. Business owners provide seed capital to enterprise, its impact on corporate finances
primarily achieve by voting rights of the shareholders‟ meeting and board of directors. Corporate major financial
decisions must go through the vote of the shareholders' meeting or the board of directors. Business managers and
financial managers‟ appointment and removal is also determined by the board of directors, so business owners
have a significant impact on corporate financial management.

(2) Business creditors. Business creditors are main providers of long and short term funds of enterprises. They
lend money to companies, then charge loans and interest when expiring, undertaking certain risks. When
creditors provide great amount of loan, they will generally limit behavior of enterprises by terms of the contract,
or more directly send supervisory personnel to be involved in business decision-making to affect the business
operation and financial goals.

(3) Enterprise employees. Enterprise employees include general staff and business managers. They provide
enterprises with intellectual and physical labor, and gain reasonable returns. Enterprise employees are corporate
wealth creators, they and business interests are closely linked, they have rights to share corporate earnings;
When companies fail, they have to bear significant risk, sometimes even more than the shareholders bear.
Therefore, when establishing the financial management objectives, we must consider the interests of enterprise
employees, particularly under socialism, the interests of them should take full account.

(4) The government. The government provides businesses with a variety of public services, but the government
also has its own goals, such as to stabilize the economy, reduce unemployment, protect the environment and so
on. The Government will changes corporate earnings function through taxation, administrative enforcement and
other means, in order to achieve their goals. Thus the decision of enterprise financial management‟s objectives
should also take the government factors into account.

Discussion of the solution to the problem statement

1. Fundamental role of finance function within a business and how financial management influences
various aspect of organizations operations

Decision Making: There are several decisions that have to be done on the basis of available capital and limited
resources. If an organization has to start a new project, then it has to consider whether it would be financially
viable and if it would yield profits. So while investing in a new project or a new venture, a company has to
consider several things like availability of finances, the time taken for its completion, etc. and then makes
decisions accordingly.
Research and Development: In order to survive in a volatile market for a long duration, a business organization
needs to continuously research the market and develop new products to appeal the consumers. It may even have
to upgrade its old products to compete with new vendors in the market. Some companies employ people to
conduct market surveys on a large scale; prepare questionnaire for consumers; do market analysis, while other
may outsource this work to others. All these activities would require financial support.

Fulfilling Long Term and Short Term Goals: Every organization has several long term goals in order to survive
in the market. The short term goals may include paying the salaries of employees, managing the short term
assets, acquiring corporate finances like bank drafts, trade credit from suppliers, purchase of raw materials for
production etc. Some long term goals would include acquiring bank loans and paying them off; increasing the
customer base for the company etc.

Depreciation of Assets: When you invest in a new software or a new equipment, you would require to keep aside
some amount to maintain it and upgrade it in the long run. Only then you could be assured that it would yield
good results over a period of time. In the fast changing times of today, if this is not done, you might end up
losing business if you do not have finances for it.

Minimizing Cost of Production: Corporate finance helps in minimizing the cost of production. With the rising
cost of prices of raw materials and labor, the management has to come up with innovative measures to minimize
the cost of production. In many organizations that spend a lot of money on large scale production, deploy
professionals for this purpose. These people tend to buy quality products from vendors who offer it at lowest
possible rates. For example, a products based software company might buy software from a vendor that sells it at
a lower rate than an internationally acclaimed company selling the same thing.

Raising capital: When an organization has to invest in a new venture, it is very important that it has to raise
capital. This could be done by selling bonds and debentures, stocks of the company taking loans from the banks
etc. All this can be done only by managing corporate finances in a proper manner.

Optimum Utilization of Resources: The resources available to organizations may be limited. But if they are
utilized efficiently, they can yield good results. For example, a business organization needs to know the amount
of money it can spend on its employees and how much hike should be given to them. The proper management of
corporate finance would also help in utilizing its profits in such a manner that would help in increasing them; for
example, investing in government bonds, keeping up with the latest technology trends to increase efficiency.
Efficient Functioning: A smooth flow of corporate finance would enable businesses to function in a proper
manner. The salaries of employees would be paid on time, loans would be cleared in time, purchase raw
materials can be done when required, sales and promotion for existing products and launch of new products, etc.

Expansion and Diversification: Before an organization decides to expand or diversify in to a new arena, it has to
consider various aspects like the capital available, risks involved, the amount to be invested for purchase of new
equipment etc. All this can be done by experts and this would be very beneficial for the organization.

Meeting Contingencies: Running a business involves talking several risks. Not all risks can be foreseen.
Although you can transfer some of these risks to third parties by buying an insurance policy, you cannot have
every contingency covered by your insurer. You would have to keep some amount aside to tide over these
situations.

Dynamic Planning and Forecasting – Key finance function activities focused on the future, that involve
predictive or prescriptive analytics to identify opportunities and risks, establish goals and targets, control and
adjust performance, and provide substantive input on strategies and progress against goals and targets. The
uncertainty and speed of change in the business environment requires more and better information, a clear focus
on reality, and a highly efficient and real time cycle of planning/ evaluation, budgeting, and forecasting. Plans
and rolling forecasts provide an important link between performance in the present and future aspirations

All levels of an organization need information to support value creating decisions, from daily issues on
operational efficiency and customer service to major strategic shifts of direction. Additionally, integrated
thinking and reporting are creating a demand for a broader, and increasingly non-monetary perspective of
enterprise performance through a “capitals” or “resources” perspective.
For many companies, non-financial or intangible assets explain the bulk of how value is created in an
organization. This includes customer relationships, employees and innovation, operations performance
(including environmental aspects such as emissions, quality of business processes, cycle-time, intellectual
property, brand reputation, and the organization’s supply chain and pipeline). Information on such areas is not
captured in accounting-based reporting but needs to be captured in Enterprise Performance Management if value
creation is going to be effectively tracked across all the capitals and resources that organizations depend upon.

Integrated Performance Analysis and Insights – Providing insights on cost, profitability, productivity, and
operational performance to understand and respond proactively to current performance. Integrated Performance
Analysis requires operational performance be clearly connected to financial results, recognizing that cost and
profitability are ultimately the results of decisions about resources and processes. Second, an emphasis on
“analysis” rather than “reporting” implies a more open, continuous, participative, and responsive process based
on providing timely insights and analysis on economic reality and value drivers.

In terms of decision support, a focus area for a startup finance functions is for internal reporting around profit
and loss to meet business needs. Planning and forecasting can be too finance-centric. Finance functions must
often provide a rudimentary level of cost and revenue information that describes financial performance (and the
accuracy of output, product, and service-line costs might be limited where indirect expenses do not relate to
outputs i.e., there is no or limited causality). This means fewer insights relating to customers, such as customer
profitability or operations, and the business environment.

A more analytical and predictive approach for a startup company is planning and decision support which focuses
on projections requiring more advanced approaches to data and models. To be actionable, data needs to be of
adequate quality and reliability, timely, reflect causal relationships, and link clearly to resources, customers, and
strategic goals.

2. Potential objective that the startup can consider as its sets of financial goals.
The functions of finance involve three major decisions a company must make –the investment decisions, the
financing decisions, and the dividend / share repurchase decisions. The process of financial management
involves the direction of a corporation towards its financial goal(s) within the constraints imposed by other
corporate aims. The profit maximization as a financial goal dominated the economics literature for a long period.
The goal was however challenged, which led to a shift to the maximization of shareholders' wealth, reflecting a
greater concern for the long-term benefits of financial policies to the firm's owners.

From past practice The (Jensen, M.C. and Meckling, W.H, 3 October 1976.) suggest the shareholders' wealth
maximization as the key financial goal that should discipline short- and long-range financial planning and
decision making. shareholders' wealth maximization as a normative goal is central to the modern finance theory.

Companies are assumed to raise funds from their shareholders, or borrow more cheaply from third parties
(creditors) to invest in capital projects that generate maximum financial benefit for all. wealth maximisation
criteria based on expected net present value (ENPV) using a discount rate rather than an internal rate of return
(IRR), can then reveal that when fixed and current assets are used efficiently by management:

On an optimistic note, as a financial consultant has to advice startup business successful management policies of
wealth maximisation that increase share price, in terms of two distinct but inter-related functions. Investment
policy selects an optimum portfolio of investment opportunities that maximise anticipated net cash inflows
(ENPV) at minimum risk. Finance policy identifies potential fund sources (equity and debt, long or short)
required to sustain investment, evaluates the risk-adjusted returns expected by each and then selects the optimum
mix that will minimise their overall weighted average cost of capital (WACC).
From a financial perspective, as a new enterprise it represents the overall costs incurred in the acquisition of
funds. A complex concept, it embraces explicit interest on borrowings or dividends paid to shareholders.
However, companies also finance their operations by utilising funds from a variety of sources, both long and
short term, at an implicit or opportunity cost. Such funds include trade credit granted by suppliers, deferred
taxation, as well as retained earnings, without which companies would presumably have to raise funds
elsewhere. In addition, there are implicit costs associated with depreciation and other non-cash expenses. These
too, represent retentions that are available for reinvestment.

The two functions are interrelated because the financial returns required by a company’s capital providers must
be compared to its business returns from investment proposals to establish whether they should be accepted. And
while investment decisions obviously precede finance decisions (without the former we don’t need the latter)
what ultimately concerns the firm is not only the profitability of investment but also whether it satisfies the
capital market’s financial expectations.

In companies, owners and management are separated from each other. Management of a company is consisting
of professionals who are more qualified and having technical expertise to run the business. Because of difference
in interest between owners (shareholders) and managers, chances of conflict is there. To mitigate agency
problem, effective monitoring has to be done and proper incentives have to be offered.

Armed with agency theory, the function of strategic financial management can be deconstructed into four major
components based on the mathematical concept of expected net present value (ENPV) maximisation: The
investment, dividend, financing and portfolio decision. In our ideal world, each is designed to maximise
shareholders’ wealth using the market price of an ordinary share as a performance criterion.

The goal of profit maximization develops the behavior of the financial management of startup enterprises
towards the direction of maximizing corporate profits, which is under the assumption that investment income has
determined (Jensen, M.C. and Meckling, W.H, 3 October 1976.). Pursue profit maximization as the goal of
financial management, and its advantages are: (1) the purpose of humanity engaged in production activities is to
create more surplus products, we can use profit metrics to measure number of surplus products. (2) Profit is the
differences between total income and total expenses in a certain period, and is to be calculated in accordance
with the principle of matching revenues and costs, which can reflect the level of economic efficiency of
enterprises to a certain extent. (3) Profit is the source of increasing investor returns and remuneration of
employees, but also the source of accumulating business capital and expanding business scale.

The disadvantage is that in practice problems difficult to solve still exists: (1) It does not reflect the relationship
between profits and investment capital, is not conducive to compare different capital sizes or different periods of
the same enterprise, would mislead corporate taking projects with the higher capital and the lower efficiency for
the pursuit of profit maximization, and is not conducive to use funds effectively. (2) Profit index is the total
amount of profit for a certain period, without considering the time value of money. (3) Profit maximization does
not consider the risk factors, because high profits often accompany by high risk. (4) Pursuing profit
maximization one-sided will make financial decisions of enterprises behave a short-term tendency, ignore the
product development, human resources development, production safety, welfare facilities, fulfilling social
responsibility and other aspects, which is not conducive to long-term healthy development.

Shareholder wealth maximization is to get the most wealth for shareholders through reasonable financial
management. In this view, business owners, the shareholders and managers, is an agency relationship, the
manager should seek to maximize the interests of shareholders, and shareholders‟ goal is to pursue maximizing
their wealth. Compared with profit maximization, shareholder wealth maximization has following advantages:
(1) The goal of shareholder wealth maximization has considered time and risk factors, because the stock price
reflects the current and future corporate value. (2) Shareholder wealth maximization in a way can overcome a
short-term tendency behavior of enterprises, because the level of stock prices is not only affected by current
profit, but more important is the potential for future development of enterprises. (3) The goal of shareholder
wealth maximization is easy to quantify, because the stock price is easily accessible from the stock market,
which facilitates assessment and evaluation.

However, there are some drawbacks for shareholder wealth maximization: (1) It only applies to listed
companies, most unlisted companies are difficult to use, which limits the use scope. (2) It only emphasizes the
interests of shareholders, and ignores the interests of other concerned parties (such as creditors, managers, staff,
etc.), which affects the enterprise's production and business activities and is not conducive to long-term
development. (3) There are some authorities uncontrollable factors in stock prices, such as the external
environment limitations, the general level of economic activities and stock market conditions and so on.
Importing these factors to financial management goal is unreasonable. (4) In terms of corporate shareholders,
aim of its shareholding is not necessarily to pursue the highest price, such as to control the investee company's
production activities, thus its sensitivity of stock price is less than individual shareholders, so as its interest to the
highest stock price.

Enterprise value maximization means by reasonable management on corporate finance, to take the best financial
policies and take full account of the relationship between monetary value and remuneration. On the basis of
ensuring long-term stable development of the enterprise so that the total value of the firm is maximized. This
financial goal is to pursue common value maximization for a variety of business stakeholders, rather than only
consider shareholder side.

But the goal of enterprise value maximization is also not perfect: (1) Enterprise value maximization does not
highlight who owns the business interests. (2) Enterprise value maximization does not correctly handle the
relationship between long-term accumulation and allocation of reality. (3) In terms of current less mature capital
markets, "enterprise value" in the enterprise value maximization is difficult to accurately measure, the company's
stock is difficult to reflect the value of the enterprise. (4) Shareholders who determine the value of the enterprise
value maximization goal is inappropriate. (5) Making enterprise value maximization as a financial target is easy
to make corporate finance emphasis on long-term planning and ignore short-term benefits and financial
management of daily operations. When conflict occurs between short-term decisions and long-term decisions,
long-term decisions tend to be chose with orientation of the enterprise value maximization concept. There are big
predicted risks with long-term decisions, which may result in decision mistakes.

Through the above analysis we can see, the choice of financial management objectives mainly depends on the
choice of business goals. Above views reflect different aspects of the business goals, and has a certain
rationality. But they believe that business is only investors‟ business, which adapts with industrial economy era
in the past. They emphasize capital wage labor, capital’s owner (investor) hold control of the business and
residual claims. Thus target of business services is to ensure the interests of the investors, target of business
finance is to maximize the interests of investors correspondingly. However, with the coming of the knowledge
economy, continuously improvement in the position of the enterprise of human resources and more scattered
shares of the company, the enterprise is no longer merely investors‟ enterprise.

More so modern finance theory regards capital investment as the springboard for wealth creation. Essentially,
financial managers maximise stakeholder wealth by generating cash returns that are more favourable than those
available elsewhere.

Conclusion
Corporate finance plays a very important role in the overall functioning, growth and development of a business.
In Zimbabwe, finance advisors help entrepreneurs and businesses by providing them with vital information
through market research and analysis. This helps then to make decisions, expand their business, and survive in a
competitive market in the long run. Therefore, the management of corporate finance is very important for
profitable as well as non-profitable organizations.

Based on economic wealth maximisation criteria, corporate financial decisions should always be subordinate to
investment decisions, with dividend policy used only as a means of returning surplus funds to shareholders.

In short words, determining the target of company's financial management as stakeholder wealth maximization
not only expands the considered scope of financial management activities, but also embodies the essence of the
modern enterprise. At the same time, stressing stakeholder wealth maximization is more in line with the
requirements of entrepreneurs market economy. In Zimbabwe enterprises should emphasize the interests of
workers and the contributions to society.
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