FIN-320 Final Project Part I
Southern New Hampshire University
We can characterize the financial activities of a firm’s management in terms of three important functions within a firm: making investment decisions (capital budgeting decisions), making decisions on how to finance these investments (capital structure decisions), and managing funding for the company’s day-to-day operations (working capital management). The long-term objective of financial management is ultimately to help the company maximize profits. In order to do that, a financial manager needs to focus on smaller, more specific goals of financial management: planning, cost containment, cash flow management and legal compliance. A financial manager must produce financial reports, direct investment activities and develop strategies to ensure the long-term financial health of the organization. Because they have the strongest grasp of a company’s finances of anyone in an organization, they also help executives make decisions that involve the company’s future .
Ethics is fundamental to the notion of trust and is therefore essential to doing business. Business dealings between people and firms ultimately depend on the willingness of the parties to trust one another. A financial manager can face ethical issues of accuracy, transparency, timeliness and integrity. Everyone makes errors of judgement in business but unethical errors tend to end careers, if not result in jail (Titman, 2014, p.10). A company’s financial manager should ensure that all financial publications accurately and fairly reflect the financial condition of the company. Timely financial information is just as important as accurate and transparent information. Financial managers should not hide, obscure or otherwise render relevant financial information impossible for ordinary shareholders to understand. Financial managers should strive for unimpeachable integrity.
In 2002, Congress passed the Sarbanes-Oxley Act (SOX). SOX holds corporate advisors who have access to or influence on company’s decisions legally accountable for any instances of misconduct. The act identifies its purpose as being to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes, and it mandates that senior executives take individual responsibility for the accuracy and completeness of the firm’s financial reports. SOC safeguards the interests of the shareholders by providing greater protection against accounting fraud and financial misconduct. SOX has increased investor confidence in financial reporting, the reporting requirements are costly and may inhibit firms from listing on the U.S. stock markets (Titman, 2014, p.10-11).
Going public refers to a private company’s initial public offering (IPO), thus becoming a publicly traded and owned entity. Businesses usually go public to raise capital in hopes of expanding; venture capitalists may use IPOs as an exit strategy – that is, a way of getting out of their investment in a company. The IPO process begins with contacting an investment bank and making certain decisions, such as the number and price of the shares that will be issued. Investment banks take on the task of underwriting, or becoming owners of the shares and assuming legal responsibility for them. Going public does have positive and negative effects, which companies must consider. Going public strengthens capital base, makes acquisitions easier, diversifies ownership, and increases prestige. On the down side, going public puts pressure on short-term growth, increases costs, imposes more restrictions on management and on trading, forces disclosure to the public, makes former business owners lose control of decision making (Hall, 2019).
The Nasdaq and the NYSE American (formerly AMEX) are two ways to trade stocks in the market with different offerings to traders. Nasdaq holds a higher trading volume per day than any other stock exchange in the world. The NYSE American (formerly AMEX) is auction-based, which means that the specialists are physically present at the exchange and the buying and selling of stocks is done verbally. The NYSE American began as AMEX, one of the oldest exchanges in America. In my opinion, choosing which market to invest in would depend on which market the company I wanted to invest in is listed, if it’s a newer company with less capital investment or one that has been around for a long time.
Varying financial institutions have evolved over time to meet special needs for intermediation, including commercial banks that accept deposits from savers and lend to borrowers, investment banks that help companies sell their securities to investors in order to raise the money they need, and many other institutions. Of particular interest are mutual funds that collect the investments of many small investors and invest the pool of funds in stocks, bonds, and other types of securities that are issued by businesses. In recent years, two types of investment companies have captured the headlines: hedge funds and private equity funds. Both of these types of investment companies accept investment from other financial institutions or wealthy individuals and incest in speculative and risky ventures (Titman, 2014, p.34).