Federal safeguards for financial managers

I. Analyze Roles and Responsibilities for Compliance

A. Examine the types of decisions financial managers make. How are these decisions related to the primary objective of financial managers?

Every financial manager has three major decisions they must make to ensure the business runs smoothly. The first decision for financial managers to make is an investment decision or capital budgeting decision. The firms have many options to invest their funds with the firms selecting the most appropriate investment that will bring the maximum benefit for the firm (Pujari). One factor that affects the investment decisions is the cash flow project because it will need to be assessed properly before investing in the proposal (Pujari). Another factor that affects the investment factor is the return on investment because it will be able to bring back for the company (Pujari). The final factors that affect the investment decisions are the risks involved and the investment criteria. There are risks involved with any investment, so every proposal should be prepared with a moderate degree of risk only and the finance manager must compare all the available alternatives carefully by deciding where to invest the scarce finance of the firm (Pujari). It relates to the primary objective of financial managers by the careful selection of assets, which the funds will be invested for the firms.

Another decision for financial managers to make is financing decisions because a company can raise finance from various sources what include shares, taking loans and advances, or debentures. The main sources of finance can be divided into two categories which are owner’s funds and borrowed funds. The owner’s funds include retained earnings and share capital while borrowed funds include debentures, bonds, loans, and extra (Pujari). Some factors that affect the financing decisions include the cost, risks, cash flow position, control considerations, floatation cost, fixed operating cost, and state capital market. It relates to the primary objective of financial managers because the finance manager’s main concern is deciding how much to raise from both the owner’s funds and borrowed funds while comparing the advantages and disadvantages (Pujari). The borrowed funds will have to be paid back and involve some risks where the owner’s funds have no fixed commitment of repayment and no risk involved. The last decision for financial managers to make is working capital management decisions. Working capital management is concerned with short term cooperate financing by focusing on the management of association between the short term liabilities and short assets of a company (Working Capital Management). The main purpose of the working capital management is to make sure the company is capable of carrying out its functions and the company is meeting the short term obligations by receiving adequate cash flow.

As a company grows, the more strategic planning and outsourced functions coming in expands the financial manger’s roles and responsibilities. One responsibility of a financial manager is planning by using a long term financial strategy for the company when they delegate bookkeeping to the staff (Ashe-Edmunds). The financial managers will set goals for achieving specific gross profits, revenues, and profit margins with setting targets for production and overhead expenses (Ashe-Edmunds). This will create a master budget which is tied to the business’s accounts receivable, balance sheet, and payable reports that include cash flow and profit or loss statements. Another major key responsibility for a financial manager is cost containment by controlling the company’s expenses with setting spending levels and cutting costs (Ashe-Edmunds). They can create a request for proposals and purchasing polices for contractors to make sure the business is getting a combination of quality and price.

The most important role of a financial manager is cash flow management because it refers to the receipt of the actual money and payment of bills. It includes the monitoring of the receivables turnover by keeping enough cash and credit reserves available that keep the company financially stable (Ashe-Edmunds). If the company did not negotiate customer credit terms or supplier and vender terms right then the company will be waiting to collect the sales invoices after the bills are due (Ashe-Edmunds).

B. Analyze the various ethical issues a financial manager could potentially face and how these could be handled.

A financial manager could potentially face ethical issues that may include gross misconduct and demonstrate incompetence. Some financial managers may find themselves in unethical traps by misrepresenting cash flows in attempt to pad financial figures from the operating activities with allocating expense to invest in activities (Atton, 2015). They could be handled by doing third party audits, the laws passed into Congress to ensure transparency with an equal playing field in regards to trade and information, and the separation of the Board of Directors to ensure the measures of objectivity to the financial conduct (Atton, 2015). The financial manager must meet legal compliances because they need to make sure the company is meeting all of the legal obligations. It includes the employee benefits contributions, sales and income tax, state and federal labor wage requirements, and many more (Ashe-Edmunds).

C. Compare and contrast the different federal safeguards that are in place to reduce financial reporting abuse. Why are these considered appropriate safeguards?

A federal safeguard that is in place to reduce reporting abuse is the Chief Financial Officers Act of 1990 (CFO Act). The CFO Act lays down the foundation for the comprehensive reform of the federal financial management (Hatch, 2013, Pg. 6). It is considered appropriate safeguard because it establishes a leadership structure and requires the audit for financial statements (Hatch, 2013, Pg. 6). Another different federal safeguard that is in place to reduce reporting abuse is the Government Management Reform Act of 1994 (GMRA). It expanded the number of agencies covered by the CFO Act’s reporting provisions (Hatch, 2013, Pg. 7). It is considered appropriate safeguard because it allows the CFO to submit financial statements for previous years for the accounts and activities to the director of the OMB (Hatch, 2013, Pg. 7). The final federal safeguards that is in place to reduce reporting abuse is the Accountability of Tax Dollars Act of 2002 (ATDA) and considered appropriate safeguard because it further expands the CFO Act’s reporting requirements by covering all executive branches agencies to submit audited financial statements (Hatch, 2013, Pg. 7).

II. Investment Options

A. If a private company is “going public”, what does this mean, and how would the company do this? What are the advantages of doing this? Do you see any disadvantages? If so, what are they?

The two types of structures for companies are public and private. Public companies allows for any person to buy shares on the public stock exchange while private companies are those that are invite only for investors (Thakor, 2010). A private company going public means the company is opens its shares to the rest of the world through an initial public offering (Thakor, 2010). The company does this by filing a registration statement with the Securities and Exchange Commission (SEC) to become a SEC reporting company and register its securities with SEC (How Does My Company Go Public?). A company that went public was Whole Foods Market in 1992. In 2008, the company was ranked 369 on the Fortune 500 with the company posting $6.5 billion in revenues and $3.2 billion in assets (Springer, 2009). This is a great example of what a small company can do if it goes public. An example of a company that went public and failed was Pets.com. It lasted about two years because the company forgot to take into account the cost of shipping (Springer, 2009). The advantages of going public are access to capital, increased liquidity that can help a company by enabling it to grant stock options, public offerings provides the company with the currency to acquire other businesses, and the act of going public provides marketing for a company (Wasserman). This will help raise capital for companies so they can pay of their debts and buy equipment for the company. Some disadvantages of going public are the loss of control over the company for the management and founders, the SEC will require public companies to revel sensitive information, and is the stock does poorly then it can may generate negative publicity that will hurt the company (Wasserman). This means the company will not be able to make decisions all by themselves and have to reveal all of their financial statements to the public.

B. How do the largest U.S. stock markets differ? Out of those choices, which would be the smartest private investment option, in your opinion? Why?

The two largest U.S. Stocks markets are the New York Stock Exchange (NYSE) and the National Association of Security Dealers and Automated Quotations (NASDAQ) for which there are many differences between the two. The main difference between the two is NASDAQ trading location takes place electronically through the internet while the NYSE takes place on the floor of exchange in person (“Difference Between,” 2013). Another difference is the NYSE stocks are well established companies with a huge turnover compared to NASDAQ primary stocks being for technological companies (“Difference Between,” 2013). The best private investment option would be the NASDAQ because it is the largest stock exchange and it merged with the American Stock Exchange (AMEX).

C. Compare and contrast the various investment products that are available and the types of institutions that sell them.

Investing one’s hard earned money is an important decisions and there are many ways to invest. The various investment products that are available are bonds, stocks, mutual funds, money markets, capital markets, and exchange traded funds. Bonds are an investment security which obligates the issuer to pay the bond holder the specified sum of money (Individual Bonds). The types of bonds include U.S. Treasury bonds, agency, municipal, corporate, and high yield. Stocks are a type of security that gives stockholders ownership of a company with shares and also called equities (Stocks).

However, mutual funds are when a company pools money from multiple investors and invests that money into securities which includes stocks, bonds, or short term debt (Mutual Funds). The exchange traded funds (ETFs) are funds which track indexes from the NASDAQ-100 Index, Dow Jones, and extra. When buying the shares of an ETF, it means buying shares of a portfolio that tracks return and yields of its native index (What are ETFs?). The ETFs are similar to stocks because they are traded just like the stocks. In Brazil, there are two forms of investments that are direct and indirect. The direct investments happen when the creation of a new company entity or through an already existing Brazilian company (Options for foreign investment in Brazil). Any non-resident must enroll with the Federal Individual Taxpayer Registration with the Brazilian diplomatic representation within their country. The indirect investments are made by investing in financial and security markets when there is no requirement to participate in a Brazilian company (Options for foreign investment in Brazil).

The different types of institutions that sells investment products are investment banks, stock exchanges, brokers, and businesses. Investment banks are a financial institution which helps assist wealthy individuals, corporations, and governments (Investment Banking FAQ-Industry Overview). The stock exchange allows for investors to purchase and sell stocks on the stock market. The brokers are individuals or firm employed by others which negotiate contracts for commissions or plan and organize sales (Broker). There are multiple types of brokers such as commercial or merchandise broker, insurance, real estate, and stockbrokers. A business will sell stocks to investors to raise capital for the business. All of these institutions that sells investment products will help investors invest their money responsibly.

References

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