Question

Q1. How do financial managers create value for the firm? Explain and provide examples where necessary.

Q2. Should a firm have as much as possible OCL(operating current liabilities) and as little as possible OCA(operating current assets)? Briefly explain.

Answer 1

1.The main goal of financial management is to create value.A business investment is only going to create value if its NPV is positive.The responsibilities of financial manager includes,planning,spending or investing money as well as raising and financing money.

The financial manager can create value by:

1.Using effective ways to raise the funds.For example: raising funds by debt ,preference capital or equity depending on the firm's capability in terms of risk.

2.Allocating the finance raised to investments that will prove to be profitable.For example:by making use of capital budgeting techniques like IRR,NPV etc.

3.Taking appropriate dividend decisions for the company.

4.Efficient and effective management by making use of effective management techniques

5.Making use of human resources and technology to improve the processing of transaction.

For example:making use of artificial intelligence for quickly collecting,interpreting and analysing the data and make informed decisions based on them.

2.The company should have more operating current assets and as less as operating current liabilities as possible.The company needs to have enough operating assets to meet its liability of long term.If the operating current assets like cash ,accounts receivable are more it will depict that company's liquid position is good and it can meet its liability of its short term easily.If operating current assets are more than operating current liabilities it would mean that the ckmpany's net working capital is positive which ensures that company will be able to continue its operations smoothly.