In: Finance
The Week 6 Case Study Assignment asks that you consider the agency relationship between a corporate financial manager and the shareholders of the corporation.
As a corporate financial manager, you have the opportunity to manage the company's cash on behalf of its owners (shareholders.)
Consider the case of Apple, Inc, and the company's cash stockpile. The company's financial managers bear the responsibility of managing the cash reserves on behalf of Apple's shareholders.
Write a 1-2 page paper, using the following guidelines:
In the first half of the paper, research and briefly describe the concept of agency.
In the second half of your paper, imagine yourself in the role of Apple's financial management team. Describe what types of measures you would take to ensure that any decisions made with regards to the company's cash faithfully represent the wishes of the shareholders.
The Law of agency is in most cases defined as the relationship between two persons, where one (the agent) may act on behalf of the other (principal) and bind the principal by words and actions .It is also defined as the relationship in which one person acts for or represents another by the latter’s authority, either in the relationship of principal and agent, master and servant, employer or proprietor and independent contractor. The law of agency could also be defined as the judiciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so as to act. (Black’s law dictionary, 1991)
The responsibilities of a Financial manager w.r.t managing the money flowing through the business in the best interest of the shareholders:
1. Financial planning: planning and preparing budgets w.r.t. receipts and expenditures of the Company and overseeing the if the actual results match with the budgeted figures.
2. Investment (spending money): Investment of the idle/surplus cash of the business in profitable projects keeping in mind the risk apetite of the business.
3. Financing (raising money): acquiring funds via suitable combination of debt/equity/preference capital keeping in mind leverage, control factors etc.
The main goal of a financial manager is to maximise its shareholders' wealth in the form of share price maximisation. Hence, as the financial manager of Apple Inc, I should consider both short term and long term consequences of the company's actions.