This discussion has 3 parts:
Financial managers make three main decisions:
Which products or services to offer?
How to acquire the funds necessary to offer the products and services, such as using cash on hand, borrowing, or selling shares in the firm?
What to do with the cash flow generated by the firm, such as pay dividends, repurchase shares, reinvest it in the business, or hold on to it?
Which of these decisions do you think is the most important for creating value for the corporation’s owners? Why? (Note: Your response to this question should be no more than 50 words)
A guest speaker in class states “managers should only focus their attention on what shareholders want because they are the owners of the firm and the managers work for the shareholders”. Offer your view on this statement based on your readings, life experiences, and ethics. See Assigned Readings “Related to agency theory and the goal of financial management”
Your initial post for each question should be approximately 100 to 200 words (unless the discussion question specifically provides a different guideline), formatted and cited in the current APA style with at least one source other than the required textbook. Your initial posts are worth 8 points each. You should respond to two of your peers by extending, refuting/correcting, or adding additional nuance to their posts.
These three decisions that financial managers have to make all seem extremely important; however, I think that how to acquire the funds necessary to offer the products and services is the most important decision that needs to be made. Without the necessary funds, then the products/services would be available period, so deciding which products/services to offer is automatically not the most important question. What to do with the cash flow generated by the firm is also a very important decision, but cash flow won’t happen until a product/service is being sold and there needs to be a way to acquire the funds necessary to produce this product/service. Overall, how to acquire the funds necessary for this product/service is the most important decision because it is the first step.
I disagree that managers should only focus on the wants of shareholders. Managers need to focus on what will help progress the company and make it more successful. Managers also need to focus on their employees and other stakeholders. If managers don’t also focus on the needs of their employees, then there can end up being a high turnover rate which is only costing the company more money. “For a business to be in business to serve only shareholders or profit seekers runs counter to the needs of today’s very complex and fast-changing world” (Pontefract 2016). I agree with this statement because companies need to take into account all of their stakeholders (customers, government, lenders, society, and employees) enable to be successful, instead of only caring about the needs of the people who will reap the benefits of the companies success.
Pontefract, Dan. “Should Companies Serve Only Their Shareholders Or Their Stakeholders More Broadly?” Forbes, Forbes Magazine, 10 May 2016, www.forbes.com/sites/danpontefract/2016/05/09/shareholders-or-stakeholders/#5633ff8713d2.
Tuesday June 30 at 7:38pm
The main responsibility for financial managers is to acquire funds needed and decide how to use the funds to maximize the value of the firm’s stock price. Their decision affects the stock price in many ways as the value of the stock is determined by the future cash flows the firm can generate. These cash flows are affected by the products or services selected to produce, the types of assets to purchase or what advertising campaign to utilize but a firm can’t think about what products and services or what to do with the cash flow that is generated, without first having or acquiring the funds to make the other decisions.
I disagree that managers should only focus their attention on what shareholders want simply because they are the owners of the firm. Although the main objective is to maximize the shareholder’s wealth, this is not possible without its stakeholders. Who are considered stakeholders? Customers, employees, supplies, and the communities are among this group and they deserve a manager’s attention. It is my belief that revenue is generated when clients /customers are satisfied and pleased with the product and service provided by a company but this is possible when your front line employees work on delivering these products and services. In addition, the business will benefit if managers consider them as important if not more important as these are pivotal factors in a successful business.
Bragg, S. The Difference Between a Shareholder and a Stakeholder. Accounting Tools,24 August 2019, https://www.accountingtools.com/articles/what-is-the-difference-between-a-shareholder-and-a-stakehold.html
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