Role of Chief Financial officer and its Impacts

Requirement

Corporate Financial Management Assignment

Solution

Introduction

In this present paper, we will describe the responsibilities and roles of the Chief Financial officer. The impact of the roles and responsibilities of the chief financial officer on the objective of the company is also discussed. The Company is Scottish pacific Business Finance which is a non-financial company established in 1988. It is the leading specialist provider of working capital solutions with the range of comprehensive trade finance and debtor finance services. In the B part of the paper, the case is discussed in which the efficient market hypothesis is true then the pension fund manager still selects a portfolio with a pin.

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A. Role of Chief Financial officer & its Impacts

The Scottish pacific business finance is the leading service provider in Australia and New Zealand (Business et al., 2016). The company provides the solutions of debtor finance, invoice discounting, factoring, selective invoice finance, trade finance, import finance, export finance, and trade line to the consumers. The offices of Scottish pacific are situated in Sydney, Melbourne, Brisbane, Adelaide, Perth and Auckland. The Chief financial officer plays an important role in the non-financial company. The roles and responsibilities of Chief financial officer include maintenance of short-term activities, for example, business integrity, management of innovations, liquidity management, strategic leadership, maintenance of top-level view of the company through stretched and scrutinized of resources.

Three Responsibilities of CFO

Following are the four principles of Chief financial officer:

  1. Value creation: The development of sustainable strategy helps in the creation of value for an organization.

  2. Value enabling: The enabling of value is done by the CFO through supporting the top level management and government bodies in the formulation of strategy and decision making which directly impacts on the mission and vision of the company.

  3. Value preserving: The value preservation is done through risk management, asset, and liability management which helps to achieve the objectives of the company. The effective system is done through implementation and monitoring of internal control system

  4. Value reporting: The insurance of relevant and valuable reporting is done through the use of business reporting in an internal and external system of an organization.

Following are the three key responsibilities of Chief financial officer:

  1. Controllership duties: It is the responsibility of the chief financial officer to report and present the correct historical financial information of the company which helps in decision making and the creation of strategies. The investment decision is the most crucial decision which is based on the information presented by the CFO (Bedard et al., 2014). So, the information should be accurate because the investment decision requires the commitment of huge amount of funds. The presentation of reports is one of the most important responsibilities of CFO because the information is used by the stakeholders for the investment decisions of the company. 

  2. Treasury duties: The financial condition of the company is based on the development of strategy and decision making which is the responsibility of CFO. The responsibilities of CFO includes management of risk, liquidity management, debt-equity ratio, structuring of capital and other financial aspects which impact on the profit margin of an organization. The CFO is the backbone of the company because of the financial condition impacts on the growth, vision, profit margin, mission of an organization (Bishop et al., 2016). It is a very crucial responsibility of the CFO because it impacts on the wealth of shareholders.

  3. Economic strategy and forecasting: The creation of economic strategy is one of the responsibilities of CFO which impacts on the financial condition of the company. The investment decision in the future is based on the various decisions taken by the CFO such as capital investment, business forecasting which helps to increase the efficiency of available resources which impacts on the financial growth of the company (Engel et al., 2014). The forecasting comprises of business resources analysis which impacts on the financial position and growth of an organization. 

Impact of CFO’s responsibilities on the Company’s Objective

The main responsibilities of chief financial officer comprise of treasury duties, controllership duties and economic strategy and forecasting which impacts on the objective of the company. The objective of the company comprises of the growth of an organization, wealth maximization of shareholders, optimum utilization of resources, sustainability in the company's financial position, an accomplishment of goals and objectives, and distinctive image of the brand in the eyes of the customers.
Below are the impacts of the responsibilities of CFO on the objective of the company:

  1. Wealth of shareholders: The shareholder's wealth is influenced by the profitability of the company which is derived from the decision making and strategy implementation by the chief financial officer. The decision-making responsibilities comprise of capital budgeting, decisions of investment, financial resources allocation, and other financial decisions which impact on the objective of an organization. The maximization of shareholders wealth is one of the main objectives of an organization which is impacted by the responsibilities of investment and budgeting of capital decisions by the CFO of an organization.

  2. Growth of the company: The growth of the company is one of the most crucial objectives of an organization. The strategy formulation and investment decision are taken by the chief financial officer which impacts on the growth of an organization. The growth of the company is influenced by various factors, for example: financial projection of an organization which is based on the historical reports which are presented by the chief financial officer. The financial forecasting aids in investment decisions taken by the chief financial officers which enable the growth objective of an organization. 

  3. Brand image: The creation of brand’s image in the eyes of the consumers is another important objective of the company, and it is impacted by the allocation of resources responsibility of chief financial officer. The optimum allocation of resources helps to attain the sustainable profit of the company which builds the brand image and creates goodwill of an organization.

  4. Mission & Vision: The accomplishment of mission and vision is an objective of an organization. The path is created by the mission and vision of an organization which is followed for the achievement of an organization. The responsibility for the development of economic strategy and forecasting impacts the mission and vision of an organization. The aim of the development of economic strategy includes the increment of the efficiency of business areas which enables to attain the objectives of an organization.

  5. Sustainable financial position: The sustainable financial position of the company enables the attainment of sustainable profits which helps to achieve other objectives of the company. It is another objective of the company which is impacted by the responsibility of treasury duties by the chief financial officer. The treasury duties comprise of management of risk, liquidity management, structuring of capital, a debt-equity ratio which directly impacts on the financial position of an organization (Cohen et al., 2014). 

  6. Productivity: The decision of purchasing and allocation of raw material impacts the productivity of the company. The strategy to increase the productivity also impacts the productivity. The efficient productivity comprises of least cost strategy which enables to increase the profitability of the company.

  7. Consumer Service: The primary objective of every organization is to provide best consumer services which are impacted by the CFO’s responsibility of strategy formulation. The strategy formulation helps to provide better services to the costumers which help in consumer retention.

B. Pension Fund Manager and EMH
Efficient Market Hypothesis

The efficient market hypothesis defined the assets price which reflects the relevant information. The hypothesis implications defined that the market consistency is impossible to beat on the basis of risk-adjusted as the market price does not reflect the change in the risk new information such as a change in the rate of discount. There are three kinds of variants, namely, strong, semi-strong and weak hypothesis. Belo is the three efficient market hypotheses:

  1. Weak market efficiency: The weak market form describes that all the previous publicly information is shown from the price of assets which are traded. The prediction of prices can't be made through analyzing the current market prices. The trend of the price can't be predicted through technical analysis, and the fundamental analysis helps in determining the patterns and trends of the prices.     

  2. Semi-strong market efficiency: According to the semi-market efficiency, the public information is reflected in the prices. It shows that the study of technical and fundamental analysis does not help in generating the higher returns.

  3. Strong market efficiency: According to the strong market efficiency, the price replicates all the information which includes the internal and external information. The information comprises of private information, public information, trading laws and others (Yalcin et al., 2016). The market needs to analyze the generation of higher returns for the investors. The portfolio manager continuously watches the beat the market, but the manager is unable to refute the strong market efficiency.

The responsibility of the pension fund manager is to generate higher returns through hedging the risk. The portfolio is defined as the combination of two or more securities which are more or less unrelated. The securities comprise of trust funds, pension funds, mutual funds and others. The pension manager has to manage the portfolio even the securities are efficiently prices with the particular level of risk for the individual client. It shows that the position of a portfolio does not satisfy the needs of an individual client. The risk is replicated by different types of funds for example: utility funds, index funds, and others. The clients are not satisfied with the picking of the portfolio with a pin. The consumer's desires are fulfilled by the optimal portfolio which is a combination of returns and risk. It is very difficult to change the optimum portfolio because of the unpredicted movement of securities in the capital market (Hu et al., 2014). The desirable outcomes and satisfaction to the investors can’t be achieved from unpredicted portfolios. The individual portfolio should be customized according to the needs and desire of an investor who helps to achieve the satisfaction to the clients. The trend and securities movement analysis are done through financial analysis which performs as an engine for analysis. It is not necessary that the efficient market hypothesis is always correct due to the movement in the prices. The majority of investors are not expertise in trading because of that the efficient market hypothesis is not always correct, and thus, the fund managers need to watch the stock market price movement continuously.  

Conclusion

The roles and responsibilities of chief financial officer impact on the objective of the company. The main responsibilities of the chief financial officer include treasury duties, economic strategy and forecasting and controllership duties. The controllership duties comprise of historical report presentation which helps in investment decisions taken by the top level management. The financial decision includes budgeting of capital, assets management, liquidity management and others which are influenced by the report presentation by CFO. The treasury duties comprise of the responsibility of financial condition of an organization by the allocation of resources, risk management, liquidity management and others. The economic strategy and forecasting comprise of the development of strategy by financial projection and analysis. The forecasting helps in the investment decision of an organization which impacts on the sustainable profitability of an organization. The responsibilities of CFO impacts on the objectives of an organization, for example, the growth objective of an organization is impacted by the CFO responsibility of decision making. The EMH may be incorrect because the market price movement is unpredicted in the stock market because of this reason the portfolio manager needs to watch the market index constantly. The satisfaction level of an investor is not fulfilled with the portfolio with a pin. 

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References

  1. Business, O. (2016). Scottish Pacific Business Finance. Scottish Pacific. Retrieved 20 September 2016, from https://www.scottishpacific.com/about-us/our-business

  2. Bedard, J. C., Hoitash, R., & Hoitash, U. (2014). Chief financial officers as inside directors. Contemporary Accounting Research, 31(3), 787-817.

  3. Bishop, C., DeZoort, F. T., & Hermanson, D. R. (2016). The Effect of CEO Social Influence Pressure and CFO Accounting Experience on CFO Financial Reporting Decisions. Auditing: A Journal of Practice and Theory.

  4. Engel, E., Gao, F., & Wang, X. (2014). Chief Financial Officer Succession and Corporate Financial Practices. Fisher College of Business Working Paper No. RP, 02-005.

  5. Cohen, J. R., Krishnamoorthy, G., & Wright, A. (2014). Enterprise risk management and the financial reporting process: the experiences of audit committee members, CFOs, and external auditors. CFOs, and External Auditors (May 30, 2014).

  6. Yalcin, K. C. (2016). Market rationality: Efficient market hypothesis versus market anomalies. European Journal of Economic and Political Studies, 3(2), 23-38.

  7. Hu, M. (2014). The efficient market hypothesis and corporate event waves: part II. Corporate finance review, 18(6), 20.

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