- A. Chief Financial Officer Roles and its Impacts
- Three responsibilities of CFO
- Following are the three major responsibilities of chief financial officer:
- Impact of responsibilities on the Company’s objective
- B. Pension Fund Manager and EMH
- Efficient market hypothesis
Question: Financial management
In this present paper, we will discuss the roles and responsibilities of the chief financial officer and the impact of their responsibilities on the objective of the company. The company is AMP limited which is a non-financial company in Australia since 1849. The company provides financial services with superannuation and investment products, financial advice, insurance, loans such as home loans and others. The paper also describes the case in which is the efficient market is true, the pension still not select a portfolio with a pin.
A. Chief Financial Officer Roles and its Impacts
The AMP Limited is a non-financial Australian stock exchange-listed public company. The company has the largest stockholders register. The Chief financial officer plays a vital role in the non-financial company. The company is having four main areas of business, namely, advice and banking, insurance and superannuation, customer solution and AMP capital (AMP et al., 2016). The CFO's roles and responsibilities are continuous which include stretched and scrutinized for maintaining the high-level view of an organization, balancing short-term activities such as liquidity management, business integrity, strategic leadership, managing innovations and others.
Three responsibilities of CFO
Following are the principles of CFO:
Create value: The value creation is done through developing a sustainable strategy that helps to create value in the organization.
Enable value: The CFO enables the value in the organization through supporting the top-level management and government bodies in decision making and strategy formulation which is directed towards the goals and objectives of the company.
Preserve value: The value is preserved through managing the risk, asset and liability management which helps to achieve the goals and objectives of the organization. The internal control system is implemented and monitor for the effective system.
Report value: The business reporting should be used for an internal and external system which helps to ensure relevant and useful reporting in the organization.
Following are the three major responsibilities of chief financial officer:
Controllership duties: The Chief finance officer is responsible for presenting and reporting accurate historical financial information timely which helps to make a decision and developing strategies of the company. The investment decisions are based on the information presented by CFO so it should be accurate because the crucial decisions are based on the reports presented by CFO (McKinney et al., 2015). It is one of the main responsibilities of CFO to present the reporting which is used by the stakeholders for taking financial decisions.
Treasury duties: The CFO is responsible for the financial condition of the company which is based on strategy formulation and decision making by CFO. The CFO is responsible for the liquidity, risk management, capital structure, debt-equity ratio, and other financial aspects that directly impact the profitability of the company. The CFO acts as a backbone of the company because the financial conditions directly impact the profitability, growth, mission, and vision of the company. It is a very important responsibility of the company because it directly impacts on the wealth of the shareholders.
Economic strategy and forecasting: The responsibility of the CFO includes developing an economic strategy that directly impacts on the future financial position of the company. The future financial decision is based on the financial decisions taken by CFO such as investment of capital, forecasting of business areas to increase the efficiency of resources which directly impacts the profitability of the company. The forecasting includes analysis of business resources which help to increase the efficiency and financial position of the company.
Impact of responsibilities on the Company’s objective
The Chief financial officer’s major responsibilities include controllership duties, treasury duties, and economic strategy and forecasting which directly impacts the company’s objective. The objective of the company includes achievement of mission and vision, a growth of the company, a sustainable financial position, maximize the wealth of shareholders, maximum utilization of resources, create a unique brand image in the eyes of the consumers.
Following are the impacts of CFO’s responsibilities on the company’s objective:
Growth of the company: The growth of the company is one of the objectives of the company. The formulation of strategy and the financial decision taken by the Chief financial officer, directly impact the growth of the company. The growth depends on various factors such as the financial projection of the company which is taken on the basis of the historical report presented by the chief financial officer. The financial forecasting of the company helps to take a financial decision by the chief financial officer who helps to increase the profitability of the company that enables the growth of the company.
Wealth of shareholders: The wealth of the shareholders depends on the profitability of the company which is derived from the implementation of strategy and decision making by the chief financial officer. The responsibilities of decision making such as investment decisions, capital budgeting, allocation of financial resources, and others which impact the objectives of the company (Paul et al., 2013). The wealth of shareholders is the main objective of the company which directly impacts the responsibilities of taking investment and capital budgeting decisions by the chief financial officer of the company.
Mission and vision: The mission and vision achievement is the direct objective of the company. The mission and vision create the path which is followed to achieve the success of the company. The mission and vision are impacted by the chief financial officer’s responsibility for economic strategy and forecasting. The economic strategy includes the strategy to increase the efficiency of business areas which helps to achieve the objective of the company.
Brand image: The brand building and creating goodwill is another objective of the company which is impacted by the chief financial officer’s responsibility of allocation of resources. The proper allocation of resources helps to achieve sustainable profit which enables the brand image in the eyes of the consumers.
Sustainable financial position: The sustainable financial position is enabled by getting sustainable profits which help to achieve the objective of the company. The sustainable financial position objective is impacted by the chief financial officer’s responsibility of treasury duties. The treasury duties include risk management, liquidity, capital structure, debt-equity ratio, and which directly impacts the financial position of the company which is another objective of the company.
Customer service: The objective of the company is to serve the best consumer service which is impacted by the chief financial officer’s responsibility of strategy formulation. The strategy formulation includes the strategy to provide consumer services which help to retain consumers (Songini et al., 2013).
Productivity: Productivity is impacted by the decision taken in purchasing the raw material and the strategy to increase productivity. The efficient productivity includes using of least-cost strategy which helps to increase the profit margin of the company.
B. Pension Fund Manager and EMH
Efficient market hypothesis
The efficient market hypothesis states that the price of assets reflects all the relevant information. The implication of the hypothesis states that it is impossible to beat the market consistently on the basis of risk-adjusted because the market price only shows the change in the risk of new information such as the change in discount. There are three types of variants, namely, weak, semi-strong and strong hypothesis. Following are three efficient market hypotheses:
Weak market efficiency: The weak form explains that all the past publicly information is reflected from the prices of traded assets. The price can’t be predicted by analyzing the current market price. The technical analysis does not help to analyze the trend of the price whereas the fundamental analysis helps to identify the trend and patterns of the returns (Boboc et al., 2013).
Semi-strong market efficiency: The semi-strong hypothesis explains that the price reflects the change in the new public information. It implies that the study of fundamental and technical analysis does not generate more returns.
Strong market efficiency: The strong hypothesis explains that the price reflects all the information even the inside information. The information includes public information, private information, laws of trading and others. The market needs to exist where the excess returns can be received to the investors. The portfolio managers constantly watch to beat the market, but they can’t refute the strong market efficiency (Barnes et al., 2016).
The role of a pension fund manager is to manage the portfolio of an investor to increase the returns by hedging the risk. The portfolio is a combination of two or more securities that are more or less related. The securities include mutual funds, trusts funds, and pension funds. Even the securities are efficiently priced the pension fund manager has to manage the portfolio with the specified level of risk for the particular client. It reflects that the position of the portfolio does not work according to the satisfaction of the client. The risk can be reflected by using the difference between the types of funds such as index funds, utility funds, and others. The picking of the portfolio with a pin does not give satisfaction to the consumers. The optimal portfolio provides a combination of risk and returns according to the consumer's desire. The optimum portfolio is very difficult to change because of the unpredicted movement of securities in the capital market. A random portfolio does not provide desirable outcomes and satisfaction to the investor. The portfolio should be made according to the needs and desires of an individual who helps to achieve satisfaction to the consumers. The financial analysis acts as an engine that helps to analyze the trend and movement in securities. The efficient market hypothesis must not be correct always because of the fluctuations in the prices. The majority of investors are not trained due to which the efficient market hypothesis may be incorrect due to which fund managers need to constantly watch the movement of stock market price (Jung et al., 2015).
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The chief finance officer plays an important role for the achieving the goals and objectives of the company. The major three responsibilities of chief finance officer include controllership duties, treasury duties, and economic strategy and forecasting. The controllership duties include the responsibility of presenting and reporting the financial information of the company which is used for taking the financial decision of the company such as capital budgeting, asset management, and others. The treasury duties include the responsibility of financial condition of the company through risk management, liquidity, allocation of resources and others. The economic strategy and forecasting include the formulation of strategy through estimating and financial analysis. The forecasting helps to take a financial decision which impacts on the long-term profit sustainability of the company. The responsibilities impact on the objectives of the company such as growth objective of the company is impacted by the decision-making the responsibility of chief financial officer. The efficient market hypothesis is not always correct because of unpredicted movement of market price in the stock market due to which portfolio manager needs to watch the market index. The portfolio with a pin is unable to satisfy the investor.
McKinney, J. B. (2015). Effective financial management in public and nonprofit agencies. ABC-CLIO.
Paul, M. (2013). Avoiding the costs of making the wrong senior-level hire: a bad hiring decision at the senior level can have far-reaching implications that could impact the direction, strategy and operations of the company causing profound pain to the company's bottom line. Financial Executive, 29(10), 60-64.
Personal Banking, Home Loans, Super & Insurance - AMP. (2016). Amp.com.au. Retrieved 1 September 2016, from https://www.amp.com.au/
Boboc, I. A., & Dinic?, M. C. (2013). An algorithm for testing the efficient market hypothesis. PloS one, 8(10), e78177.
Jung, J., & Dobbin, F. (2015). Agency Theory as Prophecy: How Boards, Analysts, and Fund Managers Perform Their Roles. Seattle UL Rev., 39, 291.
Barnes, P. (2016). Stock market efficiency, insider dealing and market abuse. CRC Press.
Songini, L., Gnan, L., & Malmi, T. (2013). The role and impact of accounting in family business. Journal of Family Business Strategy, 4(2), 71-83.