Financial managers have to make several decisions in their objective to maximize the value of the firm. These decisions can be divided into three categories, as they have to address various aspects of an organization. The first type of decision is the investment decision, which is focused on how the funds of the firm are invested in multiple assets. They are focused on enhancing the liquidity of the firm. Financial decisions make up the second category and are concerned with the level of finance to be raised from several long-term sources. They structure the capital structure of a firm, hence, affecting its value. The last category is the dividend decision, which involves assessing the level of the profit earned by that should be distributed to shareholders and retained. It is mainly focused on maximizing the wealth of shareholders.
In making these decisions, they face several challenges, chief among which is accuracy. Financial managers have to ensure that all financial applications are an accurate reflection of the firm's financial conditions. To handle this, financial managers can use the generally accepted accounting principles as a guide in conjunction with internal audits to assess accuracy. Another ethical challenge is facilitating transparency during the full disclosure of material information that is expected (Chen et al. 2019). This can be done through a financial policy that guides the creation of financial information.
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The federal government has structured several safeguards to guide financial managers. One of this is the Chief Financial Officers Act of 1990 (CFO Act) (Chen et al. 2019). It provides a base for the redesign of financial management by the federal government. It is beneficial to firms as it provides a leadership structure that can be followed. On the other hand, the Government Management Reform Act of 1994 (GMRA) was structured to increase the magnitude of agencies that are ruled by the CFO act (Chen et al. 2019). It is appropriate due to its allowance of the CFO to present financial information from prior years to the director of the OMB. These acts are considered safeguards as they are firm guidelines on the actions allowed for financial managers.
Going public refers to the step by a company to open its shares to the public. For this, a firm has to file registration statements with the SEC. This presents several advantages, such as increased access to capital and liquidity. However, going public results in the loss of control by the managers of the company.
In the US, the most considerable stock markets are the New York Stock Exchange (NYSE) and the National Association of Security Dealers and Automated Quotations (NASDAQ). The existing distinction between them is that NASDAQ occurs through electronic means while the NYSE exists on the base of exchange by individuals. Hence, NASDAQ acts as the smartest investment option due to is greater size (Dang, Michayluk & Pham, 2018).
Different investment products exist for a financial manager to choose from. Some of these include bonds, stocks, and mutual funds. Stocks are a representation of owning equity in a public firm. Hence they are only sold by public companies while bonds are products presented by a government of corporation as a means of capital. Mutual funds exist when an organization collects capital from several investors and then directs this capital towards different securities.
References
Chen, X., Higgins, E., Xia, H., & Zou, H. (2019). Do Financial Regulations Shape the Functioning of Financial Institutions’ Risk Management in Asset-Backed Securities Investment?. The Review of Financial Studies .
Dang, V. A., Michayluk, D., & Pham, T. P. (2018). The curious case of changes in trading dynamics: When firms switch from NYSE to NASDAQ. Journal of Financial Markets , 41 , 17-35.
