Principles of Financial Investment - Essay Example

Comments (1) Cite this document
Summary
Principles of Financial Investment Introduction In corporate sector a relationship of agency exists. Shareholders contributing to the capital of the company are mostly large in numbers, particularly when the structure is that of public company. They are the owners and it is difficult for them mange the day to day affairs of the company…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER97.3% of users find it useful
Principles of Financial Investment
Read TextPreview

Extract of sample "Principles of Financial Investment"

Download file to see previous pages The effects of these agency problems create agency costs that work against the benefit of all stakeholders as well as for the company. This write up identifies those agency problems, its agency costs, and enumerate the ways to mitigate the agency costs in order to provide maximization of wealth of stakeholders as well as for the benefit of management and the company itself. Definition of agency problem The nature of conduct of business in respect of proprietorships, partnerships, and cooperative societies is that those are owner- managed organizations. But in case of companies the share holders, who are the owners of the companies, are not involved in the management of the affairs of the company. The management of the company is conducted by board of directors. Directors may or may not be professionally trained but they have little or no stake in the ownership of the firm. It is true that there are certain compelling reasons for separation of ownership and management, but a separate structure leading to conduct of management through the agency of board of directors leads to conflict of interest between managers (agents) and the shareholders, who are owners of the company. Therefore the agency problems emerge from this separation of ownership and control. ...
“This pattern of widely held corporate ownership resulted in what came to be known as separation of ownership from control. More recently, the economists have called this as an agency problem or principal- agent problem. The managers of the company are entrusted with the responsibility to make company as profitable and valuable as possible for the benefit of owners. However, the owners (principles) may have difficulty in ensuring that the managers (agents) actually carry out this responsibility.” (Robert Edward Anderson, page 49)i Ownership is concerned with maximization of wealth of shareholders. Therefore owners are always ready to critically assess the actions of the management (agents) so that their slackness anywhere is pointed out so deficiencies are rectified in effort to enhance the wealth. Accordingly enhancement of wealth is possible by making an assessment or sort of observance of the actions of the management. The key factors that are judged in management’s performance are the composition and independence of board members, transparency of their actions, their outside reporting, observance of accounting standards, and adherence of strategic objective of enhancement of shareholders wealth. This monitoring or observance lead to difference of opinion with reference to strategic objectives of the corporation and give rise to agency problems in the corporate sector of management. Basically agency problems have two aspects. First aspect is the situation where it is not possible for the principal to verify the appropriateness of the actions of the agent. This generally is the case when goals or objective differ and create difficulties to verify what agent is doing. The second aspect of the agency problem is ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Principles of Financial Investment Essay Example | Topics and Well Written Essays - 2500 words”, n.d.)
Retrieved de https://studentshare.org/finance-accounting/1390559-principles-of-financial-investment
(Principles of Financial Investment Essay Example | Topics and Well Written Essays - 2500 Words)
https://studentshare.org/finance-accounting/1390559-principles-of-financial-investment.
“Principles of Financial Investment Essay Example | Topics and Well Written Essays - 2500 Words”, n.d. https://studentshare.org/finance-accounting/1390559-principles-of-financial-investment.
  • Cited: 0 times
Comments (1)
Click to create a comment or rate a document
sk
skilesdrew added comment 9 months ago
Student rated this paper as
At first, I thought 10 of pages is too much for such a topic. But now I see it could not be done smarter. As the author starts you see the difficulty of the issue. I’ve read all at once. Perfect example

CHECK THESE SAMPLES OF Principles of Financial Investment

Financial and Investment Opportunity

...? Financial and Investment Opportunity Affiliation Task A report assessment of individuals’ attitude towards risks, investment opportunities and suitable plan to match products and client’s needs Introduction Although many investors are familiar with the risk-reward concept, which equate high risk of a given investment to high return, many do not usually understand how to establish the height of risk their portfolios should endure. When assessing investment suitability, most advisers and investment managers take into consideration customer’s attitude to risk, but they fail to account appropriately for their capacity for loss. Therefore,...
11 Pages(2750 words)Essay

Financial Investment Analysis

...it is naive diversification where equally weighted portfolio of many securities is employed (Elton et al 2007). Inherently, if risks are only firm’s specific means, diversification still reduces the risk to reasonable low levels (Baker 2006).This means that when it comes to a situation where the sources of risks are autonomous and there is spreading of investment into numerous securities, there is negligibility of exposure to specific font of risk. This is what is sometimes referred to the insurance principle (Jagannathan and Wang 2006). Regardless of this however, the tragedy is that in a situation where common risk foundations have impact on all companies, even widespread diversifying fails to...
5 Pages(1250 words)Essay

Financial Investment

...? Financial Investment Introduction The investment style of an individual varies from another depending on various opportunities and investment constraints. Individuals generally invest a certain portion of the surplus left after all necessary expenditures are carried out. Some clients invest a part of their savings in different avenues such as banks, capital market instruments, money market instruments, mutual funds, derivatives etc. The most common objective however is to maximize their return on investment. As the financial manager researching investments for clients it is important...
12 Pages(3000 words)Research Paper

Financial Investment

...?Overview Although time value of money is not something that we normally think about, it is a concept that is used in our everyday lives, from banking and business, to investing and saving. The concept of interest lies at the root of the time value of money. Interest is the idea that one dollar invested today at the present time is worth more than the same amount in the future due to its potential earning ability (Investopedia). The financial decision making process whether it is from the perspective of the investor or a firm, is primarily concerned with determining how monetary value of capital will be affected by the expected returns (payoff) associated with the different...
5 Pages(1250 words)Research Paper

Financial Accounting principles

...of assets possessed by the business. 6. The nature and value of liabilities. 7. Customer who owe to the business and the amount in each case 8. Suppliers to whom the business has to make payments. 9. Other facts for filling various returns for external use, e.g. income tax, sales tax, duty, etc. We have to keep all these factors in mind and prepare the accounts based on the accounts standards and principle. Definition of Accounting Accounting is defined as the 'the art of recording, classifying and summarizing in terms of money transactions and events of a financial character and interpreting the results thereof .' The American Accounting Association Committee defined accounting as...
7 Pages(1750 words)Essay

Standard financial investment information

...Agree or disagree: Standard financial investment information and criteria are all that is needed to effectively evaluate IT outsourcing decisions Introduction Outsourcing can be defined as, "subcontracting a process, such as product design or manufacturing, to a third-party company. Outsourcing became part of the business lexicon during the 1980s. The decision to outsource is often made in the interest of lowering firm costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of labor, capital, technology and resources" (Wikipedia, 2008). The purpose of this paper is to agree or disagree with the concept that standard...
3 Pages(750 words)Essay

Investment and Financial Planning

...Investment and Financial Planning Welcome to the program. This is a module of approximately two and a half hours on investment and financial planning. As we learn, we will be focusing on the Tom and Linda Our Program Styles of investing An introduction to portfolio management Financial Planning Tools and Techniques-Retirement Planning Financial Planning Tools and Techniques-College Funding These are the topics we will cover in this module. Styles of Investing In this first section, we will cover several popular styles of investing. These are really just different ways of evaluating...
4 Pages(1000 words)Essay

Financial Management Principles

...Spreadsheet for Ratio Calculation Power Point Presentation RATIO ANALYSIS Following is the brief financial analysis of Strident Marks Inc. based upon the ratios calculated for the financial year ended 2005. Profitability Gross Profit Margin The gross profit margin of Strident Marks Inc. is 50%, which reveals that the company has managed to keep about 50% of its total sales revenue out of all the production and distribution expenses. This can also be inversely stated that the company loses about 50% of the total sales revenue in meeting its cost of sales. Operating Profit Margin The operating profit margin for the company indicates that after having met cost of good sold and various operating expenses,...
4 Pages(1000 words)Essay

Report -- financial investment

...Financial INVESTMENT IN PEPSI OR COCA COLA] The comparison of Pepsi Cola Inc and Coca Cola Company is given and the investment option is analyzed. Table of Contents Introduction 2 Financial statement comparison 2 Liquidity Ratio 3 Profitability 4 Cash flow and Investment Ratio 4 Directors Comments 5 Investors Perspective 5 References 7 Financial Investment An analysis with regards to the investment perspective of the two consumer based companies, i.e. Pepsi and Coca Cola is given where their balance sheet and the profit and loss statements are analyzed with regards to liquidity, profitability, etc and the...
4 Pages(1000 words)Essay

Gobal Financial Investment

...Global Financial Investment - Case study & Alternative UAL, Inc. which is the parent company of United Airlines has a decision to make regarding raising funds for its acquisition of Hertz. The company has clearly two options for funding this new acquisition that are either funding the acquisition through its own equity or borrowing funds from external sources. In this report, two different possibilities of raising funds from external borrowing are considered and they are evaluated in terms of their future value of interest payments to be made under the agreement and settlement of the principal amount. The first option available to the company is to borrow the required investment amount...
4 Pages(1000 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Principles of Financial Investment for FREE!

Contact Us