The Firms Chief Financial Officer Role, Importance of Ethics in Business - Assignment Example

CORPORATE FINANCIAL ASSIGNMENT: QUESTION AND ANSWERS By Student’s Name Code + Course Name Professor’s Name University Cite, State Date Question 1 For this question, I have embarked on analyzing the general areas of the chief financial officer of the company; Soil-Sub Technologies Limited. The company operates under the ASX code of SOI within the food, beverage and tobacco industry. The following are the three general areas of responsibilities for the company’s chief financial officer as well as the manner for which they can help affect the entire objectives of the company either positively or negatively for that matter; First, the chief financial officer of the company is expected to execute the role attributed to business leadership. This requires the chief financial officer being involved in the formulation of policies, programs and end-outcome strategies. This is to be conducted through the stipulation of strategic and operational performance as well as report analysis. It should be understood that the CFO’s fundamental role should be perceived as being related to intra-firm financial control mechanism for purposes of helping the firm’s manager consider the underlying resource implications of newer policies and thereby create effective and efficient financial methodology in regards to services (Auditor General Victoria 2004, pp.4). Second, the firm’s chief financial officer role extends to business management capabilities. It calls them to avail an intensive level of service to company’s middle level manager by way of providing an intrinsic analytical approach that consists the evaluation of internal-based financial data as well as budgets to avail significant advice and assistance on matters regarding newer policy proposals. They are also engaged in the process of benchmarking the firm’s program performance in comparison to the global fairer practices. For this regards, decision-makers are well-set to access any form of information available from the CFO’s office at any given time and form (Auditor General Victoria 2004, pp 4-5). Third, the firm’s chief financial officer goes beyond the conventional one that ensures that the financial policies and frameworks have been complied with as well as ensuring there is an embodied level of information quality and timeliness while the process of reporting is greatly assured for that matter. Notwithstanding, the company’s chief financial officer role extends to the generation and support of a distinctive performance management system that connects both quantitative and qualitative fundamental performance indicators to the underlying strategies and significant end-results of the company as a whole(Auditor General Victoria 2004, pp.5). As it can be seen from the above discussion, the underlying fundamental role of the chief financial officer is perceived as being that of exercising executive responsibilities for both strategic-based and operational initiatives in respect to the process of financial planning as well as the management of the company. Imperative to the aforementioned responsibility is the enhancement of strategic planning at the distinctive corporate level. This means that the ultimate goal of the company can be affected in either a positive or negative manner depending with the way for which strategic and operational aspects of the company are handled by the immediate chief financial officer. For instance, CFO’s fundamental responsibility rests with stipulation of crucial strategic plans through ensuring the facilitation of future strategic directions. This can only be achieved in the event that he improves management comprehension of current financial aspects facing the organization. Thus, in the case that the responsibility is overlooked, the company’s ultimate goal of attaining financial prowess and survival into the future will be almost innate and unrealizable for that matter. Following this line of reasoning, the chief financial officer should ensure that he avails intrinsic level of focus on the process of measuring and controlling business risks through participation of extensive financial risk management-ser guidelines. Question 2: Importance of Ethics in Business It is important to mention that ethical concerns a person’s immediate level of moral of judgment about right and wrong. All of the decision based processed executed within a company can either be individual or group based but they are all focused on the immediate culture of a company. This means that the ethical decisions assumed should be morally right given that employees embark on pursuing a right course of action in order to avoid the possibility of adopting a route that can led to short-term benefits to a company. The underlying ethical practices can be of benefit to the operations of any given company in several ways that might include; first, they can help in attracting a customer to the products that are being offered by the firm hence translating to increased level of sales and profits for that matter. Second, it helps to make employees to extend their stay within a business thus reducing the rather higher level of labor turnover being witnessed within the labor market thereby paving way for increased level of productivity. For instance, the company Cadbury Schweppes is perceived to be treating fairly all of its stakeholders including its immediate employee-base. This, in turn, has resulted to the firm’s tremendous success in operations. Its commitment to ensuring that employees comprehend the firm’s corporate values is attained by its statement reflected within the “Our Business Principles” section that clarifies the ethical behavior expected from the employees in their respective relations with the company’s activities (Ethical Business Practices 2013, pp.1). Third, ethics in a business helps to attract a substantial number of employees wanting to provide labor services for the company. This has the effect of eliminating costs attributed to recruitment processes and thereby assists the company in accessing the most talented employees. For instance, Apple Inc’s mode of conducting business has enabled it to enjoy a substantial number of potential recruits who wants to be associated with the operations of the company (Ethical Business Practices 2013, pp.1). Fourth, the importance of a business adhering to positive ethics is a significant catalyst to attracting potential investors and thus, keeps the firm’s share price higher. This has the effect of protecting the company from possible takeovers. A good example of a company that practices good ethical initiatives is Cadbury Schweppes that was once voted as the “most admired company for community and environmental responsibility” by the Management Today in the year of 2003 (Ethical Business Practices 2013, pp.1). Question 3 (b) Yes, in my opinion I think that the company should go ahead and open the mines. This is because the internal rate of return of 21% as exhibited by the calculations within the excel sheet is far much above the 9% cost of capital value. This means that the company will enjoy immense levels of benefits from the investment. Significantly, the profitability index and NPV value of the investment are both positive, which is an indication of positive flows of benefits within the stipulated timeframe of the investment as a whole. Above all this, the payback period of the company is placed below a 4 year timeframe. This means that it will take a minimum amount of time for the investment to break-even before it can start to provide immense levels of economic benefits to the company. Question 4(a) FV= PV*{FV factor for n=10years, i=12%} FV factor = (1+0.12)10 = 3.11 FV= 3,000*3.11= $ 9,330 Question 4 (b) If interest rate drops to 7.5% FV= PV*(FV factor of n=10, i=7.5) FV factor= (1+0.075)10 = 2.06 FV=3000*2.06= $ 6,180 I am willing to pay a price of about $2,300 for the bonds. This is because of the fact that the interest rates and the price for bonds share a direct level of relationship so that when the interest rates fall, then there is a subsequent fall in their respective prices. Question 4(c) In the event that the both the coupon rate and the required rates are set at a value of 9% per annum, the market price of these bonds will change significantly since the expected rate of returns will be minimized given that it will now take more years for the bonds to reflect growth in regards to initial investment done. Question 4(d) FV ordinary annuity= C*{(1+i) n-1/i} = 210* {1+0.12)5-1/0.12} = 210* {(1.12)5- 1/0.12} = 210 * (0.762/0.12) = 210* 6.35= $ 1,333.5 Question 4(e) In the event that the interest rate in the market increase by 5%, the price of the bonds will increase significantly while a drop of the interest rate by 5% means that there would be resultant decrease in the price value of the bonds within the market. This is ascertained by the fact that the two aspects share a direct relationship for which an increase in one item results to an increase in the other while a decrease results to also in the other function. Question 4(f) Face value (SP) = $3,000 Par value= 90% 3,000= $2,700 Coupon rate= 8% N=6 years Thus, coupon payment= 8%*2,700= 216 Therefore, YTM; 216(1+r)-1+216(1+r)-2+216(1+r)-3+216(1+r)-4+216(1+r)-5+216(1+r)-6=3000 Using a calculator (http://www.moneychimp.com/calculator/popup/calculator.htm?mode=calc_bondytm); Yield-to-Maturity (YTM) r=5.758 Question 4(f) Bond rating is the grade attributed to bonds that postulates their respective credibility quality (Investopedia N.d, p.1). This grade is used to stipulate whether or not a bond’s issuer possess substantial strength in regards to paying a bond’s both principal and interest amounts in a timely manner. Such private independent rating services as Standard &Poor’s use letters to express the ratings where “AAA” is used to postulate a bond’s highest degree of financial strength while letter “C” is a grade given to junk bonds for that matter. According to S&P, Australia bonds are graded with triple-A (AAA) rating. The rating is attributed to the country’s stabilized public policies, economic resilience despite the recent global economic meltdown as well as a result of flexible fiscal and monetary policies (Hutchens 2013, p.1). On the other hand, according to Standard & Poor’s Spain’s credit rating stands at BBB-. This is attributed by the current higher public debts of the country as well as poor fiscal and monetary policies (Trading Economics N.d, p.1). As a government bond investor, I expect the Australian bond to depict a higher yield while the Spain bond will depict a lower yield value. This is because of the differences in the financial stability for both of the countries in regards to whether or not they can pay for bonds principal and interest amounts in a timely manner. References List Auditor General Victoria. 2004. Chief finance officer: Role and responsibilities, The Good Practice Guide. Retrieved on May 13, 2014 from http://www.audit.vic.gov.au/publications/2004/20040201-Chief-Finance-Officer-Role-and-responsibilities.pdf Ethical Business Practices. 2013. A Cadbury Schweppes case study: The importance of ethics in business. Retrieved on May 13, 2014 from http://businesscasestudies.co.uk/cadbury-schweppes/ethical-business-practices/the-importance-of-ethics-in-business.html#axzz31ZdvgZfa Hutchens, G. 2013. S&P affirms Australia’s AAA credit rating. The Sydney Morning Herald. Retrieved on May 13, 2014 from http://www.smh.com.au/business/sp-affirms-australias-aaa-credit-rating-20130718-2q5yr.html Investopedia. N.d. Bond rating; Definition. Retrieved on May 13, 2014 from http://www.investopedia.com/terms/b/bondrating.asp Shauna, C. 2013. Calculating the present and future value of annuities. Investopedia. Retrieved on May 13, 2014 from http://www.investopedia.com/articles/03/101503.asp Trading Economics. N.d. Spain credit rating. Retrieved on May 13, 2014 from http://www.tradingeconomics.com/spain/rating Read More