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Finance Policy - Assignment Example

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Finance Policy

A business’s financial position is evident from its profit and loss account and the balance sheet. The balance sheet and the profit and loss statement should communicate the appropriate results of the firm to the CEO so that he can make decisions regarding investment. The financial statements of the firm should be made available to all so that they can make their own conclusions from the financial statements with respect to the operations in the firm. It is very important that the financial information provided must be reliable and authentic. The primary objective of my role as CFO is to interpret the firm’s accounts accurately and identify which of the investment methods could benefit the firm in the long as well as the short run. This could be achieved by making appropriate review of the financial statements as well as developing accurate interpretations. This is supposed to benefit the firm and its stakeholders. b) The company can use concise financial report, which consists of Consolidated Income Statement, Statement of Comprehensive Income, Balance Sheet, and Statement of Changes in Equity, Statement of Cash Flows so that all the third party investors and stakeholders could evaluate the firm’s business. ...
The taxation requirements of the government should be met with appropriate heads showing profits before tax and profits after tax. Similarly the employees can get an idea about the functioning of the firm by analyzing the financial statements. The creditors and debtors value in the balance sheet along with the bad debts gives a clear understanding about the total debtors and creditors of the firm. The shareholders can understand the way the firm is functioning through the payment of dividends and the return on equity, which is projected in the financial statements. Question 2 a) High dividend policy to the shareholders signifies that the firm is earning high profits and, thus, is paying high dividend to its shareholders. This creates anticipation among the shareholders that the firm will pay them a higher amount of dividend in the next financial year. High dividend also signifies that the portion of debt capital in the firm in comparison to its equity capital is less, which implies that the firm has its own financial stability. b) If there are negative profits in the firm then the firm will pay a lesser amount of dividend. If the firm chooses to retain a high portion of its earnings for investment activities, even then the dividend payment will be less. c) High dividend payouts are popular and well appreciated by all the shareholders. But the problem that arises here is that if the firm earns high profits and provides high dividend to its investors in one year and in the next financial year its profit is less comparatively and so it fails to pay high dividends, then the shareholders will be unhappy with the firm. This will affect the bond and relation they have with the firm. As the shareholders are the primary investors in the ...Show more

Summary

Question 1 a) Financial accounting is very important in the management of business as financial management has a large number of functions. My role of being a CFO is very important as to classify the data appropriately in ledgers. It is not just mere recording of entries but it is also a way to interpret financial information and this should be adequately communicated to the CEO…
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Finance Policy essay example
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