Multinational Financial Management Example

Multinational Financial Management Example Multinational Financial Management â€" Essay Example > Multinational Financial ManagementEvery organization, irrespective of its size and mission, may be viewed as a financial entity. Management of an organization, particularly a business firm, is confronted with issues and decisions like the following, which have important financial implications: What kind of plant and machinery should the firm or a company buy? How should it raise finance? How much should company invest in inventories? What should be its credit policy depending on the nature of the organization? How should company gauge and monitor its financial performance? For example, let assume company XYZ, which is poised to be a multi-billion dollar multinational organization, is in desperate search of long-term funds. As a group treasurer of an organization, it is very important to understand the different financial instrument. It will involve analysis of financial condition and performance. Balance sheet and Profit Loss account can go a long way in giving an overview on thi s regard. Secondly, as a treasurer it is important to use financial instrument like profit planning and financial forecasting, then only you can exercise financial control in proper utilization of long-term funds. On the other hand, if company XYZ has only $10,000 as an asset or in other word require short-term funds then as a treasurer of an organization your job will include analyzing financial instruments like management of current assets (cash, marketable securities, receivables and inventories). In addition, one can also use capital budgeting techniques like identification, selection and implementation of capital projects. Being a company with short-term funds, XYZ can also look out for mergers, reorganizations and divestments. Finally, if XYZ is in need of medium term funds, treasurer has to identify sources of finance and determination of financing mix because to make billion dollar XYZ company, multi-billion dollar treasurer has to cultivate sources of funds and have to rai se funds. In addition, it’s his responsibility to dispose of profits between dividends and retained earnings. Financial management is broadly concerned with the acquisition and use of funds by a business firm. Its scope may be defined in terms of the following questions (1): How big should the firm be and how fast should it grow? What should be the composition of the firm’s assets? What should be the mix of the firm’s financing? How should the firm analyze, plan and most importantly control its financial affairs? Maximization of profit is not as inclusive a goal as maximization of shareholder wealth. Generally, it suffers from several limitations: Profit in absolute terms is not a proper guide to decision making. It should be expressed on a per share basis or related to investment. It leaves considerations of timing and duration undefined. There is no guide for comparing profit now with profit in future or for comparing profit streams of different durations. It glosses over the factor of risk. It cannot, for example, discriminate between an investment project, which generates a certain profit of $2000 and an investment project, which has a variable profit outcome with an expected value of $2000.