Financial management is important for every business organisation so that effective use of financial resources can be done. This report helps in understanding the main purpose of financial management and the implications which are assessed by shareholders when three important decisions are taken in the stated process. Furthermore, the need of government in assisting business and its interaction has been depicted in this report.
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1. Purpose of financial management and implications of three main decisions
Financial management is the administration of monetary funds or benefits in an efficient way so that main objectives of the company are achieved effectively. Tesco being an internationally recognised brand in retail sector can maintain its strategic position by adapting to effective finance management approaches. Resources, assets and liabilities are identified in this process and then decisions are made whether they are beneficial for the company or not (Brigham and Ehrhardt, 2013). There are some basic mechanisms which are considered as the integral part of financial management. These include planning, procuring and controlling the resources or monetary funds of the company. Tesco has to perform all these operations for effectively using all its resources and monetary funds.
In cases when huge profits are acquired by Tesco and no financial management is performed; then there won't be any sort of control over company's actions. More resource utilisation and unplanned investments shall take place. This can land the organisation in various troubles and the financial power of company will be weakened. Hence, it is important to perform financial planning or management. There are three main decisions which are taken in this particular process. These are mentioned below:
- The investment decision: In order to meet the financial objectives developed by the leader, Tesco's finance manager has to take accurate investment decisions. These are segregated into two elements that is investment appraisals and decisions regarding correct choice of potentially beneficial projects. The management of working capital and potential risks in terms of debts and excess inventory are considered in this decision (Petty and et. al., 2015).
- The financing decision: The decisions regarding selection of correct source of finance after identification of appropriate sources according to needs and requirements of company are financing decisions. Investments can only be made when there is proper assessment of the available finances.
- The dividend decision: Considering the investments made by Tesco in Canada to be profitable, there must be some funds or cash generated in terms of profits. The dividend decision is concerned about further investments i.e. whether the acquired cash has to be provided to owners or kept for more investments.
The shareholders are individuals that hold certain amount of shares in the organisation. Their perspective towards these three decisions is quite different as compared to those of financial managers (Attig and et. al., 2015). They will assess the investment decisions to be more risk oriented because running capital is involved. On the other hand, the financing decisions are considered as essential requirements before making an investment. Furthermore, shareholders are keen to focus more on dividend decisions because it has been evaluated that business investments which have been made in Canada are beneficial for the company.
2. Need for government assistance
Government of the country is an integral part of the business environment and affects various business decisions consequently. Canada is a country that holds a lot of potential in terms of growth and development. The role of ruling government in promoting and assisting business is discussed as follows:
- Controller: There are various policies and laws which have been devised by the government so that businesses can function without any hindrance or roadblock. The use of these policies and reforms helps in reducing unethical practises which are often addressed by volatile markets especially in those where competition is less. Hence, this kind of guidance from government is necessary in establishing strong roots in the operational markets.
- Incentives:Tesco's new operations in Canada can be aided with incentives which are introduced by government for encouraging business activities. The evaluation of benefits associated with products and services is performed for understanding the implications, a company can bring in with their operations (Armstrong, Guay and Weber, 2015). The nature of provisions which have been designed by the government vary according to the level of development or establishment.
- Customer and Market research: While operating in any market, it is essential to develop an insight regarding the customers and their preferences. Government agencies like Statistics Canada provide some valuable sources of information which helps Tesco to perform the market research.
There are certain more interactions of businesses with the government at various stages like business planning and decision making. When formulating strategies regarding business development, the alignment of activities with government policies and frameworks is necessary. The state government which is present in every province and city is also supportive in offering businesses consultancy services so that their strategies are aided with authentic and relevant facts. The exploitation that occurs due to misguidance of private agents and fake investors can be avoided through this government aid (Government Assistance in Business.2017). Decisions regarding financial management and probable investments can be taken with more effectiveness and strategically if government support and advise is taken. It can be acquired through different agencies and national reports. Furthermore, Tesco can get assistance while devising the business expansion plans and strategies so that development of organisation brings in economic growth for the country. Canadian Intellectual Property Office and the U.S Patent and Trademark Office are some of the centres were expert guidance on protection of intellectual property can be acquired. This helps stimulating the protection of growth measures of the organisation.
This report has enhanced knowledge level by creating an understanding that government is essential in utilising the most out of businesses and resources. Moreover, financial planning and management are two principle processes which need to be incorporated in the current strategies of Tesco for aiding growth and development. It also serves the purpose of using monetary funds for the benefits of company.
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Books and Journals
- Armstrong, C., Guay, W. R. and Weber, J., 2015. The role of information and financial reporting in corporate governance: A review of the evidence and the implications for banking firms and the financial services industry.
- Attig, N. and et. al., 2015. The global financial crisis, family control, and dividend policy.Financial Management.
- Brigham, E. F. and Ehrhardt, M. C., 2013.Financial management: Theory & practice. Cengage Learning.
- Petty, J. W. and et. al., 2015.Financial management: Principles and applications. Pearson Higher Education AU.