ACCA AFM Syllabus A. Role Of The Senior Financial Adviser - Key areas of responsibility for the financial manager - Notes ^{2 / 2}

They can include:

1. investment selection and capital resource allocation

2. raising finance and minimising the cost of capital

3. distribution and retentions

4. communication with stakeholders

5. financial planning and control

6. risk management

7. efficient and effective use of resources.

Let's look at these in a bit more detail, hot pants, below..

1) Investment selection and capital resource allocation

Profit maximising may not be the only goal for a company, its stakeholders may want other things..

Therefore, other considerations are as follows:

• Ethical considerations when deciding on what to invest in

• What method of investment appraisal should be used? 

  NPV?
  IRR?

• What our stakeholders will think of the investments effects on:

   –ROCE
  – EPS

2) Raising finance and minimising the cost of capital

All investments needs financing

Where should we get this financing from?

The following issues thus need to be considered:

• Are the current gearing levels minimising the cost of capital for the company?

• What gearing level is required?

• What sources of finance are available?

• Tax implications

• The risk appetite of investors and management

• Restrictions such as debt covenants

• Implications for key ratios

3) Distribution and retention policy

Retained earnings is a great source of finance.. so should we give dividends away?

It depends on...

• Will our investments (funded by retained earnings) increase the share price and thus shareholder wealth?

• Will paying high dividends mean we need alternative finance for capital expenditure or working capital requirements?

  Will paying low dividends fail to give shareholders their required income levels

• What are the investor preferences for cash dividends now or capital gains in future from enhanced share value?

4) Communication with stakeholders

We need to keep stakeholders informed..

• Shareholders will need information about:

  – dividends
  – gearing levels
  – risk

  Suppliers and customers will need information about:

  – credit policies
  – pricing policies.

• Internal stakeholders

  Mission statements and current goals and strategies is important for employees at all levels

5) Financial planning and control

The senior financial executive will need to develop policies on:

• Planning processes

• Business plans

• Budgets

• Evaluating performance

6) The management of risk

Risk management is key and so the following needs understanding:

• Risk appetite

• How are risks identified, Analysed, Planned for and Monitored?

7) Use of resources

It will be important to develop a framework to ensure all resources (inventory, labour and non­current assets as well as cash) are used to provide value for money. 

Spending must be:

• economic

• efficient

• effective

• transparent.