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Financial Management Goals in Non-Profits

The document discusses several topics related to financial management goals for non-profit organizations and aligning management and shareholder interests in companies. It proposes that appropriate goals for a non-profit financial manager would include timely financial reporting, planning goals to ensure sufficient funding, managing risks, and exerting internal controls. It also suggests that shareholders can align interests with management by setting reasonable compensation, allowing direct shareholder intervention, and the threat of takeovers if stock is undervalued. A large technology upgrade investment by a company is unlikely to immediately increase earnings but could lower stock values in the short term with the goal of reducing future costs and boosting intrinsic value over the long run.

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Sofia Yu
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64 views4 pages

Financial Management Goals in Non-Profits

The document discusses several topics related to financial management goals for non-profit organizations and aligning management and shareholder interests in companies. It proposes that appropriate goals for a non-profit financial manager would include timely financial reporting, planning goals to ensure sufficient funding, managing risks, and exerting internal controls. It also suggests that shareholders can align interests with management by setting reasonable compensation, allowing direct shareholder intervention, and the threat of takeovers if stock is undervalued. A large technology upgrade investment by a company is unlikely to immediately increase earnings but could lower stock values in the short term with the goal of reducing future costs and boosting intrinsic value over the long run.

Uploaded by

Sofia Yu
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Mae Salve Sofia O.

Yu
BSA 2A
Financial Management 101

Module 2 Relationship of Financial Objectives to Organizational


Study and Objectives

1. Suppose you were the financial manager of a non-profit business


(hospital, school etc.). What kinds of goals do you think would be
appropriate?
People vary in a lot of ways, and that includes how they would
handle a job such as a financial manager of a non-profit business. If it was
to be me, here are the goals that I would do and believe that are
appropriate:
● Timely dissemination of monthly, quarterly and annual financial
information to internal and external stakeholders is a significant goal
of financial management. It ensures that financial information is
prepared in accordance with accounting principles and International
Finance Reporting Standards.
● Planning Goals of Financial Management. Financial plans and
forecasts aim at facilitating efficiency in the current and future
activities of the business. The planning process seeks to match the
organization’s operational and investment activities to its overall cash
flow capabilities. Current and future cash flow projections determine
the scope of short-term and long-term plans of the business. This
goal ensures sufficient funds are sourced in good time and allocated
to different business activities. Financial planning also ensures the
business engages in profitable long-term investments. For example,
capital budgeting analyzes the financial viability and profitability of
long-term assets prior to procuring such assets.
● Managing Risks. Risk management is one of the very important goals
of business finance because it touches on one of the soft underbellies
of the business enterprise. Financial management prescribes the
appropriate contingency measures for both operational and strategic
risks. Insurance and automated financial management systems help
business owners and employees to prevent or reduce the risks from
theft, fraud and embezzlement. Internal and external auditing
processes also enhance the detection of fraud and other forms of
financial malpractices.
● Exerting Controls. The financial management function exerts internal
controls over financial resources. As such, the primary objective of
financial managers is the efficient use and allocation of resources
across the organization, reports the London School of Business and
Finance. Putting internal controls in place, such as who can accept
and deposit money or award supplier contracts, enhances scrutiny of
financial transactions to prevent business owners or employees from
violating financial principles or undermining transparency. The goal of
enhancing internal financial controls is pursued through oversight by
the senior financial management staff and internal auditors. Failure to
exert internal financial controls could spell unprecedented
consequences for the business

2. If a company's board of directors want management to maximize


shareholders wealth, should the CEO's compensation be set as a
fixed amount, or should it depend on how well the firm performs? If it
is based to be based on performance, how should performance be
measured? Would it be easier to measure the performance by growth
rate in reported profits or growth rate in the stocks value?
The CEO's pay ought to be remain as fixed, before expanding the
remuneration of the CEO's we should initially center and guarantee the
development of the company after that we base the pay on how well the
firm performs. It will be more simple in the event that we measure the
presentation by the development rate in the stock's worth in such a case
that the company's stocks will develop, it is additionally a sign that the
company's stocks are in high demand, it means they trust the company and
it will support the company's image.
3. What are some actions that stockholders can take to ensure that
management's and stockholder's interest are aligned?
One of the actions that stockholders can take to ensure that
managements and stockholder’s interest are alligned is Reasonable
compensation package of course they need to follow this action to avoid
doubt or suspicion of false information between those two. The other one is
direct intervention by shareholders this is an important action in order to
align their interest. Face to face interaction is a must to avoid
miscommunication within the group. So that stockholder’s can reach
proposals even if the managements opposes the proposal but still the votes
can be heard by the top management. Third one is the threat of takeover.
Stockholders are afraid of stocks being undervalued it means that their
investments failed and if stocks are being undervalued then corporate
raiders will see it to be a bargain and will attemptto capture the firm in a
hostile takeover. If the raid is successful, the target’s executives will
almostcertainly be fired. This situation gives managers a strong incentive to
take actions to maximize theirstock’s price. This will benefit both of the
party and will align their interest, Executives will keep their jobs and
shareholder’s stocks will grow.

4. FA Enterprises recently made a large investment to upgrade its


technology. While these improvements won’t have much effect on
performance in the short run, they are expected to reduce future
costs significantly. What effect will this investment have on FA
Enterprises’ earnings per share this year? What effect might this
investment have on the company’s intrinsic value and stock price?
It is normal that the impact of this investment will diminish
and there is no possibility that the FA Enterprises' earnings per share will
increase this year on the grounds that the of that enormous venture won’t
have much effect on performance in short run but maybe the large
investment might click on the long run. But this year it will not work. The
effect of this investment might lower their stock values so that they can get
potential investors to invest in their company to recover the money that
they use on that huge investment their stocks might fluctuate because of
this and be right on track again, only if the technology that they invest will
have a huge effect on performance in the long run. They will experience the
rise and fall or vice versa of the stocks that is the effect of the investment
have on the company’s intrinsic value and stock value

Common questions

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Financial managers in non-profit organizations can implement internal controls such as setting clear protocols for who can accept, deposit money, and award supplier contracts to enhance transaction scrutiny. These controls help prevent financial principle violations and maintain transparency, fostering efficient resource allocation .

Managing financial risks is critical because it addresses vulnerabilities such as theft, fraud, and financial malpractices that could undermine a non-profit's stability. Non-profit organizations rely on risk management to prescribe contingency measures, use insurance, and implement auditing processes that mitigate these risks, protecting the organization from potential financial losses and scandals .

The CEO’s compensation can be structured to include performance-based incentives. This could involve setting the compensation based on performance metrics such as growth in stock value, which indicates high demand and trust in the company, thus supporting the company's image . This approach is preferable over growth in reported profits, as stock value growth more directly reflects shareholder wealth maximization by enhancing stockholder confidence and company valuation .

The large investment in technology is expected to decrease FA Enterprises' current earnings per share as it won't have an immediate performance effect. However, in the long term, the investment could significantly reduce future costs and thus increase the company's intrinsic value and stock price, assuming the technology positively impacts operational performance over time .

The threat of a takeover serves as a mechanism to align shareholder and management interests by motivating executives to focus on maximizing stock value to avoid the undervaluation that attracts corporate raiders. The potential risk of job loss in a hostile takeover pushes managers to take actions beneficial to shareholders, thereby aligning both parties' interests and providing executives with a strong incentive to enhance company performance .

Financial planning in a non-profit organization ensures resources are efficiently utilized by aligning operational activities with cash flow capabilities. This involves creating financial plans and forecasts that facilitate a balance between current and future activities, ensuring sufficient funds are available and profitably invested in long-term assets, thereby supporting sustainable organizational growth .

Evaluating a company’s performance through stock value growth is more effective than profit growth because stock value directly reflects market trust and demand, which are indicators of a company’s future prospects and long-term sustainability. It suggests that the company is successfully maximizing shareholder wealth by enhancing stockholder confidence and overall company valuation .

Stockholders can ensure that management acts in their best interest by implementing a reasonable compensation package for executives, engaging in direct intervention and face-to-face interactions, and leveraging the threat of a takeover. These strategies encourage executives to focus on increasing stock value to avoid undervaluation and potential hostile takeovers, which aligns management’s interests with those of the shareholders .

Appropriate financial management goals for a non-profit organization include the timely dissemination of financial information to stakeholders, ensuring that such information adheres to accounting principles and standards. Other goals include planning to align operational and investment activities with cash flow capabilities, managing risks through contingency measures and insurance, and exerting internal financial control to ensure the efficient allocation of resources and preventing violations of financial principles .

Enhancing internal controls plays a critical role in preventing financial mismanagement by establishing a system of checks and balances that improves scrutiny of financial activities. These controls prevent violations of financial principles and enhance transparency, thereby reducing risks of fraud and embezzlement and ensuring resources are used effectively .

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