THE IMPACT OF FINANCIAL MANAGEMENT IN CORPORATE ORGANIZATION (CASE STUDY OF SELECTED FIRM). A RESEARCH PROJECT MATERIAL ON BUSINESS ADMINISTRATION
1.1 BACKGROUND OF THE STUDY
Investors all over the world put their money into a business with a view to having some return on investment irrespective of whether it is in a proprietorship, partnership and corporations. In small and medium businesses, owners have direct or indirect control over the management of the business so, they themselves are responsible for the profit and loss. On the other hand, in the large multinational companies, the management of the company manages the affairs of the company on behalf of owners but owners want management to take such decisions which will give positive signal to market, increase the value of the firm, enhance profitability and maximize holding period return. The heart of corporate finance literature is long term investment, capital structure and different valuation methods. These have been the focus of intention for many researchers in the past. In short it concerns the long term financial planning or decisions. On the other hand, it is believed that financial decisions of short term assets and short term liabilities management also influence the stock price. These decisions are vital because they demonstrate the financial stability of the firm and the market which develops perception about the firm accordingly (Afza and Nazir,2008). An efficient working capital management can create value for stakeholders while a deprived policy or inefficient management might affect the business in an appalling way and might cause a financial distress.
Financial management involves planning and controlling current assets and current liabilities in a manner that eliminates the risk of inability to meet due short term obligations on the one hand and avoid excessive investment in these assets on the other hand (Eljelly, 2004). Lamberson (1995) argues that working capital management has become one of the most important issues in organizations, where many financial managers find it difficult to identify the important drivers of working capital and the optimum level of working capital. As a result, companies can minimize risk and improve their overall performance if they can understand the role and determinants of working capital. The relationship between current assets and current liability items is called working capital of the organization.
A business (also known as enterprise or firm) is an organization designed to provide goods, services, or both to consumers. Businesses are predominant in capitalist economies, in which most of them are privately owned and formed to earn profit as to increase the wealth of their owners. Businesses may also be not-for-profit or state-owned.