Question Tag: Finance Manager Roles

a) Objectives of not-for-profit organisations

• The welfare of employees
  An organisation might try to provide good wages and salaries, comfortable and
  safe working conditions, good training and career development, and good
  pensions. If redundancies are necessary, many not for profit organisations will
  provide generous redundancy payments, or spend money trying to find
  alternative employment for redundant staff.
• Survival
  One of the first economic objectives of a non-for-profit is to raise enough money to
  meet its operating expenses in order to survive. These might include staffing
  needs, rent, utilities, insurance, furniture, computers and the other normal
  expenses of running a business. Some non-for-profits are staffed with employees,
  while others use an association management company or a contract executive
  director and vendors.
• Fundraising
  A key economic goal of charities is to raise funds to meet their charitable purposes.
  The process of fundraising goes beyond holding events or sending out mailings. A
  complete development effort includes creating a database of regular donors,
  applying for grants, seeking individual and corporate donations and holding
  events such as balls, auctions, raffles and sporting events. The cost of fundraising
  efforts can outweigh the total money spent on an organization’s charitable purpose
  at new or smaller organizations.
• Compliance
  The GRA sets target qualified distribution, or charitable spending, levels for some
  tax-exempt organizations, and these organizations set objectives to meet their
  requirements. For example, if an endowment earns GH¢100,000 annually for a
  nonprofit and the nonprofit only donates GH¢10,000 of that money, the GRA
  might fine the organization or ultimately revoke its tax-exempt status.
• Related and Unrelated Business Income
  Some not-for-profit, especially trade associations that are not not-for-profit, seek
  to raise money by charging for dues, selling newsletter advertising, sponsorships,
  educational materials, logoed items, holding events, seminars or a conference or
  holding a trade show. If the sales don’t relate directly to the organization’s
  purpose, this is known as unrelated business income and is taxable. Unrelated
  business income is often a major financial objective of organizations with low dues
  and contributions. Dues are considered related business income. Advertising
  revenue that covers the cost of an educational publication is related business
  income, while profits from ads might be considered unrelated and taxable income.
• Endowment
  Not all of the money a charity raises goes toward administration or service. Many
  not-for-profit have an economic objective of creating an endowment, which is a
  financial account that generates enough interest each year to fund charitable
  activities. Some not-for-profit set an objective of a dollar amount for their
  endowment, such as creating a GH¢1 million endowment. Once the fund is fully
  endowed, the organization sets an annual spending objective for the interest
  earned.
•  Welfare of the society
  Social objective are those objectives of business, which are desired to be achieved
  for the benefit of the society. Since business operates in a society by utilizing its
  scarce resources, the society expects something in return for its welfare. No activity
  of the business should be aimed at giving any kind of trouble to the society.
  If business activities lead to socially harmful effects, there is bound to be public
  reaction against the business sooner or later. Social objectives of business include
  production and supply of quality goods and services, adoption of fair trade
  practices and contribution to the general welfare of society and provision of
  welfare amenities.

(Any 4 points well explained for 4 marks)

b)
i) Over the counter market (OTC)
A decentralized market, without a central physical location, where market
participants trade with one another through various communication modes such
as the telephone, email, and proprietary electronic trading systems. An over-thecounter (OTC) market and an exchange market are the two basic ways of
organizing financial markets. In an OTC market, dealers act as market-makers by
quoting prices at which they will buy and sell a security, currency, or other
financial products. A trade can be executed between two participants in an OTC
market without others being aware of the price at which the transaction was
completed. In general, OTC markets are typically less transparent than exchanges
and are also subject to fewer regulations.
(2 marks)

ii) Dealers market
A dealer market is a financial market mechanism wherein multiple dealers post
prices at which they will buy or sell a specific security of instrument. In a dealer
market, a dealer – who is designated as a “market maker” – provides liquidity and
transparency by electronically displaying the prices at which it is willing to make
a market in a security, indicating both the price at which it will buy the security
(the “bid” price) and the price at which it will sell the security (the “offer” price).
Bonds and foreign exchange trade primarily in dealer markets.   (2 marks)

iii) Auction market
In an auction market, buyers enter competitive bids and sellers enter competitive
offers at the same time. The price at which a stock is traded represents the highest
price that a buyer is willing to pay and the lowest price that a seller is willing to
accept. Matching bids and offers are then paired together, and the orders are
executed. The New York Stock Exchange (NYSE) is an example of an auction
market.
(2 marks)

c) The roles played by the financial managers are:

• Raising of Funds
  In order to meet the obligation of the business it is important to have enough cash
  and liquidity. A firm can raise funds by the way of equity and debt. It is the
  responsibility of a financial manager to decide the ratio between debt and equity.
  It is important to maintain a good balance between equity and debt.
• Allocation of Funds
  Once the funds are raised through different channels the next important function
  is to allocate the funds. The funds should be allocated in such a manner that they
  are optimally used. In order to allocate funds in the best possible manner the
  following point must be considered
• The size of the firm and its growth capability
•  Status of assets whether they are long-term or short-term
• Mode by which the funds are raised
  These financial decisions directly and indirectly influence other managerial
  activities. Hence formation of a good asset mix and proper allocation of funds is
  one of the most important activity
• Profit Planning
  Profit earning is one of the prime functions of any business organization. Profit
  earning is important for survival and sustenance of any organization. Profit
  planning refers to proper usage of the profit generated by the firm.
  Profit arises due to many factors such as pricing, industry competition, state of the
  economy, mechanism of demand and supply, cost and output. A healthy mix of
  variable and fixed factors of production can lead to an increase in the profitability
  of the firm.
  Fixed costs are incurred by the use of fixed factors of production such as land and
  machinery. In order to maintain a tandem it is important to continuously value the
  depreciation cost of fixed cost of production. An opportunity cost must be
  calculated in order to replace those factors of production which has gone through
  wear and tear. If this is not noted then these fixed cost can cause huge fluctuations
  in profit.
• Understanding Capital Markets
  Shares of a company are traded on stock exchange and there is a continuous sale
  and purchase of securities. Hence a clear understanding of capital market is an
  important function of a financial manager. When securities are traded on stock
  market there involves a huge amount of risk involved. Therefore a financial
  manger understands and calculates the risk involved in this trading of shares and
  debentures.
  It’s on the discretion of a financial manager as to how to distribute the profits.
  Many investors do not like the firm to distribute the profits amongst shareholders
  as dividend instead invest in the business itself to enhance growth. The practices
  of a financial manager directly impact the operation in capital market.
•  Cash management (Working Capital Management)
  Cash Management is an important aspect of your business because it provides you
  with a process of monitoring, analyzing and adjusting the cash flow of your
  business which will enhance liquidity and profits while also reducing risk.
• Risk Management
  The role of a Finance Manager is to communicate risk policies and processes for an
  organisation. They provide hands-on development of risk models involving
  market, credit and operational risk, assure controls are operating effectively, and
  provide research and analytical support.