THE ROLE OF CORPORATE FINANCE MANAGEMENT IN THE POLICY MAKING DECISIONS OF A CORPORATE BODY

(CASE STUDY OF UNION BANK ENUGU)

By

OKOMUKO OGHENEGUEKE JUDE

Presented To

Department of Accountancy

PROPOSAL

In the highly competitive and dynamic economy, no company can afford to be inaccurate and timely in its decision making process, especially as pertaining to the management of this scares financial resources, since this a most important resources.

This project work is aimed at highlighting and examining the role played by corporate financial management in the policy making decisions of corporate bodies.

This project will educate readers on how corporate financial management can be used to solve complex management problems. It will enable students, practitioners to have a sound understanding of how financial decisions can be made to be effective and useful to the corporate body and also to evaluate their implications to shareholder and other interested parties.

More so, the reader will have an understanding of the theories of financial (management, which will provide them will conceptual and analytical insight to make decisions skillfully.

Finally some problems plaguing corporate bodies in their implementation of decision making in relationship with corporate financial management which include absence of corporate financial departments and absence of financial experts were highlighted.

TABLE OF CONTENTS

Table of contents

Title page II

Approval page III

Dedication IV

Acknowledgement V

Proposals VII

Table of content X

Chapter one

1.0 Introduction 1

1.1 Statement of problem 6

1.2 Objective of the study 7

1.3 Scope of the study 7

1.4 Limitation of the study 8

1.5 Significance of the study 8

1.6 Definitions of terms. 9

Chapter two

2.0 Review of related literature 13

2.1 development of corporate financial management13

2.2 Investment decisions 17

Chapter three

3.0 Research design and methodology

3.1 Research Design 60

3.2 Population of study 61

3.3 Methods of investigation 61

3.4 Statistical tools used 64

Chapter four

4.0 Presentation, analysis and interpretation of data.

4.1 Analysis of data 67

4.2 Interpretation of data 67

4.3 Test of hypothesis 71

Chapter five

5.0 Summary of findings, Recommendation and conclusion.

5.1 Findings 77

5.2 Recommendations 78

5.3 Conclusion 79

Bibliography 81

CHAPTER ONE

INTRODUCTION

People are making decisions all the time some decisions involve relationship with other people, some decisions involve purchases of good and services, some decisions involve the commitment of time to activities Corporate bodies are also engaged in making decisions The fiercely competitive nature of modern economy makes it a must for corporate bodies to make certain fundamental decisions, in order to survive failure or inability to make timely and correct decisions would result to the imminent collapse of the corporate body

The most important activities of a business firm are; finance, production and marketing The firm secures capital it needs and employs it a (finance activity) in activities, which generates returns on invested capital (production and marketing) activities A business firm thus is an entity that engages in activities to perform the function of finance, production and marketing

A corporate body requires a number of real assets to carry on, its business real asset can be tangible or intangible, plant machinery, offices, factories, furnitures and building are examples of tangible assets while technical know-how, technological collaboration, patents and copy rights are examples of intangible assets The firm's sells financial assets or securities, such as shares and bonds debentures to investors in the capital markets to raise necessary funds Financial assets also include lease obligations and borrowing from banks, financial institutions and other sources of funds Applied to assets by the firms are called capital expenditures or investments The firms expect to receive returns on its investments and distributed returns to investors These processes, of raising funds, investing them in assets and distributing returns are known respectively as financing, investment and dividend decisions These financial decisions or functions are not sequential; the firm performs them simultaneously and continuously

There are two types of funds that a firm can raise; equity funds and borrowed funds A firm has to sell shares to acquire equity funds Shares represents ownership rights of their holders Buyer and shares are called shareholders, and they are the legal owners of the firm whose shares they hold Shareholders invests their money in the shares of a corporate body is the expectation of a return on their invested capital The return on the shareholders capital consists of dividends and capital gain Shareholders make capital gains by selling their shares Shareholders can be of two types Common and preference Preference shareholder receive dividend at a fixed rate and they have a priority over common shareholders The dividends rate for common shareholders is not fixed, and it can vary from year depending on the decision of the board of directors The payment of dividend to shareholders is not a legal obligation; it is an absolute discretion of the board of director

Another important source of securing capital is borrowed funds Borrowed funds are obtained from creditors or lenders Lenders are not owners of the company They make money available to the firms on lending basis and retain title to the funds lent The return on loans or borrowed funds is called interest Loans are furnished for a specific period at a fixed rate of interest

Payment of interest is a legal obligation The amount of interest is allowed to be treated as expenses for computing corporate income taxes A firm may borrow funds from banks, financial institutions debentures holders etc

A company can also secure funds by retaining a portion of the returns available for shareholders This method of acquiring funds is called retaining earning The retained earning are undisturbed returns on equity capital They are therefore, rightfully a part of equity capital The retention of earnings can be considered as a form of raising new capital If a company distributes all e earning to shareholders, then it can reacquire new capital by issuing new shares

The funds raised by a company will be invested in the available investment opportunities Each investment opportunity available to a company is called investment projects, the on going projects may also involve outlays of each to maintain or to increase their profitability It would be revealed that generation of revenue a production activity is possible only when funds are invested in projects

There exits an inseparable relationship between the finance functions on the other Almost all kind of business activities directly and indirectly involves the acquisitions and use of money For example, a recruitment and promotion of employees in production is clearly a responsibility of the production department; but recruitment and promotion of employees requires payment of wages and salaries and other benefits, and thus, involve finance Similarly, buying a new machine or replacing an old machine for the purpose of increasing productive capacity plenty supply of funds, will be more flexible in formulating its production and marketing decisions under such a situation

STATEMENT OF PROBLEM

Finance is the blood of any organizations without adequate management of finance; the survival of any organization is endangered It is not surprising that corporate finance occupies a central place in the decision making process of corporate organization

The statements of problem are as follows:

1 Corporate financial management is viewed as restrictive, while making decisions due to its complex and involving theoretical framework

2 Do corporate bodies actually rely on the principles and concepts corporate financial management while making decisions

3 Are the techniques and methods of corporate financial management actually effective and efficient

4 What impact financial management ha on the overall decision-making process of companies

13 OBJECTIVE OF THE STUDY

This project is aimed at highlighting and examining the roles played by corporate financial management in the decision making policy of corporate bodies specifically, in Union Bank of Nigeria Plc Enugu branch

14 SCOPE OF THE STUDY

It is obvious that this project topic is so vast One might write volumes without exhausting the topic Consequently In order to enhance in-depth study of the role played by corporate financial management, union Bank of Nigeria PLc, Enugu has been chosen as a case study

15 LIMITATION OF THE STUDY

The research work will be limited due to the following constraints

1 financial factor: The success of any venture depends largely on the extent to which the venture is financed Due to limited finance, it was impossible for the researcher to carryout his research work on all the companies in Nigeria

2 Time factor: Research work of this nature requires enough time for efficient and effective collection, complication and analysis of the information collected Unfortunately the time interval available will not permit the researcher to do so

16 SIGNIFICANCE OF THE STUDY

The "Modern" thinking in financial management gives greater importance to management decision-making

This project will educate readers on how corporate financial management can be used to solve complex management problems

The pedagogical approach of the researcher will enable students, practitioners to have a sound understanding of how financial decisions can be made to be effective and useful to the corporate body and also to evaluate their implications to shareholders and other interested parties

Finally, readers will have an understanding of the theory of financial management, which will provide them with conceptual and analytical insights to make decisions skillfully

16 DEFINITION OF TERMS

Financial management : These are incorporated business or incorporated business unit, recognized by law as a separate entity from its owners They are more widely known as companies The term company will be used occasionally in this work to designate corporate bodies

Decision-making: This involves choosing between future uncertain alternatives

Polices: Are steps to be taken by a company to achieve its given aim polices of a company Policies of a company are its objectives

Corporate financial management: This refers to financial management applied to the solving of the problems of corporate bodies

Hypothesis 1 formation of hypothesis

Ho: corporate financial management is relevant in the policy making decision of a corporate body

H1: Corporate financial management is not relevant in the policy making decision of a corporate body

Hypothesis 2

Ho: An effective and efficient corporate management is achieved through adequate management financing policy

H1: An effective and efficient corporate management is not achieved through adequate management financing policy

ORIENTATION ON CHAPTER TWO

21 Development of corporate financial management SOLOMON EZRA (1986) expressed that financial management in its essential and basic principles is probably as old as man

22 Investment decisions

Types of investment Decisions

Drury (1992) emphasized that investment decisions are of difference types They include

I) Machination of a process

II) Replacing and moderning a process

Importance of capital Budgeting

Since capital budgeting are among the most crucial and critical business decisions specials are should be taken in their treatment TLucey (1999) stated reasons for placing greater emphasis on the capital budgeting decisions

INVESTMENT CRITERIA

Dew JOEL (1951), emphasized that because of the almost importance of the capital budgeting decision a sound appraisal methods should be adopted to measure with the economic worth of each investment project The investment evaluation criteria to be used should at least posses the following characteristics:

ACCOUNTING RATE OF RETURN METHODS

DEAN JOAL (1951), also expressed that accounting rate of return method uses accounting information as revealed by financial statements to measure profitability of the investment proposal

EVALUATION OF IRR METHOD

The internal Rate of Return method is a theoretically sound technique to appraise an investment worth of a project (Dean Joel It possesses the following merits