Financial Mgmt: Essential Aspect of Business Success - Essay Sample

Introduction

Financial management is described as one of the essential aspects of a business. For any business to start and run successfully, the managers within the firm will need to have excellent knowledge of financial management. Therefore, indeed financial management is one of the most compelling aspects of any business. It is described as the strategic planning, directing, controlling, and organizing of financial undertakings in any institute or organization (LSBF Staff, 2018). Further, it involves the application of management principles to assets within a firm, and finally, it is crucial for fiscal management.

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Concept and Objectives of Financial Management

For every organization, financial management is essential for several reasons. For instance, in the case of Starbucks, some of the reasons for financial management include helping the firm in financial planning, assisting in the acquisition and preparation of funds, as well as the allocation of funds, which have either been allocated or received from debts (LSBF Staff, 2018). Besides, financial management has many other roles to help in the making of critical financial decisions, improving profitability within the firms, and increasing the overall value of organizations.

Functions of Financial Management with a Case Study

Financial management is undertaken by the financial department, and some of the functions of the department include investing capital, allocating profits, forming a capital structure, creating financial statements, and ensuring financial control with the aid of financial methods such as ratio analysis and risk management. Looking at Starbucks' corporation, the company has a Chief Financial Officer known as Patrick J. Grismer (Starbucks Corporation, 2019). He heads the Financial Management Department to oversee all the above functions of financial management. Besides, under the Chief Financial Officer, the Starbuck's Finance department takes part in the drafting of financial statements to examine the firm's progress. The financial department also helps provide useful financial highlights of the firm.

Development of a Financial Management Strategy

Developing a financial strategy of every organization starts with financial planning, which involves the process of calculating capital required for any operations. Therefore, to develop a financial management strategy, there is a need to create a financial plan with the necessary amount of capital, the capital structure, and the capital organization within the various operations of the firm. After the plan, the next step involves financial control and financial decision making. Financial control entails determining whether the designed plan will be met, and some of the questions the financial department team should use to examine if the plan will be successful include determining if assets are used competently and if they are secure (LSBF Staff, 2018). Another critical question to ensure financial control is to determine if the financial department team is acting in the interest of the stakeholders. After the management answers those vital questions on financial control, the financial management team should make decisions. In this final step, financial decisions have to be made on how the firm should raise finance and how profits should be distributed.

Stakeholders

The Concept and Function of Stakeholders

In every organization, including Starbucks, stakeholders have to be present for the success of the organization. The stakeholders can be described as any party, individual, or group of people that have interests in the actions and outcomes of an organization (CFI, n.d.). Some of the typical stakeholders of Starbucks include shareholders, customers, employees, communities, governments, suppliers, and the general community. Most of the stakeholders have different interests, and a firm can face a layoff if it tries to please all of them. As such, every stakeholder has a role of supporting or helping an organization.

Role of Starbucks Stakeholders and Financial Management Strategy

Each stakeholder has a role within an organization. For instance, customers ensure a business exists, and they are generally impacted by the quality of products and services. Starbucks offers coffee drinks, cold drinks, and many other products to its customers' Employees are also stakeholders. They have a direct stake within the business since they earn and act to ensure everything flows. Finally, some investors, including shareholders and debtholders, help finance operations as forms of investment within a firm. Investors play a very significant role when it comes to any financial management strategy since they finance business operations expecting returns. Therefore, all financial plans within an organization have to ensure the shareholders get back their returns.

Business Scenario

Starbucks presents a perfect business scenario because it has different stakeholders. The firm has to prioritize its customers, employees, and shareholders, who fund operations to generate more profits. Therefore, from the income generated, employees and shareholders have to be rewarded. Employees are paid their monthly dues, while shareholders are paid through dividends or equity. All in all, Starbucks presents a business scenario, where income is generated through sales to cater to the firm's stakeholders.

The Concept of Ethical Issues

Ethical issues refer to situations in which a moral conflict may arise due to a given decision, scenario, or activity. Specific companies or individuals can be involved in such conflicts since their activities might be put in question from the ethical point of view.

Financial Practices of a Business

Generally, financial practices refer to the standard operating procedures for carrying out financial reporting, accounting, budgeting, among many other activities related to business financing. Hence, one can conclude some of the standard financial practices in business include adhering to the set accounting standards, which are referred to as the general accounting principles, as well as other practices such as budgeting, financial reporting, as well as cutting costs to maximize saving.

Ethical Issues in Financial Practices

There are a lot of ethical issues that might arise from typical financial practices. Some of these issues include fraudulent financial reporting. Ideally, in the past few decades, there have been a lot of scandals due to fraudulent financial reporting. For instance, Enron, and the Bernie Madoff scandals among many other scandals, where the firms provided wrong financial reports to boost stocks, and many other objectives (Corporate Finance Institute, n.d.). The fraudulent financial reports mainly include misstatement in the financial statement, which is an ethical issue that may lead to moral conflicts. Finally, there are many other ethical issues such as misappropriation of assets, which can also be described as embezzlement of resources.

Recommended Solutions to Ethical Issues

The overall management of every firm should try by all means to uphold ethics by avoiding all the unnecessary risks. For instance, in the case of misstatements in the financial statements, the management should educate the finance department, as well as other employees on the legal implications of committing such frauds. Besides, the management should segregate accounting functions by having an internal control system whereby every group of employees has its accounting functions. Such a move means separation of authorization, recordkeeping, and review functions. Therefore, by segregating employees, cases of providing the wrong financial information are minimized. Finally, the management within the respective firms should review financial statements regularly to avoid fraud cases.

The Business Performance Concept and Methods of Calculating Business Performance

Business performance is a set of analytic processes that enables an organization to achieve specified objectives. As such, iIn other words, it is the act of setting corporate goals, and monitoring methods to help managers achieve the set objectives (Cornerstone, n.d.). The business performance involves three main activities, which include a selection of goals, information monitoring, and managerial assessment.

Business performance is calculated through different strategies, which include a measure of profits and return on capital, among many other financial ratios. The standard methods of calculating business performance include return on capital ratios such as Return on Equity (ROE) and the Return on Assets (ROA), as well as the Return on Capital Employed (ROCE). The ROE is an essential ratio for shareholders, and it examines the after-tax profits, which act as a measure of business performance. ROCE and the ROA ratios, on the other hand, provides a broader perspective of business performance based on all capital providers. Lastly, there are many different methods of examining business performance, which include the operating margin, the gross profit margin, and the net profit margin.

Case Study of Starbucks Business Performance

Starbucks is a prime roaster, retailer, and marketer of coffee across different parts across the globe. The objective of the company is to stand out as one of the most respected and recognized brands globally. Starbucks has plans to achieve these goals (Starbucks Corporation, 2019). This plan involves expanding global stores by developing markets into new areas such as China. This move will expand the market share and increase sales in the existing stores, as well as selectively opening new stores. Achieving such plans will require a budget, and it may involve obtaining debts to finance operations in the new stores. Therefore, the concept of business performance comes along to examine the progress of the existing stores and any new stores. Based on the ROE and the profitability ratios, one can easily measure the business performance of Starbucks.

Financial Statements

Financial statements refer to records within a firm that convey the financial activities and the financial performance within a firm. These statements are commonly compiled for several purposes, which include auditing, financing, and investing within a firm. The typical financial statements include the balance sheet, the income statement, and the cash flow statement. All these statements are different, and each of them serves a specific purpose. For instance, the balance sheet provides an overview of the assets and the liabilities, as well as shareholde...