Describe about the Corporate Finance for Financial Functions.
The Chief Financial Officer (CFO) holds the position of finance director and vice president of finance in an organisation. The CFO holds the leadership position in an organisation in managing and monitoring the financial functions. The main principle functions of CFO are to demonstration effective leadership skills in managing the financial operations of the organisation and balance the responsibilities of stewardship with business partnership. CFO is the prominent member of board of directors, audit committee and also assists Chief Executive Officer (CEO) in decision-making process of the organisation. Besides this, CFO of an organisation also holds the responsibility of creating value for all the stakeholders by developing effective strategies for the sustainable growth (Nolop, 2012). In this context, the present report aims to demonstrate the strategic roles and responsibilities of Huon Aquaculture CFO. The impact of the CFO roles on ultimate objectives of the company is also demonstrated in the report. The report also incorporates a section examining the efficient-market hypothesis effect on creation a portfolio by pension fund manager.
General areas of responsibility of CFO of Huon Aquaculture
Huon Aquaculture is an Australian based company established in the year 1986 by Peter and France Bender. The company presently holds a market leader position in Australia as a producer of Salmon. The company has attained good brand image all over the world with providing high quality products through implementing innovative methods. The company since its establishment has attained a market leader position in aquaculture both at domestic as well as international level. Thomas Haselgrove, is the CFO and company secretary of Huon Aquaculture. He posses over 20 years experience in auditing, statutory accounting and commerce. He is responsible for developing financial strategy of the company through developing innovative ways of raising the capital. The CFO of the company also posses the responsibility of ensure effective compliance with all the AASB principles in developing the financial statements of the company (SENIOR MANAGEMENT, 2014). In regard to these, the above mentioned roles and responsibilities of company’s CFO can be described as follows:
The Company strives to achieve long term profitability through adequate management of its capital structure. The maintenance of adequate capital structure is the main responsibility of company CEO’s. The CFO, in this context, needs to align the financial resources with the value creating operational activities. The company incorporates the use of new technologies for increasing its production and efficiency (Wherry and Schor, 2015). The company is mainly concerned with producing its products safely and sustainably. As such, the company needs to invest largely in development of safety team for improving its product quality by the implementation of safety program. The safety program provides training to the employees for enhancing their skills and expertise for improving their overall contribution to maximise business performance. Such value creation activities need to be prioritised by CFO to ensure the proper availability of funds for carrying out business activities that are essential for attaining sustainability. The CFO has to maintain an appropriate balance between its growth strategies and capital structure. The CFO develops the consolidated financial statements of the corporation in accordance with International Accounting Standards Board (IASB) that integrates the financial position of all the subsidiaries of the company in a single economic entity (Huon Aquaculture Group Limited, 2016).
The financial planning regarding the management of finance risk in company’s different subsidiaries and controlling the financial risk is the principal function of the CFO. The annual report of the company that company’s financial position is sound and stable since the appointment of Thomas Haselgrove as CFO in the year 2006. The company’s market capitalisation is about 282.1M that is a result of the financial stability attained by Huon Aquaculture under the leadership of Thomas Haselgrove. The company has invested in new and innovative technologies for producing high quality and new products thereby attaining competitive advantage under the leadership skills of Thomas (Huon Aquaculture Group Limited, 2016). Thus, it can be stated that Thomas Haselgrove has adequately managed the capital structure of the company by investing in value creating activities and minimising the resource allocation is less value creating activities.
Huon aquaculture largely emphasises on implementing the use of new technologies for product development. The innovative technologies such as development of Smokehouse and Product Innovation Centre, well-boat, feed-barges, Fortress Pens are used by the company for better growth rates of Salmon (The world’s most loved salmon, 2015). The role of CFO in this regard is to assess and examine the impact of use of new technologies on revenues and business models. The implementation of these latest technologies requires huge investment that can lead to the occurrence of financial constraints in the company. Thus, it is the responsibility of CFO to allocate financial resources adequately in implementing new technologies so that appropriate funds are available for carrying out daily activities. Thus, CFO must anticipate the profitability to be achieved with the financial constraints that can occur in carrying out its regular operational activities with investing in innovative technologies (Coveney et al., 2003).
CFO of the company also holds the responsibility of reporting the financial information to the senior management. The financial resources possessed by the company must be communicated properly to the Chief Executive Officer (CEO). CEO of the company is responsible for making critical decisions regarding the daily operational activities (Huon Aquaculture Group Limited, 2016). In this context, it is very essential that fair and reliable financial information must be communicated to the CEO’s so that he can design effective strategies for improving the loopholes in performance and enhancing its future profitability (Lapovsky and McKeown-Moak, 2010). The communication of financial information to CEO is also very important to bring into the knowledge the business risk that can occur in the company hindering its future profitability and success. The CFO can provide proper insights into various type of financial risk that can occur in a company with the implementation of a particular strategy. The CFO and CEO in co-ordination should develop and implement risk management strategy for managing risk that can occur with the adoption of a particular project for increasing the business performance (Hope, 2013). The CFO should prioritise the future capital investment strategies of the company for optimising the financial outcomes and mitigating the risk in advance. The internal risk identified with the adoption of risk management technique and thus manages accordingly the capital deployment performance of the company. The CFO must also implement proper methods for attracting financial investors for funding the major project of the company that are believed to provide high rate of return in the future period of time. The financial information communicated to CEO by the CFO will help the company to integrate its supply chain process effectively for maximising its profitability (Hommel et al., 2011).
Huon Aquaculture ultimate objective is to sustain its market leader position in aquaculture through incorporating latest technologies for product development. The role of CFO is very important in attaining the strategic objectives of the company (Huon Aquaculture Group Limited, 2016). The increase in the competition in external business environment is causing a shift in the role and responsibility of CFO. Traditionally, CFO of the company is only liable to manage the financial information through preparation of financial statements and maintain the capital structure. However, the role of CFO is becoming more strategically oriented for the company nowadays to meet the challenges of competitive business scenario. The role of CFO is very important in creating congruence between the strategies developed by the company and the financial resources available. CFO must ensure the strategic success of the company with adequate management of financial resources. The identified CFO roles in Huon Aquaculture will help in establishing effective link between the strategy and market planning for creating value for all the stakeholders. The CFO roles will help in outlining the responsibilities of the boards and other executive members towards optimising the financial performance of the company (Sutcliff and Donnellan, 2006).
If efficient market-hypothesis is true, the pension fund manager might as well select a portfolio with a pin
Efficient market-hypothesis theory states that share prices reflect all the relevant information required by the investors for investing purpose. Thus, if the market is efficient, then pension fund manager can easily select a portfolio that results in generation of maximising profit for the investors. However, this is generally not the case as share prices do not necessarily reflect all the information about the stocks. Pension fund manager holds the responsibility of creating a portfolio for its clients that provide them higher rate of return. The selection of stocks based on their market information without evaluation can increase the financial risk of the portfolio. The pension fund manager hence should diversify the risk by selecting the stocks in a portfolio that minimises the risk generation (Harder, 2010).
The risk can be diversified by proper evaluation of the stock before selecting them to include in the portfolio. The evaluation should assess the market risk of a particular stock and spread the risk by creating a portfolio that includes various assets classes. This will help in decreasing the systematic risk of the portfolio and hence ensure the generation of maximum rate of return for the clients. The efficient-market hypothesis does not hold true in all the market conditions as the information about a particular stock is not equally available to all participants. The hypothesis assumes that all investors perceive the information of the share prices in relatively same manner. However, this doe snot hold true as different investors analyse the information bout a particular stock from different perspectives and hence can have varying opinions about the fair market value of that particular stock. It does not incorporate the market risk that cannot be eliminated but can only be minimises through diversification. Thus, it is recommended to pension fund manager in the condition of efficient market to diversify the risk of portfolio for maximising the rate of return for the clients (Jones, 2007).
Conclusion
Thus, on the basis of the overall discussion held in the report, it can be stated that CFO role is becoming more strategically aligned with changing competitive business environment of today. Huon Aquaculture aspires to sustain is market leader position in aquaculture industry of Australia with providing best quality products through use of innovative technologies. As such, the role of CFO is very important for raising capital to support the implementation of technology projects and ensuring the achievement of its strategic objectives. The capital structure of the company must be firmly composed through maintaining a balance between debt and equity. Also, the CFO must communicate all the financial information properly to CEO for supporting the decision-making process of the company. The CFO should anticipate the financial outcomes to be attained with the introduction of a technology initiative and strategically align the result with the automate objectives of the company. The report also examines the impact of efficient-market hypothesis on creating a portfolio by pension fund manager for the clients. It has been derived from the discussion held on the same that pension fund manager need to diversify the risk of the portfolio and should not rely on the information obtained from share prices in condition of market efficiency.
References
Coveney, M. et al. 2003. The Strategy Gap: Leveraging Technology to Execute Winning Strategies. John Wiley & Sons.
Harder, S. 2010. The Efficient Market Hypothesis and Its Application to Stock Markets. GRIN Verlag.
Hommel, U. Et al. 2011. The Strategic CFO: Creating Value in a Dynamic Market Environment. Springer Science & Business Media.
Hope, J. 2013. Reinventing the CFO: How Financial Managers Can Transform Their Roles And Add Greater Value. Harvard Business Press.
Huon Aquaculture Group Limited. 2016. Annual Report.
Jones, C. P. 2007. Investments: Analysis And Management. John Wiley & Sons.
Lapovsky, L. and McKeown-Moak, M. 2010. Roles and Responsibilities of the Chief Financial Officer: New Directions for Higher Education. John Wiley & Sons.
Nolop, B.P. 2012. The Essential CFO: A Corporate Finance Playbook. John Wiley & Sons.
SENIOR MANAGEMENT. 2014. [Online]. Available at: https://investors.huonaqua.com.au/investors/?page=Senior-Management Accessed on: 20 September 2016].
Sutcliff, M. and Donnellan, M. 2006. CFO Insights: Delivering High Performance. John Wiley & Sons.
The world’s most loved salmon. 2015. [Online]. Available at: https://investors.huonaqua.com.au/FormBuilder/_Resource/_module/y8hXOlgfx0a4WjSUgjZk7A/file/HUO-AGM-2015-Chairman_s-Address%20ASX.pdf [Accessed on: 20 September 2016].
Wherry, F. and Schor, J. B. 2015. The SAGE Encyclopedia of Economics and Society. SAGE Publications.
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