Describe about the Corporate Finance for Pharmaceutical ASX.
Race oncology is a pharmaceutical company listed in the ASX. The company has various drugs that are patented undwer its name. The brand has got Bisantrene, a drug that is used for chemotherapy drug and has been the anchor product for this company for a very long time. The drug is used commonly for cancer patients in chemotherapy. However, Race Oncology has many other drugs that are used to for other treatments hence the company’s shares have value in the stock market. The company’s share price has been changing depending on the information in the market (Brentani, 2004). . The company has patented some of its drugs that have been discovered during its research and development. In this paper, we shall analyse the role and importance of a CFO for this company.
Role of CFO
Treasury duties
Under these duties, the CFO performs functions such as ensuring that the suppliers are paid on time and the correct amount, he also oversees the payment of management fees, the CFO processes the payroll for the various persopnnel that work in the company. However, the CFO is involved in ensuring that the company manages risk in a good way to ensure that the company is not making any loss , this is also known as hedging. Collections from debtors, also fall under this category of treasury duties. (Barnes, 2009) . There are different ways of making payments that include methods such as issuing cheques, RTGS, money transfers through banks, cash among other methods. The chief finance officer evaluates and advices on which is the best method of payment in term of cost and security (Brentani, 2004). The chief finance officer also advices on the lengrh of time that the company can give out credit. The repayment and payment periods are vital for every company as they determine the liquidity of the company and its ability to make payments and operate well. Under the treasury duties, the CFO is supposed to calculate the interest payments for the debts that the company takes, and as the head of finance the CFO should negotiate with bank managers to offer credit that is suitable for the company. The lowest chargest or interest rates are best for the company. (Hillier, 2010).
The CFO of Race Oncology makes funding decisions for the company. For a pharmaceutical company most funds go to the research and development department. However, there are competing projects that are equally beneficial to the company hence the CFO should be knowledgeable in which project gives the company higher returns (Jordan and Michel, 2001). The chief finance officer should evaluate all the projects that the company intends to undertake and recommend to the board of directors the project that will suit the company in terms of increasing profits and also increasing the company’s value. The CFO prepares daily financial position of the company as well as the monthly management reports to report to the board about the position of the company. (Karaian, n.d.). When it comes to foreign currency, the CFO purchases and sells the foreign currency according to the company’s demands and advices on when to buy inorder to save the company from making loses on forex.
For any company, the internal controls are very vital, they should be strong enough to ensure that no fraud can take place. The CFO together with the internal and external auditor recommends the internal controls that should be put in place for the company in order to achieve non fraud free financial system. The Cfo provides information that is used at all levels of management on how operations in the company should be carried out(Nelken, 2006). He isntitutes various processes meant to safeguard the company’s assets. Inventory management, is also a duty of the CFO ands for a pharmaceutical company the inventory is a vital component of the company. This is part of the working capital management that includes the accounts receivable and cash that determines how efficiently the company will operate. It is important to control the cashflow of the company. This information on cashflow is important for decision making. The information provided by the CFO should be complete, verifiable, meaningful so that the board should have confdidence on the major decisions that they make (Pesaran, 2010).
All the controls institutred in the company are very necessary for any project to be successful. The CFO should be able to know where the money is being used and if it is being used in the right way. The CFO in some companies is part of the oversight committee that oversees how projects are being undertaken (Read, 2013). Also, the tax matters fall under the financial department of the company, the CFO ensures that all the taxes are paid and on time to mitigate against any tax penalities that are as a result of delayed submissions. Magaging taxes is key to any company’s success.
The chief finance officer is responsible for disseminating fianancial information to the third parties. Third parties in this case includes shareholders who expect that the financial statements prepared for the company reflect a true and fair value for the company and can be relied on(Executive careers in business administration, 2007). Other third parties who are interested by the information are suppliers who want to know if the company is in a position to repay them and the government whoich is interested in knowing the comnpany’s tax liability(Jordan and Michel, 2001). ..
Economic strategy and forecasting duties
Developing strategies and budgeting is also another role of the CFO. He should be able to plan the company’s finances for the next one year so that the cash received is sufficiently used in various projects in both the short term and the long term. In order to ensure that the company is improving and growing at the same time, the chief finance officer should ensure that the budgets of the company are prepared so that all the projects arew budgeted for and funds allocated for the projects. This stabilizes the company both in the short term and long term and thus the company is able to grow steadily.
The CFO steers the company to making better decisions in terms of finances. These includes selecting the projects have high returns which is aimed at increasing the company’s profitability. The objective for this company is to maximize profits for the shareholders hence the strategies and budgeting that are made by the CFO are critical because they ensure that the company is on a profit making path (Jordan and Michel, 2001). . There are other decisions that are not made solely by the CFO although the CFO is the one who advices the team making those decisions such as dividend payment decisions.
The controllership duties ensure that the company’s financial position reflects are true and fair position of the company(Executive careers in business administration, 2007). Transparency is oanother objective that the company has and the CFO helps in creating a transparent financial system so that the shareholders are confident that their moneys are being used in the correct way. One of the criteria for a company to be listed is that it must ensure that it is transparent enough not to cast any doubt to the potential investors. Hence, transparency forms one of the objectives of the company that it should provide a good choice for anyone who wants to invest in it. Corporate governance also requires for compoanys that are listed in the stock exchange to have good internal controls which results to transparent companies.
Cost minimization is also another objective for the companies therefore the CFO is required to make decisions that make the company have as little cost as possible. One of the ways of reducing the company’s costs is ensuring that thec company is efficient enough for all its processes. This includes having a lean but competent work force, the CFO should ensure that all the employees that is the human resource are fully uitilized, he should also make sure that the company incurs very little in terms of interest on loans from banks , hence, on of its roles is that he should negotiate with the creditors to give out loans that have low interest rates(Jordan and Michel, 2001).
Increasing the company’s growthand market share is another objective that the company should have. The CFO as part of the strategic team ensures that the company has new frontiers. The CFO should have constant knowledge of potential markets and the frontiesrs that can take up the company’s products. Increasing penetration should be an objective of the Chief financial officer for the company and this has a ripple effect on the company’s profitability. The CFO formulates the blue print on how the company will penetrate the market .There are potential areas that the company should take their products to and this way they will increase the value of the company. question b
Efficient market hypothesis was a hypothesis formulated by Eguen Fama who was a professor in the university of Chicago in 1960. This was an advancement of the random walk hypothesis hence he was defending the random walk theory. The hypothesis states that the stock exchange prices depends on the information being floated in the market. Hence the current information in the market are the reflection of the market prices for shares, bonds and other financial instruments being traded (Brentani, 2004). News or any other information that he was taking about is that which that can affect the prices of the equities and that which is impossible to know in the future. For example when a major catastrophe happens in any country the stock markets are affected and that is the reason the government is quick to release information that assures the investors that the stocks will not fluctuate in price hence averting any fall in the prices of the shares(Curtis, 2012). However, professor Fama revised the hypothesis to include the strong market hypothesis, semistrong market hypothesis and the weak market hypothesis in 1972. He suggested that in respect to weak market hypothesis is that the past information obtained from a histrorical basis affect the price of the shares.
He suggested in this hypothesis that the investors do not behave in a rational way hence they can react or over react to news while other investors do not give any importance to to the news. However, some of the investors leverage on the information to make profits when selling their securities. Therefore, the efficient market hypothesis assumes that investors should be aware of the information currently being floated in the market as it affects prices of the market share.The fund manager may also select a portfolio with a pin. The fund manager knows that the prices of this shares can be affected by the historical prices hence he can be able to predict the share price of the security and recommend whether to buy or sell the security.
The fund manager formulates the blue print on how the company will hedge the market .There are potential stocks that an investor should invest in and watch out for any information or news that can increase profits. The performance of a portfolio can based on previous information of the shares. The fund manager can therefore recommend and predict the future performance of the shares with a pin (Executive careers in business administration, 2007). Efficient market hypothesis states that for a shareprice to be where it is it should have internalized all the information in the market. Efficient market hypothesis implies that the cost of the asset is as a result of the stock exchange internalizing the information in the market. Effective market hypothesis needs that investors or market participants to have expectations that are logical and so should be required to manage their expectations regarding the share perfomace as new information changes the share price. The fund manager should therefore select a portfolio with a pin.
References
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Curtis, G. (2012). The stewardship of wealth. Hoboken, New Jersey: John Wiley & Sons.
Hillier, D. (2010). Corporate finance. London: McGraw-Hill Higher Education.
Jordan, J. and Michel, F. (2001). The lean company. Dearborn, MI: Society of Manufacturing Engineers.
Nelken, I. (2006). Hedge fund investment management. Amsterdam: Elsevier/Butterworth-Heinemann.
Pesaran, M. (2010). Predictability of asset returns and the efficient market hypothesis. Munich: CESifo.
Pompian, M. (2012). Behavioral finance and wealth management. Hoboken, N.J.: Wiley.
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Read, C. (2013). The efficient market hypothesists. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.
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Strachman, D. (2012). The fundamentals of hedge fund management. Hoboken, N.J.: John Wiley & Sons, Inc.
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