Discuss about the Market Risk Analysis for Practical Econometrics.
Planet gas limited is a company listed in the Australian Stock Exchange commonly known as the ASX. As its name suggests, the company deals with gas and oil globally but its core businesses are concentrated in the United States of America and Australia. The reason for this strategy is that both countries have a rich natural resource and high affinity for gases and oil due to them being industrial countries. The areas of the project in the United States are Appalachia and New York cities while in Australia the company projects are found in South Australia a region well known as the copper basin. There are people who are the drivers of this company and help in the implementation of the company’s goals and objectives (Alexander, 2008). They include the board of management for long term decision making, the chief executive officer and the chief finance officer for short term operational decisions of the company. In this paper we are going to look at the various responsibilities of a chief finance officer.
The chief financial officer has various functions in an organization.
The chief finance officer of the company is a key figure in company’s management committees and the board of directors and management (Alexander, 2008). In times of crisis of the company, the chief finance officer is responsible for all financial decisions that the company undertakes for approval by the company’s board of directors. A company like planet gas limited does not only want an experienced chief finance officer but a highly trained one with professional qualifications having led other numerous companies. This is a highly prestigious position second from the chief executive officer who is the overall decision maker in the company. In most cases, the chief finance officer is the automatic successor of the chief executive officer when the company does not want to hire from outside. A chief financial officer needs a high practical guidance from both experience and professional skills acquired through learning. A finance degree is most appropriate in the chief finance officer but a masters in finance is also an added advantage : (Barnes, 2009). Professional courses in finance also are an added advantage in acquiring chief finance officer competency.
Liquidity management of the company- not only does the chief executive officer manage the company’s liquidity by the bank route, that is the balances in the company’s bank accounts but also evaluation of good customers where the company uses credit terms to sell. Managing to collect on time and cash flows forecasting which is a standard requirement according to the international standards of accounting (Bragg, 2003). This makes the companies to avoid deep liquidity issues that may affect the company’s liquidity position. There is always sufficient liquidity that a company meets their monetary commitments. Managing the liquidity of companies, not only by the banking route, but also; evaluating good customers to whom the company sells on credit, managing to collect on time and making good cash flow forecasts to avoid falling into situations of illiquidity and generally making sure that there is always sufficient liquidity for the company meets their monetary commitments.
The chief financial officer organizes the bank finances terms. Achieve bank financing on the best terms and meet the needs of the company, both in the short and medium and long term. We all know that achieving funding is not easy, at this time (Karaian, n.d.). Planet gas limited is highly liquid and requires lot of cash flows due to its operations. A gas and oil company should not have financial difficulties and should be required to make early cash flow intake in case of detected problems. A CFO will make known the cash flow requirements to the board of directors while also making it necessary to make it known of the cash flows problems in the company.
The third test is judicial analysis of investments policies of the company. Judiciously analyzing the investment policy; their need, profitability and form of financing for the company’s financial needs. Investment decisions are made by the company’s directors with the help of technocrats like the CFO. to know the return on investments of the company in projects and the return on investors equity, the company should seek guidance from the chief finance officer of the company. Application of efficient and effective systems in cash flow creates the best strategy for the company in the future in terms of liquidity. Most businesses are used to making profits based on the economic conditions at that time; however a good chief financial officer should look for diversification processes as well as immediate plans to increase profitability.
Additionally, the CFO should put in place a proper system of cost control, applying criteria of effectiveness and efficiency to bolster performances of the company. The issue is not spending, but spending just enough to generate value for the company. Spending arbitrary may not increase the chances of the company to have more profits but tends to reduce the profits in place.
Decision making in companies must be based on good information that will allow proper management and the responsibility they have this good information, often rests with the figure of the CFO. The CFO is not limited to generate this information, but also must be able to make a thorough analysis of it, facilitating the work of decision-making other departments and generally throughout the company. As you can see has become a key figure increasingly respected and loved because for many reasons, the smooth running of the company depends on who can do their job very well, with good sense and professionalism (Karaian, n.d.).
Controllership duties – this is providing information that is financially important and relevant to Planet Gas Limited and its position in the financial markets. For the basis of effective decision making, the information should always be meaningful and practical. The mission of the CFO is to make relevant, timely, comparable and verifiable financial information for long term, short term and medium term decision making of the company. Systems establishment and upgrading of the information system that is available should be a core mandate of a serious chief executive for the purpose of making good the company’s investment.
Other duties include the administrative and tax matters that the company will pay to the tax man for future decision making. System of accounting establishment policies should also be inspired by the chief financial officer. Controlling of the company’s working capital is also a duty of the company’s chief financial officer (Robinson, 2009).
Auditing of financial reports of Australian gas industry and their infrastructures are the guiding principles to strategic planning and growth for expansion. In a mission to get the best out of the industry, the Australian telecommunication industry is analyzing, the inherent risks associated with financial position of the industry.
In this stage, we will find the risk assessment: performing identification, analysis and subsequent determination of their value. For a better understanding of the risks and impacts of a risk a map is drawn, with all stages of their development process is presenting the impact and frequency of risks. Ending with the most important part of the implementation as is the Risk Management Strategy and ways of monitoring the business growth. The strategy of the company is focused on customer while providing quality and innovative telecommunication.
In this business strategy awareness of the risk itself, its impacts and probabilities, evaluation methods as well as those who assume its main risks and problems, the environment in which develops such as business and that is where he will focus this part of the chapter “Risks affecting businesses: affecting the telecommunication industry.
Finally, from the point of view of the financial costs of companies, growth of monetary amounts to reduction of costs and risk transfers, ie prevention measures and insurance, have become aware of the decisive influence they had in the compliance with business objectives. After deregulation of the industry, many businesses are entering the market with the aim of competing to get a share of the Company the largest in the industry by service production.
The CFO of a company is responsible for a company’s financial policies and the cash flow of operating, financial and investing activities especially for an oil producing company like planet gas limited (Keim and Ziemba, 2000). CFO is also involved in the companies treasury matters and he is the overseer of all matters related to treasury of the company and matters affecting the financial relationship of the company. There are people who are the drivers of this company and help in the implementation of the company’s goals and objectives. They include the board of management for long term decision making, the chief executive officer and the chief finance officer for short term operational decisions of the company. In this paper we are going to look at the various responsibilities of a chief finance officer. In most cases, the chief finance officer is the automatic successor of the chief executive officer when the company does not want to hire from outside.
It should be noted that the fact that the market collect all available information does not mean that all those involved in it are aware of everything and know how to interpret all the information and determine its consequences, but what stands out is the aggregate market behavior.
In an efficient market, no group would be at a disadvantage or advantage over others; since all have the maximum information. So the only way to make extra profits is to get information that other investors do not have, or take advantage of temporary differences that may arise between the market price of a security and its intrinsic value.
Search insider information, along with the work done by analysts, speculators and arbitrageurs is precisely what leads to market efficiency; therefore, the function of these operators is essential for achieving market efficiency, being the work of the arbitrageur the most important, and as such, it is possible to consider arbitration as the cornerstone of the Efficient Market Theory.
Thus, one of the curiosities notably on the efficiency of markets is the fact that, so that they behave efficiently, it is necessary that operators do not believe in market efficiency, so try to discover the existence of inefficiencies. Action that causes them disappear, pushing prices to their target value, and achieving, thus market efficiency. This has been called the “efficient market paradox”.
Obviously, profit in the short term for reasons of chance always be feasible; however, this theory argues for the impossibility of achieving these benefits continuously in the long run.
Depending on the level or the strong form of efficiency, a market is efficient when its full and instantly prices reflect all available information, be it historical, public or private information.
From the above statement it follows that any study method available information will achieve extraordinary returns. So, in an efficient market in its strong form, it will only be possible to “beat the market” through luck or chance. Logically, it seems impossible that the market is efficient in its strong form, since that would imply that it is a perfect market, which, as seen above, is a utopia.
When a market is efficient, being all the information on prices, trading centers around the intrinsic value of securities, so it will not be possible to obtain extraordinary returns by agents. However, when they believe otherwise and try to seize opportunities to enrich themselves, contribute to improving market efficiency. Thus, the pursuit of maximum individual benefit, trying to detect market inefficiencies, contributes to achieving a collective benefit, to properly guide the market allocation of resources, indicating which investment decisions to be followed are the agents.
A fully efficient market will, among its main consequences, equal opportunities between investors, they have as much information as possible. However, as the degree of market efficiency is reduced, the greater will be the differences in opportunities between informed and uninformed; so that the goal of any investor will get information that is not other investors to achieve extraordinary returns and thus be able to beat the market. Obtaining short-term profits does not contradict the efficient market theory, because it defends the impossibility of maintaining such profits continuously in the long run.
Efficient Market Theory has been the dominant paradigm in finance for many years, however, the existence of various anomalies and inconsistencies with this theory make them many scholars who defend the inefficiency of markets (Keim and Ziemba, 2000).
References
Alexander, C. (2008). Market Risk Analysis, 1. Chichester: John Wiley & Sons.
Alexander, C. (2008). Market Risk Analysis, Practical Financial Econometrics. Hoboken: John Wiley & Sons, Ltd.
Barnes, P. (2009). Stock market efficiency, insider dealing and market abuse. Farnham, Surrey, England: Gower.
Bragg, S. (2003). The new CFO financial leadership manual. Hoboken, N.J.: Wiley.
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Jones, C. (2008). The intelligent portfolio. Hoboken, N.J.: J. Wiley & Sons.
Karaian, J. (n.d.). The chief financial officer.
Keim, D. and Ziemba, W. (2000). Security market imperfections in worldwide equity markets. Cambridge: Cambridge University Press.
Kuada, J. (2008). International market analysis. Adonis and Abbey.
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