Q1: EPS is particularly useful for comparing results over a number of

years. Investors will be looking for growth in EPS year on year. In addition
companies must demonstrate that they can sustain earning for dividend
payouts and reinvestment in the business for future growth?

Earnings per Share (eps)

Earnings per share or EPS is an important financial measure, which indicates the profitability
of a company. It is calculated by dividing the company’s net income with its total number of
outstanding shares. It is a tool that market participants use frequently to gauge the profitability
of a company before buying its shares.

Formula
Earnings per share or basic earnings per share is calculated by subtracting preferred dividends
from net income and dividing by the weighted average common shares outstanding. The
earnings per share formula looks like this.

You’ll notice that the preferred dividends are removed from net income in the earnings per
share calculation. This is because EPS only measures the income available to
common stockholders. Preferred dividends are set-aside for the preferred shareholders and
can’t belong to the common shareholders.

Most of the time earning per share is calculated for year-end financial statements. Since
companies often issue new stock and buy back treasury stock throughout the year, the weighted
average common shares are used in the calculation. The weighted average common shares
outstanding is can be simplified by adding the beginning and ending outstanding shares and
dividing by two.
The Earnings per Share (EPS) Calculation
The basic earnings per share calculation is quite simple. It's simply the total net income
available to common shareholders, divided by the total number of common shares outstanding.

 Earnings per share (EPS) = Net Income Available to Common Shareholders/Number

of Common Shares Outstanding

Net income as it's used here and in almost all financial calculations is defined as the sum of all
revenues less all costs, including operational and management expenses, depreciation, interest,
taxes, and dividends paid on preferred shares.

Unless specified otherwise, it's assumed that all relevant data, including EPS, are for the
company's fiscal year -- which may or may not start on January 1. It's also customary to subtract
from net income all non-cumulative preferred stock dividends declared (whether or not paid
during the fiscal period) and the after-tax total of preferred stock dividends.

The number of common shares outstanding figure is more accurately based on a weighted
average of the common shares outstanding since the total shares figure changes over the course
of the year for most publicly traded corporations.

For the EPS figure to be useful, however, you need not do any of these more refined
calculations. Since they apply to all corporations equally, the EPS figure given online or in
financial news reports for any corporation allows you to compare this corporation's results with
the results of others without getting into the details of the math.

Calculation tells you how much money shareholders would receive for each share of stock
they own if the company distributed all of its net income for the period. In reality, however,
companies would not distribute all of their earnings. Usually they reinvest them in the business.

It is possible to view a calculation of a company's earnings per share by clicking on the

hyperlinked company's name in an FT story about them. Or you can find the same information
by visiting the FT's markets data section.
Using EPS as an Evaluation Tool
Taken straightforwardly without comparative evaluations, EPS doesn't tell you as much as its
prominence in the financial news might lead you to believe. Used comparatively, however,
EPS can be valuable. While a thorough exploration of the meaning and utility of EPS is beyond
the scope of this article, here are some fundamental considerations when using EPS:

 The EPS figure is meaningless until you relate EPS to share price. When you
divide share price by earnings per share, what you get is the price/earnings ratio
(P/E),one of the most widely used and revered of all financial tools. It's that
essential "bang for the buck" figure that tells you what you're getting for your
investment dollar.

 Both EPS and P/E are best used comparatively to answer such questions as how
well is this company doing in comparison with other companies of similar size
competing in the same financial sector?; what are the patterns for EPS and P/E
over successive quarters? By itself, an EPS of $4.00 doesn't mean much. But if
you learn that the $4.00 EPS figure has grown in successive quarters from a
$3.35 EPS a year ago, that tells you quite a bit. If it's declining over successive
quarters, that also reveals useful information about the company and suggests
that it may not be a promising investment.

 The one EPS figure that gets the most attention is the EPS announcement in the
company's latest earnings report when compared with the company's earlier
preliminary announcement of projected earnings. There's a little bit of game-
playing going on here -- companies sometimes deliberately make a public
announcement of projected earnings that's less than the company's internal
analysis because this leads the financial press to exclaim that the company's
earnings "beat estimates. This often boosts the share price, at least
temporarily. But you can't make too much of a modest increase in the
announced EPS over the earlier estimate; it's a bit of a ploy. However, an actual
EPS that's below the projected estimate may indicate a company that's headed
for trouble. And a company that delays its EPS announcement is usually a
company already in trouble.
Q2: Compare and contrast the roles of the treasury and financial
control department with respect to a proposed investment.
Definition of Treasury department Definition of Financial department
Treasury management implies the planning, Finance Department is the part of an
scheduling and controlling of the organization that is responsible for
organization’s cash and borrowings in order
acquiring funds for the firm, managing
to optimize the interest and currency flow is
known as treasury management. Simply put, funds within the organization and
planning for the expenditure of funds
it refers to the administration of all financial
matters such as raising funds from variouson various assets. It is the part of an
sources, handling currencies and cash flows
organization that ensures efficient
and the strategies of corporate finance. financial management and financial
control necessary to support all
Treasury Management intends to make
available the funds needed by the company business activities.
at right time and quantity. Further, it ensures
that funds do not remain unutilized for the
long term. It encompasses cash management,
financial risk management and corporate
finance. Its primary function is to ensure that
the entity possesses ample liquidity, to fulfil
obligations.
Roles of Treasury department Roles of Financial department
Treasury Role-1. Cash Forecasting Financial Role-1. Bookkeeping
This is the beginning of all other roles carried
This is the most basic function of the finance
on the operation of a treasury department. department. It involves the day-to-day
Dislike the accounting staffs who handle the recording, analysing and interpreting of a
cash receipt and disbursement activities on company’s financial transactions. This will
daily basis, treasury staffs need to draw all include the tracking of all expenses
those accounting staffs records (within the (purchases, payments etc.) and sales of
organization including its subsidiaries if finished products. In some start up
any), and compile it to generate a cash companies, this role is often carried out by a
forecast (short and long-range). The forecast bookkeeper who might be replaced by more
and all its components are needed to: specialized payables and receivables clerks
as the company grows or expands its
determine if more cash is needed. If that is operations.
the case, then they can go on to plan for fund
inquiry either through the use of debt or
equity.
plan for investment purposes, if the forecast
results in surplus and cash excess shows up.
plan its hedging operations by using the
information at the individual currency level.
Treasury Role-2. Working Capital
Management
Major usage of company’s cash is in the
working capital area. Working capital is a
key component of cash forecasting. It
involves changes in the levels of current
assets and current liabilities in response to a
company’s general level of sales. The
treasurer should be aware of working capital
levels and trends, and advise management on
the impact of proposed policy changes on
working capital levels.
Treasury Role-3. Cash Management
Combining information in the cash forecast
and working capital management activities,
Treasury staff is able to ensure that sufficient
cash is available for operational needs.
Treasury Role-4. Investment Management
When the forecast shows some excess funds
at, the treasury staffs are responsible for the
proper investment of it. Three primary goals
of the role are: (a) maximum return on
investment; (b) matching the maturity dates
of investments with a company’s projected
cash needs; and most importantly is (c) not
putting funds at risk.
Treasury Role-5.Treasury Risk Management
The treasury staffs are also responsible to
create risk management strategies and
implement hedging tactics to mitigate the
whole company’s risk—particularly in
anticipating (a) market’s interest rates may
rise and leave the company pays on its debt
obligations; and (b) company’s foreign
exchange positions that could also be at risk
if exchange rates suddenly worsen.
Financial Role-2.Management of
company’s cash flow
It is duty of finance department to manage all
cash flows into and out of a company and
ensure that there are enough funds available
to meet the day-to-day running of the
company. This area also encompasses the
credit and collections policies for the
company’s customers, to ensure that vendors
and creditors are paid correctly and on time;
and that the company is also paid correctly
and as when due.
Financial Role-3. Budgets and forecasting
In this function, the finance department
works with managers to prepare company’s
budgets and forecasts and also give feedback
with regards to the financial standing of the
company. This information can be used to
fulfill cash needs of each department, plan
company staffing levels, plan asset purchase
and expansions at minimum cost before they
become necessary. The finance department
can also use past records from respective
departments to make better budget and
forecast over long-term and short-term time
horizons.
Financial Role-4. Advising and sourcing
longer term financing
It is the duty of the finance department to
advice companies on the best financing mix
that could yield the company the best profit
and also help them source longer term
financing at the lowest cost such that there is
a profit level of liquidity. Some of the many
varied paths a company can source funds to
finance their business as discussed in one of
our articles “10 Most Common Ways to
Finance Your Business” include bank credit
or private lender debt or, share issues to
private investors (where applicable).
Financial Role-5. Management of Taxes
Running a company involves paying tax, and
it is the duty of finance department to handle
tax issues. This includes creating good
corporate relation with government by
remitting PAYE (Pay As You Earn) to the
relevant authority, and ensuring that
implementation of tax matters are done
within the framed policies.
Treasury Role-6. Credit Rating Agency
Relations
A company may issue marketable debt. In
this case a credit rating agency will review
the company’s financial condition and assign
a credit rating to the debt. The treasury staff
would need to show quick responds to
information requests from the credit
agency’s review team.
Treasury Role-7. Bank Relation
A long-term relationship can lead to some
degree of bank cooperation if a company is
having financial difficulties, and may
sometimes lead to modest reductions in bank
fees. The treasurers should therefore, often
meets with the representatives of any bank
that the company uses to: discuss the
company’s financial condition, the bank ’ s
fee structure, any debt granted to the
company by the bank, and foreign exchange
transactions, hedges, wire transfers, cash
pooling, and so on.
Treasury Role-8. Fund Raising
Maintaining an excellent relations with the
investment community for fund raising
purposes, is important—from the (a) brokers
and investment bankers who sell the
company’s debt and equity offerings; to the
(b) the investors, pension funds, and other
sources of cash, who buy the company’s debt
and equity.
Financial Role-6. Management of
Company’s Investments
Apart from analyzing and selecting new
investments, it is also the duty of the finance
department to manage company’s existing
assets. The finance department should be
concerned with current assets apart from
fixed assets. The company’s working capital
needs to be managed efficiently in such a
way as to maximize profitability relative to
the amount of funds tied up since it has more
implication on the firm liquidity than its
fixed asset.
Financial Role-7. Financial Reporting and
analysis
Financial reporting and analysis is the
function that takes raw accounting entries
and transforms them into meaningful, usable
and comparable financial statements. The
finance department contribute to
organizational growth by measuring and
reporting on regular bases, key numbers that
are vital to the success of the company. This
will likely include a summary of all funding
sources, expenditures and reserves available
for future use (excluding those already
committed and budgeted for current period)
some non-financial information. And are
usually communicated to managers in a
logical and understandable format.
Financial Role-8. Assist managers in
making key strategic decisions
The finance department provides company
management with information necessary to
make strategic decisions such as which
markets or projects to pursue, the payback
periods for large capital purchases, decision
on what should be given out as dividend out
of the company’s earnings and what to
plough back into the business, the best
financing mix that could yield the company
the nest profit, decision on how to allocate
funds to investment etc., thus, making sure
that money is being used in the best way.
Different roles that a treasurer and Financial have:

FINANCIAL TREASURE
Control Planning Capital Provision

Reporting and Interpreting Investor Relations

Evaluating and Consulting Short-Term Financing

Administrating Tax Banking and Custody

Government Reporting Credits and Collections
Asset Protection Investments

Appraising the Economy Insurance

Q: Suggest ways in which ethical issues would influence the firm’s

financial policies in relation to the following?
Shareholders:
A shareholder is a person that owns at least one share of stock in the company. As a shareholder,
a person stands to make money when the company is doing well or lose money during difficult
times. This means being a shareholder comes with some risks. The good news is that, unlike
owning the company, there is really no personal liability. If the company is sued, a shareholder
will not lose any personal property or assets other than their investment.
Shareholders’ preference for dividends or capital gains may depend on their economic status
and the tax treatment on dividends and capital gains.
 Retired and old persons prefer to invest in companies with regular dividend
 Wealthy investors prefer capital gains to minimize tax

Suppliers:
Suppliers are an integral part of the production process of an organization. Not all producers
procure all raw materials directly from a source. Suppliers perform an integral job of procuring
raw materials of high quality and maintaining high standards of inventory and a sound
distribution network. But some suppliers maintain lower standards in managing inventory or
the quality of materials procured will be of a cheaper quality, reasons which are attributed
towards saving cost and increasing profit margin. Signing a mandatory code of conduct with
the organization has been the need of the hour mainly because of the lack of trust. This lack of
trust has stemmed from the fact that standards and quality may have not been maintained
according to the expectations of the producer which has led to signing of agreements between
parties. Also certain suppliers form a cartel which leads to manipulating the market. For
example, farmers from whom the agricultural products are procured, will be under the mercy
of these cartels that resort to rogue pricing. These raw materials are sold at a higher price to the
manufacturer so that there is a higher profit margin for the suppliers. Exploitation of the
resources happens not only with organizations that procure materials directly but also by
suppliers that act as middlemen between the original source and the manufacturer.

Customers:
Increased customer interest
There is evidence that the ethical conduct of companies exerts a growing influence on the
purchasing decisions of customers. In a recent survey by Environics International, more than
one in five consumers reported having either rewarded or punished companies based on their
perceived social performance.

Investment appraisal:
Advocates of socially responsible investing argue that nonprofit organizations should ensure
that their financial portfolio is consistent with their values. In its strongest form, this strategy
calls for investing in ventures that further an organization’s mission. In its weaker form, the
strategy entails divestment from companies whose activities undermine that mission. The issue
gained widespread attention after a Jan. 7, 2007, Los Angeles Times article criticized the Bill
& Melinda Gates Foundation for investing in companies that contributed to the environmental
and health problems that the foundation is attempting to reduce.
Many nonprofit leaders have resisted pressure to adopt socially responsible investing principles
on the grounds that maximizing the financial return on investment is the best way to further
their organization’s mission, and that individual divestment decisions are unlikely to affect
corporate policies. Our view, however, is that symbols matter, and that similar divestment
decisions by large institutional investors can sometimes influence corporate conduct.
Hypocrisy, as French writer François de La Rochefoucauld put it, may be the “homage vice
pays to virtue,” but it is not a sound managerial strategy. To have one set of principles for
financial management and another for programmatic objectives sends a mixed moral message.
Jeff Skoll acknowledged as much following his foundation’s support of Fast Food Nation, a
dramatic film highlighting the adverse social impacts of the fast-food industry. “How do I
reconcile owning shares in [Coca-Cola and Burger King] with making the movie?” he asked.26
As a growing number of foundations recognize, to compartmentalize ethics inevitably
marginalizes their significance. About a fifth of institutional investing is now in socially
screened funds, and it is by no means clear that these investors have suffered financial losses
as a consequence.
Charity:
Probably there is no relation in life which our democracy is changing more rapidly than the
charitable relation,—that relation which obtains between benefactor and beneficiary; at the
same time, there is to point of contact in our modern experience which reveals more clearly the
lack of that equality which democracy implies. We have reached the moment when democracy
has made such inroads upon this relationship that the complacency of the old-fashioned
charitable man is gone forever; while the very need and existence of charity deny us the
consolation and freedom which democracy will at last give.

We find in ourselves the longing for a wider union than that of family or class, and we say that
we have come to include all men in our hopes; but we fail to realize that all men are hoping,
and are part of the same movement of which we are a part. Many of the difficulties in
philanthropy come from an unconscious division of the world into the philanthropists and those
to be helped. It is all assumption of two classes, and against this class assumption our
democratic training revolts as soon as we begin to act upon it.
Assignment
“Financial management and institution”
Submitted to
“Maam Munaza Nasir”
Submitted By
“Sidra Shahzad”
Roll No 08

University Of Central Punjab Bahawalpur