FINANCIAL MANAGEMENT PERSONAL REFLECTION 2

Financial Management Personal Reflection

I intend to finish my course and embark on a new and hopefully exciting and rewarding
career as a financial manager for a hedge fund, investment bank, or any other financial institution
that is involved in investment in financial assets. Such institutions look for persons that are well-
rounded in finance with strong theoretical knowledge of the working of capital markets,
suitability of various securities, their valuation, and other relevant knowledge. They also look for
candidates that have critical decision-making skills when making investment decisions in capital
markets and other investment options. This course has allowed me to gain a lot of knowledge
that I believe will make me an effective financial manager. Even though I found all the lessons
useful, I have highlighted here some of the lessons that I found particularly essential for my new
career as a financial manager.

Perhaps the most important lesson that I learnt is making profitable investment decisions.
As a financial manager my goal will be to buy, on behalf of investors, financial assets that are
likely to produce the most returns to investors either in the short term or long term. In particular,
I was interested in gaining in-depth knowledge of the two main financial securities: bonds and
stocks. I have heard a lot about the two and, even though I have never invested in any of them, I
have friends who have. However, I have always wondered why anyone would consider investing
in bonds when stocks generally produce much higher returns. The course has made the matter
clearer. Even though stocks produce higher returns, they are much riskier than bonds. In the short
term there is possibility of making huge profits and also huge losses. For bonds the returns are
less than those of stocks. However, you know exactly what investors are going to get at the end
of the investment period. It is, therefore, a low risk and reliable investment option that may be

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suitable for investors with large financial resources. With this lesson, my future investment
strategy is to have a mixed portfolio of debt and equity. Debt or bonds work well for
conservative investors or during times when there is high volatility. Equity, on the other hand,
are suitable for investors willing to take more risk. They also relatively safe when there is
general stability in the financial market.

In making decision on which securities to invest in and which ones to ignore, I found the
concept of time value for money quite important. I found the concept particularly interesting
because I apply often without knowing the economic principle underpinning it. Simply put, the
concept is the economic version of the phrase ‘a bird in hand is worth two in the bush’ – because
of its investment potential, money that is presently available to a firm has significantly more
value than similar amount of money that may be available to a firm at a future date. I was
amazed at how this principle, simple and straightforward as it is, applies to so many areas of
finance. They include decisions on which securities to invest in and accounting methodology to
use in a financial firm. For instance, I learnt that it is better to invest in securities that offer small
short term returns than invest in those that offer larger returns but paid after a long period.
Investments where returns are paid soonest provide more value for money because the payments
can then be used to make other investments thus earning more returns. As for the type of
accounting to use, it is better to use cash accounting instead of accrual accounting. With cash
accounting the firm deals only with cash at hand while for accrual accounting the, financial
reports are prepared using both cash at hand and expected payments. Based on the concept of
time value of money it makes more sense to prepare accounting reports using cash accounting
instead of accrual accounting.

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In addition to gaining an understanding of the concept of time value of money, I was also
keen to learn about analyzing risks and potential returns of investment in bond and stock
markets. The reality of investment is that there is possibility of making profits and losses as well.
As an investment manager my task is to have an optimal portfolio. Such a portfolio allows an
investor to maximize returns while minimizing risks. To achieve such a goal it is important for
an investor to have strong understanding of concepts related to stock valuation and the different
types of risks. I was particularly fascinated by the concept of overvalued and undervalued stock.
Using predictable cash flows, it is possible to approximate the intrinsic value of stock. A stock is
undervalued if it sells at a price less than its intrinsic value. Such stocks are likely to experience
price rise in future. They are, therefore, potentially profitable. For overvalued stock, the present
stock price is more than its intrinsic value. It is, therefore, likely to see a drop in price in future.
Based on this understanding, my investment strategy in future is to always look out for
undervalued stock when making investment decisions.

Another important lesson that I learnt is the role of observing ethics when making
financial decisions. This is not an entirely new subject to me because many careers, including
mine, place strong emphasis on ethical conduct. However, the consequences of unethical
conduct in financial decision-making are much more serious than in my current career. One
unethical decision can lead to destruction of careers and, in worst case scenario, collapse of
companies that have taken a long time to build. My goal will be to add value to companies, grow
them and make them more effective in increasing wealth of investors, and not destroy them or
my career and the careers of my colleagues. That is why I was glad to learn about various
practices that constitute unethical conduct in financial management. Conduct such as not
complying with the rules established by the regulatory body, providing inaccurate information to

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shareholders and investors, and generally being dishonest are some of the actions deemed
unethical in financial management. I have to admit that ethical conduct is something that comes
naturally to me and which I take seriously. However, being new in finance, I believe it is
important to know every action that may constitute unethical conduct. Some are obvious and do
not need much explaining but some were more technical. Thus, thanks to this course I believe I
have learnt enough to become a professional and ethical financial manager.

These are just a few of the many important lessons that I learnt in the course. They were
not only informative but also quite interesting. As financial management hopeful, I am sure that
they will be of great help in my new career. They will also help me a lot at a personal level
because I plan to start active investment in the capital markets.