Chapter 1 Flashcards
(23 cards)
What is Financial Management
About acquisition and both short and long term financial resources, to make sure objectives are achieved.
What are the three key areas?
- Investment Decision
- Financing Decisions
- Dividend Decisions
These decisions are influenced by eachother.
What is Investment Decision?
Both long term investment in NCA and short term investment in WK.
What is Financial Decisions?
From what sources should funds be raised?
What is Dividend Decision?
How should cash funds be allocated to shareholders and how will the value of the business be affected by this?
What are other financial roles?
- Management Accounting
- Financial Accounting
What is Management Accounting?
Providing information for the more day to day functions of control and decision making.
What is Financial Accounting?
Providing information about the historical results of past plans and decisions.
What is the main financial objective companies have?
Shareholder wealth maximisation
What are other financial objectives companies have?
- Profit Maximisation
- Growth
- Market Share
- Social Responsibilities
What is used to measure achievement?
Ratio analysis is used to measure the progress of a company towards it objectives.
What is ratio analysis?
Compares and quantifies relationships between financial variables.
What are internal stakeholders? (2)
- Company employees
- Company managers/directors
What are connected stakeholders? (5)
- Equity investors (ordinary shareholders)
- Customers
- Suppliers
- Finance providers (debt holders/bankers)
- Competitors
What are external stakeholders? (4)
- Government
- Community at large
- Pressure groups
- Regulators
What is agency theory?
Describes the relationship between the various interested parties in a firm and can help to explain the various duties and conflicts that occur
When does agency relationships occur?
The principal, (employs another party) the agent to perform a task on their behalf. Directors (agents) act on behalf of shareholders (principals).
What are managerial reward schemes? (4)
- Clearly defined, impossible to manipulate and easy to monitor.
- Link rewards to changes in shareholder wealth.
- Match managers’ time horizons to those of shareholders.
- Encourage managers to adopt the same attitude to risk as shareholders
What areas relate to corporate governance codes of conflict?
Non-Executive Directors (NEDs)
- Important presence on the board.
- Must give obligation to spend sufficient time with the company.
- Should be independent.
- At least half the board to be independent NED’s.
Executive Directors
- Separation of chairman and chief executive office (CEO).
- Submit for re election.
- Clear disclosure of financial rewards.
What are non financial objectives for not for profit organisations?
- Key objectives may be difficult to quantify, especially financial ones.
- Multiple and conflicting objectives are common.
What is primary objectives for non profit organisations?
Not to make money but to benefit prescribed groups of people.
What is value for money? (3Es)
Defined as achieving the desired level and quality of services at the most economical cost.
What are the 3Es (Value for Money)
Economy - minimising the costs of inputs required to achieve a defined level of output.
Efficiency - Ratio of outputs to inputs, high level of output to a reasonable level of service at reasonable input cost.
Effectiveness - Whether outputs are achieved that match the predetermined objectives.
