Chapter 1: company structures

Question 1

What is a sole trader?

Answer 1

A business owned and operated by one person, with full control and unlimited liability.

Question 2

What is a partnership?

Answer 2

A business owned by two or more people who share profits, responsibilities, and liabilities.

Question 3

What is a limited liability company (Ltd)?

Answer 3

A legally separate business entity where owners have limited liability and the company pays its own taxes.

Question 4

What is a public sector company

Answer 4

A business owned by the government, set up to provide public services or manage national interests, often not purely for profit.
It is owned by the government, focuses more on public benefit than profit, and is funded by taxpayers or state budgets.

Question 5

What is a public limited company (PLC)?

Answer 5

A company that can sell its shares to the public and is listed on a stock exchange, with limited liability for its shareholders.

Question 6

Who owns a PLC?

Answer 6

Shareholders from the general public and institutions

Question 7

What’s a key advantage of an Ltd over a PLC?

Answer 7

More control and privacy for owners. Plc is Subject to strict regulations, must publish detailed financial reports and audits

Question 8

What is a subsidiary company?

Answer 8

A company controlled (more than 50% owned) by a parent or holding company.

Question 9

What is a conglomerate?

Answer 9

A large corporation owning multiple businesses in unrelated industries.

Question 10

Is a subsidiary a separate legal entity?

Answer 10

Yes, it has its own legal status but is controlled by the parent.

Question 11

Why do companies form conglomerates?

Answer 11

To diversify risk, expand markets, and increase profitability.

Question 12

Example of a conglomerate?

Answer 12

Meta/ A.P. Moller-Maersk

Question 13

Example of a subsidiary?

Answer 13

WhatsApp, a subsidiary of Meta Platforms, Inc.

Question 14

What is horizontal integration?

Answer 14

Merging with or acquiring a competitor at the same production stage.

Question 15

What is vertical integration?

Answer 15

Merging with or acquiring a company at a different stage of the supply chain.

Question 16

What is the difference between the Accounts Department and the Finance Department?

Answer 16

Accounts Department:
Handles day-to-day financial transactions like bookkeeping, payroll, invoicing, and tax compliance.
Focus: Past and present records.

Finance Department:
Manages financial planning, budgeting, forecasting, investment, and strategy.
Focus: Future growth and decision-making.

Question 17

What is management accounting?

Answer 17

Management accounting involves preparing internal financial reports and analysis to help managers plan, control, and make decisions.
Examples: cost analysis, break-even analysis, budgeting, performance reports.
Focus: Future-oriented, internal use.

Question 18

What is credit control?

Answer 18

Credit control is the process of managing and monitoring customer credit, ensuring customers pay on time and reducing the risk of bad debts.
Tasks: credit checks, setting credit limits, sending reminders, debt collection.
Focus: Protects cash flow.

Question 19

What is budgetary control?

Answer 19

Budgetary control means comparing actual performance with budgeted figures, identifying variances, and taking corrective action.
Helps ensure spending stays within limits and targets are met.
Focus: Controlling costs and achieving objectives.

Question 20

Why must limited companies publish annual accounts?

Answer 20

To comply with the law and provide transparency to stakeholders.

Question 21

Which statement shows if a company is profitable?

Answer 21

Profit and loss statement.

Question 22

Which statement shows if a company is liquid (has cash)?

Answer 22

Cash flow statement.

Question 23

Which statement shows the company’s net worth?

Answer 23

Balance Sheet

Question 24

What is the Profit and Loss account?

Answer 24

shows the income, expenditure and profits of a company over a period of time

Question 25

what is a balance sheet

Answer 25

describes the company's assets, liabilities and equity at a given point in time

Question 26

what is the cash flow statement

Answer 26

report's the company's cash-flow activities

Question 27

What is a fixed asset in shipping? Give examples.

Answer 27

A fixed asset is a long-term resource used in the business (held for more than a year, not for resale). Shipping examples: Cargo vessels Cranes and port equipment Ship engines Company office buildings

Question 28

What is a current asset in the shipping industry? Give examples.

Answer 28

A current asset is expected to be used or turned into cash within 12 months. Shipping examples: Bunker fuel (inventory) Freight income receivable (unpaid invoices) Cash on hand Prepaid insurance or port charges

Question 29

What are short-term liabilities in shipping? Give examples.

Answer 29

Short-term liabilities are obligations due within one year. Shipping examples: Unpaid port fees Crew salaries owed Spare parts invoices not yet paid Short-term loans or overdrafts

Question 30

What is a long-term liability in shipping? Give examples.

Answer 30

Long-term liabilities are debts due after one year. Shipping examples: Bank loans for buying ships Mortgages on vessels Long-term equipment leases Bonds issued to fund fleet upgrades

Question 31

How do fixed assets differ from current assets in shipping?

Answer 31

Fixed assets: Used long-term (e.g. vessels, cranes), not for resale Current assets: Used within 12 months (e.g. fuel, freight receivables, cash)

Question 32

Why is it important to separate assets and liabilities by term?

Answer 32

To assess a shipping company's liquidity (short-term health) and solvency (long-term stability), which helps stakeholders make informed decisions.

Question 33

What is the debt-to-equity ratio?

Answer 33

It's a measure of how much a company is financed by debt vs equity. Formula: Total Liabilities ÷ Shareholders’ Equity Importance: Shows financial leverage and risk — a high ratio means more debt, higher financial risk. If a shipping company has: Total liabilities: $40 million Shareholders’ equity: $20 million Debt-to-Equity= 20/40 =2.0 This means the company uses $2 of debt for every $1 of equity.

Question 34

What is Return on Equity (ROE) and why is it important?

Answer 34

ROE measures how efficiently a company is using its shareholders’ equity to generate net profit. ROE = Net Profit ÷ Shareholders' Equity × 100 Shows how efficiently equity is used to generate profit. High ROE = good return for investors.

Question 35

What is the Current Ratio and what does it tell you?

Answer 35

Current Ratio = Current Assets ÷ Current Liabilities Measures ability to pay short-term debts. Ratio > 1 = more assets than liabilities → good liquidity.

Question 36

who are shareholders

Answer 36

A shareholder is a person, institution, or entity that owns shares (or stock) in a company/provides capital. By owning shares, they have a claim on the company’s profits, assets, and voting rights.

Question 37

What are ordinary shares and what rights do they give shareholders?

Answer 37

Ordinary shares: The main type of shares in a company. Rights: Voting rights, dividends (variable), residual claim on assets after debts.

Question 38

What are preference shares and what makes them different from ordinary shares?

Answer 38

Preference shares: Priority dividends over ordinary shares. Rights: Fixed dividends, priority in liquidation, no or limited voting rights.

Question 39

What are debentures shares and who usually holds them?

Answer 39

A debenture is a long-term debt instrument issued by a company to raise capital. Debenture holders are creditors, not owners of the company. The company agrees to pay interest at a fixed rate and repay the principal amount at a later date. Debenture holders are not shareholders, and they don’t have voting rights in the company. Debentures are usually secured (backed by assets) or unsecured (based on the company’s creditworthiness). Interest on debentures is fixed, unlike dividends for shareholders, and must be paid regardless of whether the company makes a profit.