E1 Managing Finance in a Digital World Flashcards
(123 cards)
1
Q
What is an example of a profit seeking organisation?
A
Companies
Partnerships
Sole Traders
2
Q
What is the primary objective of a profit seeking organisation?
A
Maximisation of the wealth of their owners
3
Q
What is an example of a not-for-profit organisation?
A
Public Sector organisations (Schools and Hospitals)
Private Sector Organisations (Charities)
4
Q
What is the objective of a not for profit organisation?
A
maximise the benefit to beneficiaries
5
Q
What are the 5 main functions of an organisation?
A
Operations Sales and Marketing HR IT Finance
6
Q
What are the three key roles of the finance function?
A
Enabling
Shaping how
Narrating how
7
Q
What is ethics?
A
The system of moral principles that examines the concept of right and wrong
8
Q
What is business ethics?
A
The application of ethical values to business behavior
9
Q
What does an ethical dilemma involve?
A
A situation where a decision maker has to decide what is the right or wrong thing to do
10
Q
What are the five fundamental principles?
A
Integrity Objectivity Professional Competence and Due Care Confidentiality Professional Behaviour
11
Q
What does Integrity mean?
A
Integrity means being straightforward, honest and truthful in all professional and business relationships.
12
Q
What does Objectivity mean?
A
Objectivity means not allowing bias, conflict of interest, or the influence of other people to override your professional judgement.
13
Q
What does professional competence and due care mean?
A
ongoing commitment to maintain your level of professional knowledge and skill so your client or employer received a competent professional service. Work should be completed carefully, thoroughly and diligently, in accordance with relevant technical and professional standards.
14
Q
What does confidentiality mean?
A
Respecting the confidential nature of information you acquire through professional relationships such as past or current employment.
15
Q
What does professional behaviour mean?
A
Requires you to comply with relevant laws and regulations.
16
Q
What does CSR mean?
A
Corporate social responsibility
17
Q
What is a stakeholder?
A
group or individual who has an interest in what the organisation does or an expectation of the organisation
18
Q
What are the three types of stakeholders?
A
Internal, connected and external
19
Q
What is an internal stakeholder?
A
intimately connected to the organisation, and their objectives are likely to have a strong influence on how it is run. E.g. Employees,
Managers/directors
20
Q
What is a connected stakeholder?
A
either invest in or having dealings with the form. E.g. Shareholders, customers, suppliers and finance providers.
21
Q
What is an external stakeholder?
A
do not tend to have a direct link to the organisation but can influence or be influenced by its activities. E.g. community, Government, Trade Unions and Competitors
22
Q
If the organisation is having difficulty deciding who the dominant stakeholder is what can they use?
A
Mendelow’s power-interest matrix
23
Q
What is corporate social responsibility?
A
refers to the idea that a company should be sensitive to the needs and wants of all the stakeholders in its business operations, not just the stakeholders.
24
Q
What must companies consider to be socially responsible?
A
environmental impact of production or consumption
health impact for consumers
fair treatment of employees
whether it is safe to experiment on animals
safety or products and production processes
25
What does traditionalist argue?
That companies should operate solely to make money for shareholders and that it's not a company role to worry about social responsibilities
26
What is the benefits of being socially responsible?
Differentiation
High Calibre Staff
Brand Strengthening
Lower Costs for example due to less packaging
27
What is corporate governance?
Set of processes and policies by which a company is directed, administered and controlled. It includes the appropriate role of the board of directors and the auditors of the company.
28
What are key indicators that there is a poor corporate governance?
```
Domination of the board by a single individual or group
No involvement by the board
An inadequate control function
Lack of supervision of employees
Lack of contact with shareholders
Misleading finance info and statements
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29
What does the UK corporate governance code include?
```
Rules on:
Board of directors
Directors powers and duties
Relationship of the company with directors
Financial Statements
Rules on meeting and resolutions
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30
What body is responsible for promoting high standards of corporate governance in the UK?
Financial Reporting Council (FRC)
31
If your company is listed on the London stock exchange what principles must you apply?
UK Corporate Governance Code
32
What is the advantages of having a remuneration committee?
Avoids the agency problem of directors determining their own levels of remuneration
Leaves the board free to make strategic decision about the future
33
What is the disadvantages of having a remuneration committee?
There is a danger that NEDs may recommend high remuneration for the executive directors in the hope that the executives will recommend high remuneration for the NEDs
There will be a cost involved in preparing for and holding the meetings.
34
What is a non-executive director (NED)?
Individuals who primarily only attend board meetings and the meetings of board committees.
35
What is remuneration?
money paid for work or a service
36
What is the purpose of an audit committee?
Review the work and effectiveness of the internal audit function.
Monitor the externals auditors independence and objectivity.
Short-list external audit firms when a change is needed.
37
What are the four I's of the 'information to impact' framework?
Information
Insight
Influence
Impact
38
What are the four A's of the 'information to impact' framework?
```
Assemble
Analyse
Advise
Apply
Acumen
```
39
What are some examples of internal sources of data?
Accounting records including sales ledger data, purchase ledger and fixed assets.
Payroll data such as number of employees and hours worked and paid.
Production data such as the number of rejected Units
40
What are some examples of external sources of data?
Suppliers e.g. product prices
Customers e.g. product requirement
Internet and other technology
The government
41
What are some limitations of using externally generated data?
May not be accurate
May not be up to date
May not meet business needs
May be difficult to gather
42
What does the acronym 'accurate' stand for when talking about information?
```
Accurate
Complete
Cost benefit
Understandable
Relevant
Adaptable
Timely
Easy to Use
```
43
What is quantitative data?
Information that can normally be expressed in numerical terms
44
What is qualitative data?
Information that cannot be expressed in numerical terms
45
What is qualitative data usually in the form of and what problem does this present?
opinions which is subjective in nature
46
How many blocks does the mintzberg suggest an organisation can be split into?
six building blocks
47
What are the six blocks of the mintzberg?
ideology
Strategic Apex
Middle Line
Operating Core
Sides:
Technostructure
Support Staff
48
What is the operating core of the mintzberg?
basic work of organisation. i.e. the individuals who perform the task of producing the product
49
What is the strategic apex of the mintzberg?
higher level of management responsible for formulating strategy and long-term plans
50
What is the middle line of the mintzberg?
links strat apex to operating core and includes middle and lower level management
51
What is the Technostructure of the mintzberg?
responsible for designing procedures and standards. Includes accountants and engineers.
52
What is the support staff of the mintzberg?
provides services (like sales and marketing or HR) to the organisation.
53
What is the ideology of the mintzberg?
organisation's values and beliefs (culture)
54
What is a entrepreneurial structure?
Entrepreneur
| Employees
55
What is the advantages of a entrepreneurial structure?
Fast decision making
Good Control
More Responsive to Market
Close bond to workforce
56
What are the disadvantages of an entrepreneurial structure?
Success is dependent on the capabilities of the owner
lack of career structure
Cannot cope with growth
57
What is the layout of the functional structure?
Board Of Directors
| Marketing Dep, Production Dep, Finance Dep, HR
58
What are the advantages of a functional structure?
Economies of Scale
Standardisation of outputs and systems
Specialists more comfortable
Career opportunities
59
What are the disadvantages of a functional structure?
Empire building and conflicts between function
Slow to adapt to market changes - decision making is slow due to the long chain of command
Cannot cope with rapid growth
60
What is a divisional structure?
Board of Directors
Div 1, Div 2, Div 3
Functions
61
What are the advantages of a divisional structure?
```
Enables product or geographical growth
Clear Responsibility
Training of general managers
Decision Making
Top management free to concentrate on strat matters
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62
What are the disadvantages of a divisional structure?
```
Duplication of business functions
Lack of goal congruence
Potential loss of control
Allocation of central costs can be a problem
Specialists may feel isolated
```
63
What does the matrix structure combine?
The benefits of divisional structure and functional structure.
64
What are the advantages of a matrix structure?
advantages of both functional and divisional structure
Flexibility
Encourages teamwork and the exchange of opinions and expertise
65
What are the disadvantages of a matrix structure?
Dual Command - Teams members may be answerable to a product manager and a functional manager resulting in potential confusion, stress, conflict.
66
What type of structure is Vistry Groups?
Divisional Structure
67
What type of structure is starbucks?
Matrix
68
What is a centralised structure?
The upper levels of an organisation's hierarchy retain the authority to make decisions
69
What is a decentralised structure?
The authority to make decisions is passed down to units and people at lower levels
70
What is the scalar chain?
The line of authority which can be traced up or down the chain of command, from the most senior member of staff to the most junior. Therefore relates to the number or levels of management with an organisations
71
What does the span of control consider?
how many people report to one superior
72
What factors influence the span of control?
Nature of the work
Type of Personnel
Location on Personnel
73
What is a hierarchical triangle (Traditional shape)?
containing a broad base of finance workers reporting upwards to a series of ever narrower management levels.
74
What is a segregated triangle (last 20 years)?
global and technological advances meant that much of the routine processing of the finance function could be carried out by share service centre. The bottom section represents the finance function activity carried out by these shared service centres.
75
What is a diamond shape (todays digital age)?
traditional triangular base is being eroded due to automation of many of the basic activities of the finance function.
76
What does the bottom of the hierarchical triangle show?
broad base of finance workers carrying out the operational 'enabling' roles of planning, forecasting and resource allocation.
77
What is the middle of the hierarchical triangle?
narrower set of management level finance workers who are reported to from level below and who carry out the 'shaping how' roles of performance management and control
78
What is the top of the hierarchical triangle?
Narrower group of senior finance staff. These staff are reported to from below and they concentrate on the 'narrating how' role of financial reporting.
79
What are the three things of the diamond?
flat top
central bulge
Erosion of triangular shape
80
What has eroded the traditional triangular shape?
Technological automation
81
What is the central bulge of the diamond shape?
Due to may of the higher value services now being offered by shared services where finance professionals will work as part of a multi-disciplinary teams, assembled in skills combination that support the business.
82
What does the flat top of the diamond shape show?
move to a collaborative finance leadership approach - with the CFO and other senior finance staff working with the CEO.
83
What are the four levels of the diamond shape?
Senior Finance Team - Lead finance team to achieve desired organisation impact
Strat business partnering - Work with internal and external stakeholders to influence and shape how the organisation creates/preserves value
Digital centres of excellence - specialists generate further insight about value creation and preservation in areas of specialism
Smart finance "facories" - assemble and extract data to provide info and prelim insight
84
What are the advantages of outsorcing?
Large supplier may benefit from economies of scale in production
Firm concerned with benefit from reduced capital expenditure
Reduced headcount
Research and development expenditure may also be saved
85
What are the disadvantages of outsorcing?
```
Cost Issues
Loss of core competence
Transaction costs
Risk of loss of confidential info
Difficulty agreeing contract terms
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86
What are the benefits of a shared service centre for finance?
```
Cost reduction due to:
Reduction in premises
potentially favourable labour rates
headcount reductions
potential tax savings
```
Improved level of ervice
87
What are the four levels of the finance function diamond?
Level 1: Senior Finance Team
Level 2: Strategic Business Partnering
Level 3: Digital Centres of Excellence
Level 4: Smart finance 'factories'
88
What are the four finance operations of level 4?
Financial Reporting
Management Accounting
Treasury Management
Internal Audit
89
What is financial reporting and what would it include?
```
Concerned with the production of financial information for external users in accordance with relevant accounting standards and legislation.
It includes:
Financial Statements
Tax reporting to HMRC
Regulatory Reporting
```
90
What are some of the statements that financial reporting produce?
Statement of Profit or Loss
Statement of Financial Position
Statement of Cash Flows
91
What are the normal sequence of steps in the accounting function?
Transactions
Day Books
Ledger Accounts
Financial Statements
92
Why do businesses need to prepare financial statements?
```
For the following stakeholders:
Owners
Managers
Banks
Employees
Suppliers and Customers
Government
```
93
What is management accounting?
provision of information to help managers and other internal users in their decision making, performance measurement, planning and control activities.
94
What are the three common reports that management accountants produce?
Cost Schedules
Budgets
Variance Reports
95
What is a cost schedule?
Lists the various expenses involved in manufacturing units of a product. This may be called a standard cost card.
96
What are the key business decisions that the MA reports can help make?
Pricing Decisions
Break-even analysis
Key Factor Analysis
Investment Appraisal
97
What are budgets useful for and what is the acronym?
```
CRUMPET
Co-Ordination
Responsibility
Utilisation
Motivation
Planning
Evaluation
Telling
```
98
What is a variance report?
compares the budget to the actual results achieved for the budget period and identifies any significant differences, or variances, between the two
99
What is Treasury Management?
The management of the funds of the business. namely cash and other working capital items, plus long-term investments, short-term and long-term debt, and equity finance.
100
What are the key roles of the treasury function?
```
Working capital management
Cash management
Financing
Foreign Currency
Tax
```
101
What is working capital?
The capital available for conducting the day-to-day operations of an organisation, calculated as the excess of current assets over current liabilities.
102
What are the advantages of a large balance in inventories?
Customers are happy since they can be immediately provided with goods.
103
What are the advantages of a large balance in Trade Receivables?
Customers are happy since they like credit.
104
What are the advantages of a large balance in Cash?
Creditors are happy since bills can be paid promptly.
105
What are the advantages of a large balance in trade payables?
Preserves your own cash
106
What are the advantages of a small balance in Inventories?
Low Holding costs. Less risk of obsolescence costs.
107
What are the advantages of a small balance in trade receivables?
Less risk of irrecoverable debts. Good for cash flow.
108
What are the advantages of a small balance in Cash?
More can be invested elsewhere to earn profits.
109
What are the advantages of a small balance in Trade payables?
Suppliers are happy and may offer discounts.
110
What are two types of financing?
Debt - involving cash from a thirds party and promising to repay.
Equity - involves selling a stake in the business in order to raise cash.
111
What is internal audit?
Independent activity, established by management to examine and evaluate the organisation's risk management processes and systems of control, and to make recommendations for the achievement of company objectives.
112
What tasks is internal audit expected to carry out?
Reviewing internal controls and financial reports.
Reviewing risk management systems.
Carrying out special assignments (e.g. fraud investigations)
Conducting operational reviews
113
What three prerequisites are required for fraud to occur?
Dishonesty
Opportunity
Motivation
114
What factors may indicate an increased risk of fraud and error?
Management domination by one person, or a small group of people
Unnecessarily complex corporate structure
Poor Staff Morale
Personnel who do not take leave/holidays
lavish lifestyles of employees
Inadequate segregation of duties
Lack of monitoring of control systems
Unusual Transactions
Payments for services disproportionate to effort
115
What are some implications of fraud?
```
Loss of shareholder confidence
Loss of Assets
Financial Difficulties
Collapse of the company
Fines by tax and other authorities
```
116
Who is included in the specialist areas?
Financial planning and analysis
Taxation
Project Management
Project Appraisal
117
What are the two main areas that taxation focuses on?
Tax Compliance
| Tax Planning
118
What is project management?
Integration of all aspects of a project, ensuring that the proper knowledge and resources are available when and where needed, and above all to ensure the expected outcome is produced in a timely, cost effective manner.
119
What are the five stages to project management?
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Initiation
Planning
Executing
Controlling
Review and Close
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120
What is project appraisal?
Takes place as part of the first stage of the project management process and will involve and assessment and evaluation of the many decisions and potential outcomes of a particular project.
121
What is the most important project decision that will need to be appraised?
capital investment since the organisation may commit a substantial proportion of its resources here and this commitment may be long-term or irreversible.
122
How do you appraise a potential capital project?
Estimate costs and benefits from the investment
Select an appraisal method and use it to assess if the investment is financially worthwhile.
Decide whether or not to go ahead with the project.
123
What are some appraisal method that are used to assess how financially worthwhile investments are?
Payback
Net Present Value (NPV)
Internal Rate of Return (IRR)
