Fundamentals of Financial Management Flashcards
What is the objective of the business?
Generally to maximise shareholders’ wealth.
What is financial growth?
Financial growth is concerned with increasing some financial area, such as turnover or revenue.
What is financial efficiency?
FInancial efficiency is concerned with controlling the costs, and this, in turn, will have an effect on profits.
Examples of non-financial objectives?
Environmental concerns, Customer satisfaction, Health and safety, Research and Development
What are stakeholders?
A stakeholder is anyone who is impacted by a company or organisation’s decisions, regardless of whether they have ownership in that company.
What are shareholders?
Shareholders are those who have partial ownership of a company because they have bought stock in it.
Characteristics of shareholders
Owners of a business, they control the business.
Examples of stakeholders
Shareholders, employees, customers, creditors, lenders etc.
What is the shareholder theory?
Shareholder theory is the view that the only duty of a company is to maximise the wealth of the shareholders.
What is the stakeholder theory?
Stakeholder theory is the view that all stakeholders are equally important and their needs/wants must be considered.
Characteristics of risk and return
The higher the potential return the higher the associated risk.
Objective is to maximise the return and minimise the risk.
Often dependent on the overall risk appetite of the company.
Low risk = low return
High risk = higher potential return.
What are ethics?
Ethics is concerned with the study of morality. It involves practices and activities that are considered to be right and wrong, together with the rules that govern those activities and the values to which those activities relate.
Business ethics
Business ethics seek to explore the implications of general ethics for the conduct of business. Ethical issues challenge the function of business and financial management.
Traditional accounting
Traditional accounting is monologic, meaning it primarily serves the interests of shareholders and emphasizes financial performance, cost and efficiency and return on investment.
Dialogical accounting
Dialogical accounting expands beyond traditional financial reporting, integrating multiple stakeholder perspectives, non-financial considerations and participatory decision-making.
Some factors that are affected by dialogic accounting.
Workplace health and safety issues, fair employment opportunities, ethical advertising standards, environmental pollution concerns etc.
Three main types of business organisation structures:
Sole trader, Partnership, Limited company
Advantages of sole trader
Owner works for themselves, low start-up costs, few legal requirements, owner keeps all profits and has full control of the business.
Disadvantages of sole trader
Unlimited liability for owner, few sources of finance, owner responsible for all aspects of business.
Advantages of partnership business structure
Owners are self-employed and have full control of business and profits, few legal formalities
Disadvantages of partnership business structure
Unlimited liability for each owner, partners have full responsibility for all aspects of the business.
Advantages of registered company
Owners have limited liability, access to greater sources of funding.
Disadvantages of registered company
Complicated to set up, subject to more legal constraints, requires much more administration
What is the agency theory?
Agency theory explains the relationship between agents and principals. An agent acts on a principal’s behalf. A principal relies on an agent to execute certain business or financial decisions on their behalf and to represent their interests without regard for self-interest.
