Learning Unit 1 Flashcards
(19 cards)
What is financial management?
A process of creating value in an organisation through planning, organising, directing, and controlling financial activities.
How is value created in financial management?
When the wealth of the owner/s of a business increases over time.
What is management accounting?
Information gathering for internal decision making purposes, focused on planning and control.
What are the main responsibilities of a financial manager?
- Capital budgeting * Capital structure * Working capital management * Dividend decisions
What is the goal of maximisation of shareholder wealth?
To enhance the value of shareholders’ investments.
What decisions must a financial manager make?
- Internal investments * External investments * Disinvestments
What are the goals of financial management?
- Profit maximisation * Maximising the rate of return * Maximising shareholders’ return
What is profit maximisation?
To increase the net after-tax profit attributable to ordinary shareholders.
What are some flaws of profit maximisation?
- Accounting profit can be manipulated * Ignores timing and risk issues
Who are internal stakeholders?
- Managers * Employees * Shareholders
Who are external stakeholders?
- Local communities * Pressure groups * Government * Customers * Suppliers * Bankers
What is agency theory?
A relationship between management and shareholders where management acts as agents for shareholders.
What is the agency problem?
A conflict between agents’ self-interest and the interests of the principals (shareholders).
What is business ethics?
A system of moral principles examining right and wrong in business.
What are the fundamental principles of CIMA’s ethical guidelines?
- Integrity * Objectivity * Professional competence and due care * Confidentiality * Professional behaviour
Why are business ethics important?
They enhance ethical behaviour, which is likely to be favored by customers, employees, and collaborators.
Fill in the blank: The prime purpose of a company is to maximize _______.
[shareholder wealth]
What are minimum business ethics standards?
- Paying decent wages and pensions * Providing good working conditions * Paying suppliers on time * Using sustainable sources
What impact does ethical behaviour have on risk?
Reduces risk, including reputational damage.
