Lecture 1&2 : Introduction Financial Management, objectives, principles and principles of financial positions

Question 1

What is the definition of Financial Management?

Answer 1

Secures and presents company success from the CFO’s perspective.

Question 2

What is the internal role of the CFO?

Answer 2

Ensures decision-relevant information is available in time and quality for value-adding resource use.

Question 3

What is the external role of the CFO?

Answer 3

Responsible for financial reporting and capitalization.

Question 4

In SGMM, what type of process is Financial Reporting?

Answer 4

Support process.

Question 5

Why is Financial Reporting considered a support process in SGMM?

Answer 5

It enables capital allocation, creating opportunities and supporting organizational capability to act.

Question 6

What is the role of management accounting & performance measurement in SGMM?

Answer 6

A management process that provides financial info for operational and strategic decisions.

Question 7

What are the 3 competing objectives of Financial Management?

Answer 7

Liquidity, profitability, and risk minimization.

Question 8

Why can these objectives not be achieved simultaneously?

Answer 8

Optimizing one often worsens another (e.g. high liquidity may lower returns).

Question 9

Why is financial reporting important for companies?

Answer 9

Financial resources are survival-critical and required for decision-making and empowerment.

Question 10

Role of internal financial management?

Answer 10

Prepares decision necessities and supports internal decisions.

Question 11

Role of external financial management?

Answer 11

Enacts the environment by securing the right capital at the right time under right conditions.

Question 12

What causes conflict in the principal-agent relationship?

Answer 12

Information asymmetry and misaligned interests.

Question 13

How does financial reporting solve the principal-agent problem?

Answer 13

Reduces asymmetry via standards and auditor checks.

Question 14

Who are the three main actors and their roles in financial reporting?

Answer 14

Investors (define rules), Management (prepare reports), Auditors (check compliance).

Question 15

Main objective of financial statements?

Answer 15

Provide useful info on assets, financial position, and income for decision-making.

Question 16

Who are typical audiences for annual reports?

Answer 16

Management, employees, shareholders, creditors, potential investors.

Question 17

Name three additional elements in financial reporting besides the annual report.

Answer 17

Ad hoc publication, pro-forma reports, interim reporting.

Question 18

What is the purpose of ad-hoc publications?

Answer 18

Immediate release of price-sensitive info to prevent insider trading.

Question 19

When are pro-forma reports used?

Answer 19

During mergers, acquisitions, or spin-offs.

Question 20

What is the Going Concern principle?

Answer 20

Assets are valued assuming the business continues into the future.

Question 21

When are liquidation values used?

Answer 21

During imminent bankruptcy or planned disposal.

Question 22

What is the Accrual Principle?

Answer 22

Revenue and expenses are recorded in the period they occur, not when cash is exchanged.

Question 23

What is included in the Statement of Financial Position?

Answer 23

Assets, liabilities, and equity.

Question 24

What are examples of current assets?

Answer 24

Cash, inventory, receivables, stocks.

Question 25

What is equity?

Answer 25

The residual value after deducting liabilities from assets.

Question 26

Criteria for recognizing an asset?

Answer 26

Control, past event, future economic benefit, measurable value.

Question 27

Criteria for recognizing a liability?

Answer 27

Present obligation, past event, probable outflow, measurable.

Question 28

What is the historic cost approach?

Answer 28

Initial: Acquisition cost; Subsequent: depreciation/impairment

Question 29

What is the fair value approach?

Answer 29

Initial and subsequent valuation based on current market values.

Question 30

Difference between depreciation and impairment?

Answer 30

Depreciation: systematic over time; Impairment: sudden, one-time.

Question 31

What does FIFO mean in inventory valuation?

Answer 31

First in, first out – oldest inventory is sold first.

Question 32

What does LOCOM stand for?

Answer 32

Lower of cost or market – inventory must be adjusted if market value falls.

Question 33

Three criteria of intangible assets?

Answer 33

Identifiable, non-monetary, no physical substance.

Question 34

How are intangible assets amortized?

Answer 34

Systematically over useful life.

Question 35

How are R&D expenses treated under IFRS?

Answer 35

Research: expensed; Development: capitalized if 6 criteria met.

Question 36

What is goodwill?

Answer 36

Excess of purchase price over the book value of acquired net assets.

Question 37

What is a provision?

Answer 37

Probable obligation with a reliable estimate of outflow.

Question 38

What is a contingent liability?

Answer 38

Possible obligation with uncertain amount or probability, disclosed in notes.