Module 1 - Internal Financial Strategy

Question 1

What are the agency relationships and agency risk?

Answer 1

The relationship between the directors and the shareholders.

The risk this comes misaligned- combated by appropriate remuneration.

Question 2

What is overtrading?

Answer 2

When you have more trade creditors than trade debtors and trade debtors aren’t paying.

Question 3

What is a corporate plan?

Answer 3

Corporate plan is the future direction of the company and is used to set the financial plan.

Question 4

What should a directors remuneration be based on?

Answer 4

Increase in pre/post tax profits.

Never share price as market can increase due to factors outside of the directors control.

Question 5

What is working capital?

Answer 5

Stock + Debtors + Cash - Current Liabilities

Question 6

What are the financial managers three main activities?

Answer 6

1. Investment
2. Financing
3. Management of daily financial activities

Question 7

What is the financial plan?

Answer 7

The financial plan should express post tax financial returns from capital investment consistent with the organisations strategy and should state the long term capital structure.