SU1 - Financial Goal of a Firm Flashcards Preview

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Flashcards in SU1 - Financial Goal of a Firm Deck (13):

What is the purpose of a company's mission statement?

It provides DIRECTION and FOCUS to the firm's management on how to best utilise its resources in a competitive environment.


Provide a list of 5 forces of the Competitive Environment.

1. Rivalry within an industry
2. Bargaining power of suppliers
3. Bargaining power of clients
4. Threat of new entrants
5. Threat of new tehcnology


Provide the 3 Strategies used that provides a company with a competitive advantage.

1. Cost Leadership
2. Differentiation
3. Focus Strategy


Explain Cost Leadership.

It involves:
1. Sustainable mass production and
2. Marketing of standardised items at a cost below that of competitors.


What is meant by the Focus Strategy?

Focus on serving a narrowly defined market, called a market niche.


What 5 generic strategies must reflect in the marketing plan?

1. Customer's needs
2. Product or services to be provided
3. Price at which it can be sold
4. Promotion methods to be used
5. Distribution of products and service to the client.


What are the limitations within the formation of a public company?

1. Must have at least ONE director
2. Can have between 1 and 50 Shareholders


What are the limitations within the formation of a private company?

1. Must have a minimum of TWO directors
2. Can have between 7 and infinite number of shareholders.


Provide the 4 main asset classes.

1. Real Estate - rent generating assets
2. Shares - dividend generating assets
3. Fixed interest securities - interest generating assets
4. Cash


How can we increase the value of the firm in order to accomplish our long term goals by increasing the wealth of the owners?

1. We could invest in assets that would add value to the firm.
2. We could keep the firm's cost of capital as low as possible.


How can we accomplish the short term goals?

1. Profitability
2. Liquidity
3. Sovency


Explain Solvency.

It refers tot he extent to which the firm's assets exceeds its liabilities.


What are the Fundamental Principles of Financial Management?

1. Cost-Benefit Principle
2. Risk-Return Principle
3. Time Value of Money Principle