The Meaning Of Financial Management

Question 1

What is shareholder primacy?

Answer 1

The pursuit of profit only at all costs without considering the wishes of broader stakeholders. Staut compares this to fishing with dynamite, catch lots of fish today, none tomorrow

Question 2

State the 6 capitals

Answer 2

Finance
Human
Intellectual
Manufactured
Natural
Social and Relationship

Question 3

How is the CFO involved in the formulation of the Integrated Report ?

Answer 3

CFOs are informed by the CG rules described in the King IV report which holds the governing body and Audit Committee accountable for the integrity of the IR and overseeing the compilation process.

Question 4

Explain what it means when we say that the FM has a stewardship responsibility.

Answer 4

The FM has a responsibility to care about the legislation and frameworks within which the business operates. Thus a fiduciary duty of care exists on the part of the FM charged with the financial management responsibility

Question 5

Explain the concept of the 3Ps.

Answer 5

It is sometimes referred to as the Triple Bottom Line…

Question 6

Explain the 3Es in relation to non-profit or government organizations.

Answer 6

Economic, Efficient and Effective use of resources under the control of the said organization.

Question 7

Explain the 3Es in relation to non-profit or government organizations.

Answer 7

Economic, Efficient and Effective use of resources under the control of the said organization.

Question 8

Explain “Economic “

Answer 8

The acquisition of resources at the lowest cost

Question 9

Explain “Efficient “.

Answer 9

How well the resources are being used (doing things correctly)

Question 10

Explain “Effectiveness “

Answer 10

How well the resources have been deployed (doing the correct things)

Question 11

What are the 6 Capitals

Answer 11

Financial Capital
Manufactured Capital
Intellectual Capital
Human Capital
Social and Relationship Capital
Natural Capital

Question 12

King IV is for Inclusive Capitalism. Explain this.

Answer 12

Financial Capital is only of six to consider in doing business.

Question 13

Explain Sustainable Development

Answer 13

Dvt that meets the needs of the present without compromising the ability of future generations to meet their needs

Question 14

Explain Stakeholder Inclusivity

Answer 14

There is an interdependent relationship between the entity and the stakeholders

Question 15

Explain the Stewardship model as a perspective of doing business

Answer 15

The stewardship model emphasizes businesses serving society by prioritizing ethics, resource stewardship, and societal advancement over profit.

Question 16

Explain Conscious Capitalism

Answer 16

It embodies the idea that profit and and prosperity go hand in hand with social justice and environmental stewardship and that entities that practice conscious capitalism have a higher purpose than maximisation of shareholder returns

Question 17

State the other phrase for a business model

Answer 17

Value-creation model

Question 18

Explain the Value-creation model

Answer 18

The business processes and activities and outputs that result in increased, decreased, or transformed outcomes, including neutral, positive, or negative effects.”

Question 19

Define a stakeholder

Answer 19

These are entities or individuals that can affect or are affected by the actions and activities of the entity

Question 20

State the specific disclosure requirements in respect of stakeholder relationships as envisaged by the King IV Report

Answer 20

1. An overview of the arrangements for governing and managing stakeholder relationships
2. Key areas of focus for the reporting period
3. Actions taken to monitor the effectiveness of stakeholder management
4. Future areas of focus

Question 21

Why is stakeholder engagement so important?

Answer 21

1. Enables the entity to better understand the operating environment
2. Enables more effective management of risk
3. Enables more equitable social investment and development
4. Enables product and service improvement

Question 22

Explain Integrated Reporting

Answer 22

Is a combination of varying reports (financial, mgt commentary, governance and remuneration and sustainability reporting) explaining an entity’s ability to create and sustain value

Question 23

Name the surprise element of the Integrated Report

Answer 23

Should communicate future strategy choices and the KPIs the entity will measure in future periods

Question 24

What is kę

Answer 24

The shareholders required return (for the risk taken in investing). The higher the risk, the greater the potential return needs to be to attract investors or justify the risk.

Question 25

Define Capital Markets

Answer 25

These are markets which trade in long term finance eg the JSE

Question 26

There is primary finance and secondary finance. Differentiate the two:

Answer 26

Primary Finance: Raising new capital by issuing fresh securities (e.g., IPOs). Funds go directly to the issuer. Secondary Finance: Trading existing securities in markets (e.g., stock exchanges). Funds flow between investors.

Question 27

State the stock exchanges in South Africa

Answer 27

The JSE The Cape Town Stock Exchange (originally A4x) A2X ZAR X had it’s license suspended by the FSCA (Financial Sector Conduct Authority) due to liquidity and capital concerns

Question 28

Define underwriting costs

Answer 28

Underwriting costs are the expenses associated with the process of raising capital through the issuance of securities. These costs typically include fees paid to underwriters (such as investment banks or financial institutions) for managing and guaranteeing the issuance, legal and regulatory expenses, marketing, and other related costs.

Question 29

There are two ways to raise equity on the JSE

Answer 29

1. The Main Board 2. The Alternative Exchange (Alt x)

Question 30

List the requirements for raising equity on the JSE via the Main Board

Answer 30

1. Subscribed capital of at least R50m in the form of at least 25 million issued shares 2. Satisfactory profit history of at least 3 years with audited financial statements and audited profits of at least R15m before tax in the year prior 3. Subscribed capital of R500m 4. A company must run an independent business with a history of revenue, control at least 50%+1 voting shares of its assets, or have significant involvement in managing its assets. 5. At least 20% of each class of equity security should be held by the public to maintain reasonable liquidity.

Question 31

State the requirements for raising equity finance on the JSE via the Alternative Exchange (Alt x)

Answer 31

1. The Applicant issuer must appoint a Designated Advisor 2. Share capital of at least R2m (including reserves but excluding minority interest) 3. The public should hold at least 10% of each class of equity security to ensure reasonable liquidity 4. Directors must complete or arrange to complete the Alt* Director Induction Program (DIP). 5. An executive financial director with proven experience must be appointed and confirmed in writing to the JSE by the audit committee. 6. A profit forecast is needed for the rest of the financial year and one full year, unless full historical data for the last 3 years is available. 7. 50% of each director’s and DA’s shares must be held in trust by auditors or attorneys to prevent public trading. 8. The applicant must control at least 50% + 1 of the voting shares over its assets.

Question 32

What significant thing happened to the South African Pension Funds Act in 2011

Answer 32

Since 2011, the South African Pension Funds Act requires pension funds to consider ESG factors for long-term asset performance.

Question 33

What is the book value of equity?

Answer 33

Share capital on the statement of financial position plus the shareholder’s reserves.