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CIMA - F3 > 1. Business Objectives > Flashcards

1. Business Objectives Flashcards

1
Q

What is an organisations mission?

A

The fundamental objective of the entity

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2
Q

What is the principle goal of a public organisation?

A

To provide services that are deemed important by society

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3
Q

What are the 3 common categories of objectives for a public organisation?

A
  1. Demonstrate efficiency in the allocation and use of their resources
  2. Demonstrate balancing of the financial budget
  3. Minimise wastage levels
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4
Q

What are the 3 main categories of for profit, private organisations?

A
  1. Sole Trader
  2. Partnership
  3. Limited Company
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5
Q

What are the 2 main categories of for not for profit, private organisations?

A
  1. Mutuals
  2. Charities
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6
Q

What is the principle goal of a limited company?

A

Maximising the wealth of its shareholders

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7
Q

What 2 things do shareholders expect?

A
  1. A vote in how the company is run
  2. Returns in the form of increasing share price and dividend payments
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8
Q

What is the primary goal of a charity?

A

To provide a service for the whole of society/a specific group

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9
Q

What is the primary goal of a mutual?

A

To provide it’s members with services

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10
Q

What are the 3 Es of value for money objectives of a not for profit?

A
  1. Efficiency - minimum wastage of resources
  2. Economy - quality at minimum cost
  3. Effectiveness - achieving objectives
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11
Q

What is the goal of setting non financial objectives?

A

To satisfy wider stakeholder groups

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12
Q

What is the equation for earnings?

A

Profit after tax and preference dividends

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13
Q

What is the equation for ROCE?

A

PBIT / TALCL

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14
Q

What is the equation for Return on Equity?

A

Earnings / Shareholder Funds

where shareholder funds are share capital + reserves

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15
Q

What is the equation for gross profit margin?

A

Gross Profit / Revenue

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16
Q

What is the equation for operating profit margin?

A

PBIT / Revenue

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17
Q

What is the equation for net profit margin?

A

PAT / Revenue

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18
Q

What is the equation for asset turnover?

A

Revenue / TALCL

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19
Q

What is the alternative equation for ROCE?

A

Operating profit margin x asset turnover

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20
Q

What is the equation for current ratio?

A

Current Assets / Current Liabilities

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21
Q

What is the equation for quick ratio?

A

Current Assets - Inventory / Current Liabilities

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22
Q

What is the equation for inventory turnover?

A

COS / Inventory

23
Q

What is the equation for inventory days?

A

Inventory / COS x 365

24
Q

What is the equation for receivables days?

A

Receivables / Credit Sales x 365

25
Q

What is the equation for payables days?

A

Payables / Credit Purchases x 365

26
Q

What is the equation for the working capital cycle?

A

Inventory Days + Receivables Days - Payables Days

27
Q

What 2 things do gearing ratios indicate?

A
  1. The degree of risk attached to the company
  2. The sensitivity of earnings and dividends to changes in profitability and activity level
28
Q

What 3 things does long term debt comprise of?

A
  1. Bank borrowings and bonds
  2. Overdrafts
  3. Redeemable preference shares (irredeemable are equity)
29
Q

What is the equation for the debt:equity ratio?

A

Long term debt / Equity

30
Q

What is the equation for gearing?

A

Long term debt / Equity + long term debt

31
Q

What is the equation for the debt ratio?

A

Long term debt / Total Assets

32
Q

What is the equation for interest cover?

A

PBIT / Interest Expense

33
Q

What is the equation for total shareholder return?

A

Dividend + Change in price / original price

34
Q

What is the equation for EPS?

A

Earnings / Number of Shares

35
Q

What is the equation for earnings yield?

A

EPS / Share Price

36
Q

What is the equation for dividend yield?

A

Dividends per share / Share price

37
Q

What is the equation for dividend payout ratio?

A

Dividends per share / EPS

38
Q

What is the equation to relate earnings yield (1), dividend yield (2) and dividend payout ratio (3)?

A

(1) x (3) = (2)

39
Q

What is the equation for P/E ratio?

A

Share Price / EPS OR Market Cap / Earnings

40
Q

What happens to cost of borrowings when interest rates rise?

A

Become more expensive

41
Q

What happens to borrowing demand when interest rates rise?

A

Demand decreases as it is more attractive to save

42
Q

What happens to domestic currency when interest rates rise?

A

Strengthens due to an increase in deposits by foreign depositors

43
Q

What happens to bond values when interest rates rise?

A

They fall

44
Q

What happens to inflation when interest rates rise?

A

Inflation reduces due to decreased demand

45
Q

What happens to business with rising inflation?

A

Costs increase and so they will often increase prices

46
Q

What happens to investment with rising inflation?

A

Less investments due to uncertainty about the future

47
Q

What happens to exports with rising inflation?

A

Exports are less competitive (as domestic prices are high)

48
Q

What happens to imports with rising inflation?

A

Imports are more attractive

49
Q

What happens to domestic currency with rising inflation?

A

Weakens

50
Q

What happens to interest rates with rising inflation?

A

Interest rates rise to compensate savers for inflation

51
Q

What happens to foreign currency transactions when foreign currency strengthens? (Exchange rates rise)

A

They are worth less

52
Q

What happens to exports when foreign currency strengthens? (Exchange rates rise)

A

They are less competitive

53
Q

What happens to imports when foreign currency strengthens? (Exchange rates rise)

A

They are more attractive

CIMA - F3 (13 decks)

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