1. Financial management function

Question 1

What are the three key areas of financial management?

Answer 1

• Investment: non-current assets (investment appraisal) and current assets (working capital management)
• Finance: raising funds
• Dividends: distribution/reinvestment of profits

Question 2

Business objectives can be at three levels. What are they and what do they mean?

Answer 2

• Corporate: decisions made by senior management in relation to the whole company/
• Business: decisions made by separate business units or intermittent management.
• Operational: day to day decisions

Question 3

How do you calculate EPS growth?

Answer 3

Profit after tax + preference share dividends / total shares in issue.

Question 4

What are some issues with profit maximization? (3)

Answer 4

• Time lag
• Risk averse shareholders leave
• Profit v cash

Question 5

Not-for-profit organizations measure themselves on what, which consists of? (3)

Answer 5

Value for money: based off

• Economy: minimize cost of inputs
• Efficiency: ratio of outputs to inputs
• Effectiveness: measures output to ensure objectives been achieved.

Question 6

How can you measure achievement of corporate objectives? (4)

Answer 6

• Profitability and return
• Debt and gearing
• Liquidity
• Investment