11: Finance Awareness

Question 1

Strategic financial management is the:

Answer 1

 Identification of the possible strategies to maximise an organisation’s NPV (shareholder wealth)
 The allocation of scarce capital resources
 The implementation and monitoring of the chosen strategy

Question 2

Factors affecting choice of financial strategy

Answer 2

 Effect on cash position
 Effect on profits
 Shareholders’ wishes
 Economic and market considerations
 Restrictions – legal / regulatory / financiers (banks)
 Risks
 Timescale

Question 3

Financial strategy decision-making
The checklist for assessing strategic options is also applicable to financial strategies, namely:

Answer 3

 Suitability: Is this option appropriate considering the strategic position and outlook of the
business?
 Acceptability: Will the option gain stakeholder support?
 Feasibility: Does the firm have the resources and competences required to carry out the
strategy?

Question 4

Leasing

Answer 4

IFRS 16 Leases sets out the accounting treatment for reporting lease transactions and provides a framework for investors to understand how an entity deals with the financing it accesses in the form of leases.
See chapter 21 for details of the accounting treatment of leases.

Question 5

Brexit
Some of the issues that might arise for businesses as a result of Brexit include:

Answer 5

 Admin and delays when goods leave/enter the UK
 Tariffs may have to be paid
 VAT implications
 Legality of employing non-UK citizens
 Potential amendments to EU-derived laws and regulations

Question 6

Businesses are put under increasing pressure to go above and beyond their main business activities to create value for society. Some reasons for this include:

Answer 6

 Pressure from stakeholder groups
 Reputational impact
 Maintaining staff motivation
 Potential cost reduction through using resources more efficiently

Question 7

The scope of corporate responsibility frequently includes:

Answer 7

 Health and safety (including customer and supplier injury)
 Environmental protection (energy use, emissions, water use, recycling, etc.)
 Staff welfare (stress, personal development, equal opportunities)
 Customer welfare (content and description of products, non-exclusion of customer groups, fair dealing and treatment)
 Supply-chain management (ethical trading, packaging, transport)
 Ethical conduct
 Engagement with social causes

Question 8

Sustainability means meeting the needs of the present, without compromising the ability of future generations to meet their needs. This requires a business to consider its effect on

Answer 8

 Society (health & safety, worker’s rights and fair pay, equal opportunities, data protection)
 The environment (pollution, emissions, waste of resources)
 The economy (job creation, competition, tax, investment in product development)

Question 9

Corporate reporting implications

Answer 9

The UK Companies Act 2006 requires directors to report on environmental issues in the business review within the directors’ report. The main aspects of these disclosures are risks and uncertainties, policies and effectiveness and key performance indicators, including non-financial indicators.