1.1. The Corporation and Financial Markets

Question 1

Definition | Investment (Use of Capital)

1.
2.
3.
4.

Answer 1

B C D I

• series of payments starting with a disbursement
• capital commitment / use of financial resources
• on balance sheet: assets
• normal investment: investment in which the initial disbursements are only followed by payment surpluses, i.e. series of payments displays exactly one change in sign

Question 2

Definition | Financing

1.
2.
3.
4.

Answer 2

• series of payments starting with a deposit
• measure to cover a given capital requirement / source of financial resources
• maintaining the financial balance
• on balance sheet: sources of assets (equity and liabilities)

Question 3

Relation between Investment and Financing

1. Financial Volume
2. Temporal Reference
3. Value Creation

Answer 3

1. Capital Requirement (Assets) = Sources of funding (Equity and Liabilities)
2. Duration of investment projects = time to maturity of financing measure
3. Return on investments > financing costs

Question 4

What are the Stakeholders? | Examples

Answer 4

Interest groups, e.g. owners, creditors, management, employees, customers, suppliers, society

Question 5

Goal of any company and the three types and scopes of services/ products

Answer 5

Securing long-term existence and success

FIS Goals

1. Intrinsic Targets | Manufacturing high quality products | Provision of exclusive services
2. Financial Targets | Increase company value | Making Profit | Securing Solvency
3. Social Targets | Compliance with environmental protection standards | Employee participation in corporate decisions

Question 6

Potential Financial Targets, continued

1.
2.
3.
4.
5.

Answer 6

• profitability | return on invested capital
• liquidity |solvency at any time
• security | management of performance and financial risks “fluctuation/ volatility of future earnings”
• growth | ensuring that growth can be financed
• independence | maintain entrepreneurial freedom

GILSP finances

Question 7

Disputs that may arise in Financial Targets

1.
2.

Answer 7

• profitability vs liquidity
• financing growth vs independence
  …

Question 8

Partnership vs Corporation | Type of Company

1.
2.
3.

Answer 8

Partnership:
- sole proprietorships
- partneships
- limited partneships

Corporation
- limited liability company
- joint stock corporation
- commercial partneship limied by shares

Question 9

Partnership vs Corporation | Legal Capacity

Answer 9

Partnership:
- no legal entity on its own, limited legal capacity

Corporation:
- legal person with its own legal entity

Question 10

Partnership vs Corporation | Number of Shareholders

Answer 10

Partnership:
- lower number of shareholders; costly change of shareholders

Corporation:
- higher number of STOCKholders; easier change of stockholders

Question 11

Partnership vs Corporation | Liability of Shareholders

Answer 11

Partnerships:
- Personal liability of owners

Corporation:
- liability of the shareholders limited to capital invested

Question 12

Partnership vs Corporation | Lifespan

Answer 12

Partnership:
- partnership ends on the death or withdrawal of any single partner

Corporation:
- independent from ownership, “lives on its own”

Question 13

Partnership vs Corporation | Influence of shareholders

Answer 13

Partnership:
- voting rights depending on the number of shareholders

Corporation:
- voting rights depending on the amount of equity investment

Question 14

Partnership vs Corporation | Management of the company

Answer 14

Partnership:
- no differentiation between ownership and management (people who own the company ARE the company)

Corporation:
- differentiation between ownership and management

Question 15

What are financial Managers responsible for?

1.
2.
3.

Answer 15

FIC

• investment decisions
• financing decisions
• cash management (avoid illiquidity of company)

Question 16

Which targets are used to secure long term existence and success?

tbc

Question 17

Criterions | Partnerships, Corporations

1.
2.
3.
4.
5.
6.

Answer 17

• type of company
• legal capacity
• number of shareholders
• liability of shareholders
• lifespan
• influence of shareholders
  managament of company

Question 18

Management Accounting does NOT help managers….

Answer 18

….. fulfill organizational objectvies

Question 19

What should be considered in the selection of an accounting system?

1.
2.
3.

Answer 19

1. behavioral effects of the system on managers
2. costs of buying and operating the system
3. improved decision making power resulting from the system