A Rote Flashcards
What does minimising the company’s cost of capital maximise?
Present value of future operating cash flows, thereby maximising value of the company
What if shareholders delegate running businesss to managers
Managers take decisions counter-productive ot wealth maximisation
What are agency costs?
Loss in potential shareholder return due to shareholders delegating to management
What is the best indicator of shareholder wealth?
Market price of the share
What effect does company’s operating cycle becoming longer affect shareholder wealth?
Decreases it
Does currency translation risk need to be hedged?
No
Is market share a financial or non-financial objective?
Non-financial
Are the shareholders the agents of debt-holders?
Yes, as debt-holders entrust their money to shareholders through company management
What is the main objective of financial management?
Efficient acquisition and deployment of financial resources to ensure achievement of objectives
Which two would be associated with financial objective of shareholder wealth maximisation?
Share price AND dividend payment
Which of the 3Es does total medical staff salary cost measure?
Economy
Which of the 3Es does cost per journey to hospital measure?
Efficiency
What does corporate governance aim to do?
Aim to manage risk to desired and controlled levels, not to minimise it
Is maximising market share a financial objective?
NO
What is the primary objective for a company listed on a stock exchange?
Shareholder wealth maximisation
What should financial objectives be?
Quantitative so their achievement can be measured
How is return on equity calculated?
(Profit before interest and tax) / shareholders’ funds
When gearing has decreased, will shareholders be concerned?
No, as interest cover is more than sufficient
What is meant by satisficing?
Company managers doing just enough to satisfy the shareholders (not an objective of maximising shareholder wealth)
Why is financing a company via equity alone not consistent with maximising shareholder wealth?
Deprives shareholders of the benefits of debt finance, which is cheaper than equity
Why are costs of obtaining a listing on the stock exchange not considered to be agency costs?
It is not dependent on the relationship between shareholders and managers
What are restrictive covenants in loan notes used for?
To reduce the agency problem between shareholders and the providers of debt finance
What is meant by achieving Value for Money
Effectiveness
Economy
Efficiency
Which Islamic financial instrument involves a bank voluntarily paying its customers a gift on savings account balances?
Hibah
What is the purpose of supply-side government policy?
Improve the ability of the economy to produce goods and services
What happens if consumers increase the proportion of income that they save?
They will demand less goods and services
What are crawling pegs used for?
To provide stability
What if share prices reflect all information currently available?
Share prices cannot be predicted and gains through insider dealing are not possible
Are rules against insider dealing less important in a strong-form efficient market?
Yes, as insider dealing is not possible as market already knows everything
What is a firm’s primary financial objective?
To maximise the wealth of its ordinary shareholders
Is maximisation of market share a financial or non-financial objective?
Non-financial
Is earnings growth a financial or non-financial objective?
Financial
Are sales revenue growth a financial or non-financial objective?
Financial
Is achieving a target level of customer satisfaction a financial or non-financial objective?
Non-financial
Is achieving a target level of ROCE of financial or non-financial objective?
Financial
Dealing honestly and fairly with customers on all occasions (financial or non-financial)
Non-financial
Provision of good working conditions and industrial relations (financial or non-financial)
Non-financial
Earning above a particular level of return on capital employed (financial or non-financial)
Financial
Producing environmentally friendly products (financial or non-financial)
Non-financial
Restricting the level of gearing to below a specified target level (financial or non-financial)
Financial
Economy in value for money example?
Keeping costs down without sacrificing quality
Efficiency in value for money example?
About effective resource utilisation (such as decreasing waste levels)
Effectiveness in value for money example?
Overall objectives of the organisation being achieved
Why produces variance reports comparing actual to budget?
Management accountant, not the financial manager
Is financial management is concerned with the long-term raisingof finance and the allocation and control of resource true or false?
True
Is management accounting concerned with providing information for the more day-to-day functions of control and decision-making true or false?
True
Is financial accounting is concerned with providing information about the historical results of past plans and decisions true or false?
True
Who carries out evaluating proposed expansion plans?
Financial management team
Who carries out review of overtime spending and apportioning overheads to cost units?
Management accounting team
Who carries out depreciation of non-current assets?
Financial accounting team
What is the purpose of corproate governance?
To facilitate effective management of organisations and to make organisations morevisibly accountable to a wider range of stakeholders
What does the separation of ownership and control cause an agency problem for who?
Managers
Is maximising market share a financial objective?
NO
FInancial objectives should be quantitiative so that their achievement can be measured?
YES
Examples of efficiency targets that a not for profit organisation might put in place?
Reduction of wastage of paper
Staff utilisation
What should managerial reward schemes be?
Clearly defined and impossible to manipulate
Should managerial reward schemes be focused on long-term and short-term aims of shareholders?
YES
When directors exercise their options, they tend to sell the shares almost immediately to cash in on their profit. Is this typical criticism of executive share option schemes?
Yes
If the share price falls when options have been awarded, andthe options have no value, they cannot act as an incentive. Is this typical criticism of executive share option schemes?
Yes
Directors may distort reported profits to protect the shareprice and the value of their share option. Is this typical criticism of executive share option schemes?
Yes
Which are the only type of directors permitted to sit on a company’s audit committee?
Independent non-executive directors
Who produces annual accounts?
Financial accountants
Who produces monthly management accounts?
Management accountants
Who advises on investment in non-current assets?
Financial manager
Who decides pay rates for staff?
Line managers and HR
What does a cum dividend mean?
Buyer of the share is entitled toreceive the dividend shortly to be paid
What does dividend payout ratio compare?
The dividend to the profit before the dividend
What is the main issue with the agency problem?
Shareholder wealth is not being maximised
Is share price associated with the financial objective of shareholder wealth maximisation?
Yes
Is dividend payment associated with the financial objective of shareholder wealth maximisation?
Yes
Is reported profit associated with the financial objective of shareholder wealth maximisation?
No
Is earnings per share associated with the financial objective of shareholder wealth maximisation?
No
Is weighted average cost of capital associated with the financial objective of shareholder wealth maximisation?
No
What does reducing WACC create?
Would increase businessvalue and therefore shareholder wealth
What part of 3Es is cost per journey to hospital?
Efficiency
What part of 3Es is percentage of members who re-use the service?
Effectiveness
What part of 3Es is a comparison of actual operating expenses against the budget?
Economy
What part of 3Es is number of communities served?
Effectiveness
Number of patients admitted per year measures what in the 3Es?
Effectiveness
Total medical staff salary cost measures what in the 3Es?
Economy
Cost per successfully treated patient measures what in the 3Es?
Efficiency
Average waiting time for patient admission to hospital measures what in the 3Es?
Effectiveness
Does a stock market listing involve a loss of control?
Yes, to a wider circle of investors
What is the principal objectives of macroeconomic policy typically be?
Achieve balanceof payments (imports versus exports) equilibrium
Benefit for local operating units over head office?
Have a better feel for lcoal conditions and can respond more quickly to local developments
When does a funding gap often arise for SMEs?
When SMEs want to expand beyond their available funds but arenot yet ready for a listing on the stock market
Is commercial paper for money market or stock market?
Money market
Are convertible loan notes for money market or stock market?
Stock markets
Are treasury bills for money market or stock market?
Money market
Are certificates of deposit for money market or stock market?
Money market
What leads to increased aggregate demand (taxation)
Decreasing taxation and increasing government expenditure would lead to increased aggregate demand
Can reducing interest rates increase aggregate demand?
Yes, as this reduces the incentive to save
Which activities are carried out by a financial intermediary?
Transforming maturity and risk
Why may a government want to weaken its country’s exchange rate?
To eliminate a balance of payments deficit
What can a weak currency cause for imports and exports for foreign buyers?
Makes imports expensive and exports appear cheaper to foreign buyers
Why does high inflation weaken a home currency?
Makes local product more expensive and less attractive to foreign buyers
Is management of interest rates part of monetary or fiscal policy?
Monetary policy
How are discounted instruments originally sold for?
A price below their face value and do not payinterest
Do discounted instruments pay coupon instrument?
No
Is commercial paper unsecured or secured?
Unsecured
Are treasury bills a discounted instrument?
Yes
Are commercial bills a discounted instrument?
Yes
Are commercial papers a discounted instrument?
Yes
Are bankers acceptances a discounted instrument?
Yes
What does the difference between issue price and redemption price imply?
An implicit interest rate
What does disintermediation allow for investors?
To conduct transactions directly but at increasedrisk when compared to the use of intermediaries
When does the value of STOs come from?
Being tied to assets with a real monetary value
Where are STO transactions recorded?
On a blockchain ledger
Is ensuring minimum amounts of price increases a macroeconomic policy?
Yes
Is increasing national income and living standards a macroeconomic policy?
Yes
Is ensuring a balanced ratio of imports to exports a macroeconomic policy?
Yes
Is maintaining interest rates at minimum levels a macroeconomic policy?
No
Is balancing government spending with tax receipts a macroeconomic policy?
No
Is ensuring a stable and fully employed labour force a macroeconomic policy?
Yes
Amby Co needs to convert foreign currency into domestic currency (foreign exchange market OR euro currency market)
Foreign exchange market
Which market are new shares sold and loan notes issued?
On the primary capital market
Which market are OTC derivatives purchased?
On primary market
Which market are long-term loan notes sold?
Capital marketmar
Duration for the money markets?
Less than a year
Issue with using accounting profit?
It is affected by accounting policy choices
How is return of equity calculated?
Net profit margin * net asset turnover
How is dividend yield calculated?
Dividend per share / ex-dividend share price
How is return on equity calculated?
PBIT / shareholders’ funds
