A Rote Flashcards by Nick Duley

What does minimising the company’s cost of capital maximise?

Present value of future operating cash flows, thereby maximising value of the company

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What if shareholders delegate running businesss to managers

Managers take decisions counter-productive ot wealth maximisation

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What are agency costs?

Loss in potential shareholder return due to shareholders delegating to management

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What is the best indicator of shareholder wealth?

Market price of the share

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What effect does company’s operating cycle becoming longer affect shareholder wealth?

Decreases it

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Does currency translation risk need to be hedged?

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Is market share a financial or non-financial objective?

Non-financial

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Are the shareholders the agents of debt-holders?

Yes, as debt-holders entrust their money to shareholders through company management

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What is the main objective of financial management?

Efficient acquisition and deployment of financial resources to ensure achievement of objectives

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Which two would be associated with financial objective of shareholder wealth maximisation?

Share price AND dividend payment

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Which of the 3Es does total medical staff salary cost measure?

Economy

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Which of the 3Es does cost per journey to hospital measure?

Efficiency

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What does corporate governance aim to do?

Aim to manage risk to desired and controlled levels, not to minimise it

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Is maximising market share a financial objective?

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What is the primary objective for a company listed on a stock exchange?

Shareholder wealth maximisation

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What should financial objectives be?

Quantitative so their achievement can be measured

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How is return on equity calculated?

(Profit before interest and tax) / shareholders’ funds

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When gearing has decreased, will shareholders be concerned?

No, as interest cover is more than sufficient

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What is meant by satisficing?

Company managers doing just enough to satisfy the shareholders (not an objective of maximising shareholder wealth)

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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

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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

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What are restrictive covenants in loan notes used for?

To reduce the agency problem between shareholders and the providers of debt finance

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What is meant by achieving Value for Money

Effectiveness
Economy
Efficiency

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Which Islamic financial instrument involves a bank voluntarily paying its customers a gift on savings account balances?

Hibah

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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?

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?

Is earnings per share associated with the financial objective of shareholder wealth maximisation?

Is weighted average cost of capital associated with the financial objective of shareholder wealth maximisation?

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?

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?

Is balancing government spending with tax receipts a macroeconomic policy?

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