Chapter 1.1 Purpose of FM

Question 1

Definition of FM

Answer 1

Acquisition & deployment of financial resources to achieve key objective

Question 2

Acquisition of financial resources

Answer 2

• Decision making to get/raise fund
• Bank loan, bond, bank overdraft, share, etc

Question 3

Deployment of financial resources

Answer 3

• Utilise financial resources
• Buying new asset, invest in new promising project, hire more employees to increase efficiency, etc

Question 4

Key objective

Answer 4

Maximising the company’s profit is not enough
- Historic, not futuristic. does not measure future potential
- Does not consider liquidity & risk which is important for commercial issues
- Can be manipulated. Eg. companies policy
Maximise SH wealth
- Dividend
- Capital gain

Question 5

EPS

Answer 5

• Earning per share
• Evidence of returns that have actually been achieved by a company

Question 6

TSR

Answer 6

• Total SH returns
• measure ability of a firm to create SH wealth