F3 - 3. Financial Strategy

Question 1

What are the 4 key decisions for financial management?

Answer 1

1. Financing sources
2. Investment options
3. Dividend level
4. Risk management

Question 2

What are the 6 main financial stakeholders and their objectives?

Answer 2

1. Shareholders (SP + dividends growth)
2. Lenders (security of payment)
3. Senior management (max pay, power and influence)
4. Employees (max pay, security and development)
5. Suppliers (certainty of payment, future business)
6. Government (creation of employment, taxes)

Question 3

What is the agency problem?

Answer 3

Directors may act in their own best interests rather than the shareholders

Question 4

What is soft capital rationing?

Answer 4

Internal funding restrictions

Question 5

What are the 3 main internal constraints on financial performance?

Answer 5

1. Stakeholder needs
2. Internal funding restraints
3. Strategic factors

Question 6

What are 3 possible reasons for hard capital rationing?

Answer 6

1. Lack of investor confidence
2. Poor credit history
3. Credit market drying up (external economic factors)

Question 7

What are the 5 main external constraints on financial performance?

Answer 7

1. Hard capital rationing
2. Regulatory boundaries
3. Government legislation
4. Taxation
5. Economic (inflation, interest rates, exchange rates)