Finance in business Flashcards
Management role: what are three major decisions are of most concern to financial managers?
The capital budgeting decision,
Identifying the productive assets the company should buy
The working capital decision.
Determining capital market decisions, determining how day-to-day financial matters should be
The financial decision,
Determining how the company should finance or pay assets
Management role: What is capital structure , and why is it important to a company?
Capital structure shows how a company is financed; it is the mix of debt and equity on the liability side of the balance sheet. It is important as it effects the risk and the value of the company. In general, companies with higher debt-to-equity proportions are riskier because debt comes with legal obligations to pay periodic payments to creditors and to repay the principle at the end.
Management role: What are some of the working capital decisions that a financial manager faces?
Working capital management is the day to day management of a companies current assets and liabilities to make sure that there is enough cash to earn interest. The financial managers has to make decisions about the inventory levels or term of collecting payments (receivables) from customers.
Organizational form: What are the advantages and disadvantages of becoming a sole trader?
Advantages:
It is the easiest business type to start
It is the least regulated
Owners keep all the profits and do not have to share the decision making authority with anyone
Disadvantages
The sole trader has an unlimited liability for all business debt and financial obligations of the company
The amount of capital that can be invested in the company is limited by the sole traders wealth
It is difficult to transfer ownership (requires sale of the business)
Company’s goal: What is the appropriate goal of financial managers? Can managers decisions affect this goal in anyway? If so, how?
The appropriate goal of a financial managers should be to maximize the current value of the company’s share price. Managers decisions affect the share price in many ways as the value of the share is determined by the future cash flows the company can generate. Managers can effect the cash flows by, for example, selecting what products or surfaces to produce, what type of assets to purchase, or what advertising campaign to undertake.
Company’s goal: What are the major factors affecting share price?
The following factors affect the share price: the company, the economy, economic shocks, the business environment, expected cash flow and current market conditions.
