Financial Management Function (1) Flashcards
What is financial management?
Acquisition and deployment of financial resources to achieve key objectives
What is acquisition of financial resources?
Involves obtaining suitable sources of finance and is a financing decision
In selecting sources of fiannce?
Risk will be a consideration since some sources of finance create risk for a business
What is meant by an investment decision?
Involves using a business’ financial resources effectively and can involve deciding whether or not to invest in projects
What is meant by a dividend decision?
Whether or not to return surplus cash to shareholders
The main financial objective of a business?
Profit maximisation
What is EPS?
Profits distributable to shareholders/Number of ordinary shares
Drawbacks to profit?
Historic and not future-oriented
Does not measure liquidity or risk
Can be manipulated
What are distributable profits after?
Interest, tax and preference dividends
Where does wealth of shareholders come from?
Dividends received
Market value of the shares
What does market value of shares depend on?
Forecast future cash flows of the company and the perceived risk of these cash flows
What is TSR?
The ability of a firm to create wealth for shareholders
What is an investment decision essential for?
Helping a firm achieve key corporate objectives such as market share and quality
What do financing decisions mainly focus on?
How much debt a firm should use, and a key aim is to minimise cost of capital
How is a dividend decision determined?
By how much a firm has decided to spend on investments and how much external finance is needed
