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Corporate Finance Revision > Intro to CF > Flashcards

Intro to CF Flashcards

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1
Q

What are the 3 key decisions within the financial management role?

A
  1. The Financing Decision
  2. The Investment Decision
  3. The Dividend Decision
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2
Q

Who are the companies owned by?

A

Shareholders who have the right to vote at company meetings and to receive dividends.

They also have limited liability which means they only loose what they invest (not extra).

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3
Q

Who are companies managed by?

A

The board of directors

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4
Q

How are companies structured?

A

Structed as a group:

Holding company (parents) and trading companies (subsidiaries).

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5
Q

Are companies listed or unlisted?

A

TRICK QUESTION they are both!!!

Listed = PLc 
Unlisted = Ltd./ Plc.
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6
Q

Do companies announce price sensitive information?

A

Yes they do.

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7
Q

What are the 4 main external factors of corporate performance? (They are all uncontrollable).

A
  1. Economic conditions
  2. Foreign exchange rates
  3. Actions of competitors
  4. Legal and regulatory framework
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8
Q

What are the 4 main internal factors of corporate performance? (controllable)

A
  1. Sectors and products/services
  2. Geographical spread
  3. Operational efficiency
  4. Financial efficiency
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9
Q

What does an income statement do?

A

Records historic performance in consecutive trading years using account concepts (accurals).

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10
Q

What are the elements within a income statement?

A
  1. Revenue
  2. Operating costs
  3. Finance costs
  4. Operating profit
  5. Taxation
  6. Profit attributable to shareholders.
  7. Earnings per share
  8. Dividends per share.
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11
Q

What are the 5 providers of finance? (Overtime when there size increases).

A
  1. Founders
  2. Debt (Loans)
  3. Equity (private)
  4. Debt (bonds)
  5. Equity (Public)
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12
Q

What does a statement of financial position do? (slide 9)

A

Record historic financial position using accounting concepts at consecutive year end dates

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13
Q

What does a cash flow statement do? (slide 10)

A

Records historic sources and uses of cash in consecutive trading years.

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14
Q

What are the 6 Corporate Stakeholders? (objectives, influence and interest on slide 11).

A
  1. Shareholders
  2. Lenders
  3. Employees
  4. Customers
  5. Suppliers
  6. Society.
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15
Q

Why do corporate directors take a balance approach instead of the best interest of one stakeholder groups or all stakeholder groups equally?

A

Because they can manage the best interest of the shareholders as they take the objects into account.

This is because the shareholders have the highest level of influence and interest which simplifies decision making.

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16
Q

What is the main corporate objective?

A

To maximise long term shareholder wealth. Whcih is reflected by a rising shareprice and rising dividend stream.

17
Q

How can shareholder wealth maximisation be achieved? (4 methods)

A
  1. Focus on long term performance
  2. Focus on cash flows rather than accounting profits.
  3. Selecting the most approproate dividend policy.
  4. Taking acceptable risk and avoiding unacceptable risk.
18
Q

What is the agency problem?

A

When the directors (agents) act in their own best interests rather than the shareholders (principals) best interest.

19
Q

Who postulated the agency problem?

A

Jensen and Meckling (1976).

20
Q

How do you imporve upon the angency problem?

A

CORPORATE GOVERNANCE.

21
Q

What is cororate governance systems known as?

A

Agency costs.

22
Q

What’s the goal of corporate governance?

A

Goal congruence.

23
Q

What types of mechanisms and control is within Corporate Governance?

A

Provide both incentives and deterrents

Incur proportionate direct and/or indirect costs

Statutory i.e. The Bribery Act
criminal sanctions

Non-statutory i.e. UK Corporate Governance Code. comply or explain

24
Q

What does statutory mechinisms and controls include?

A
  1. Financial reporting standards such as reducing scope for creative accounting.
  2. Audit (review) of financial statements to imporve trustfulness. Audit report
    .
  3. Corporate Legislation as there as anti bribery laws and environment protection laws.
25
Q

What does non statutory mechinisms and controls include?

A
  1. Composition of the board of directors as there is a seperate chairman and CEO. Also executive and independed non executive diretors.
  2. Directors remuneration whcih includes long term incentive plans and executive share option schemes.
  3. Listed companies through activit investors and threat of takeover.

Corporate Finance Revision (10 decks)

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