Learning Unit 1 Flashcards
Explain the primary roles the of financial manager
Financial planning and analysis Investment decisions Financing decisions Cash management Relationship management Dividend decisions Risk management
Explain financial planning and analysis
Forecasting and budgets Available funds and future funding Understand the key areas for sale and profit Financial risks Capital investment Future investments
Financial forecast
Use historical information to predict what will happen
Explain investment decisions
Short term: ensue money is available for working capital
Medium and long term: for non-current assets
Decisions:
- take on new projects
- invest or sell ppe
- embark on research and development
- investments
- embark on mergers
Explain financing decisions
Make decisions on now to fund the financial activities
Explain cash management
Ensure that sufficient cash funds we available as needed
What are the relationships the financial manager needs to take into account
- Shareholders who provide funding
- creditors
- employee
- government
- customers
- community
Evaluate the ethical considerations that underlie a financial manager’s conduct
What impact decisions have on shareholders rights, how shareholders rights will be remedied if they are violated. The effect on the mutual shareholder wealth maximization and relationships with shareholders as well as other stakeholders
Explain the agency relations and problem
Agency relationship describes the relationship between management and the shareholders, where by shareholders have delegated the authority ro manage the business to managers
The problem arises when the objectives of the financial manager we not aligned with that of the business
Explain the difference between profit maximization and shareholder wealth maximization
Profit maximization is where profit is measured by EPS they do not only materialise into cash flows ignores time value of money. Can understate cost and overstate revenue, it does nor take risk into account
Shave holder wealth maximization measures the current share price