Lecture 1

Question 1

Roles of management

Answer 1

Strategic
Operations
Risk

Question 2

What is strategic management

Answer 2

Develop objectives and formulate strategy (long-term plan) to achieve the objectives

Question 3

What is operations management

Answer 3

Day-today control over the various business functions

Question 4

What is risk management

Answer 4

Identify and properly manage risks faced by a business

Question 5

Key finance functions

Answer 5

Financial planning
Financial control
Investment project appraisal
Financing and capital market operations

Question 6

What is Financial planning

Answer 6

Evaluate the viability of proposed courses of business action (financial statements)

Question 7

What is Investment project appraisal

Answer 7

Assessing the profitability and riskiness of proposed investment projects

Question 8

What is Financing Decisions

Answer 8

Identify and assess possible sources of finance.

Aim to achieve appropriate balance between long-term and short-term finance

Question 9

What are internally generated funds

Answer 9

Retentions from profits

Question 10

What are externally generated funds

Answer 10

Debt plus equity

Question 11

What is capital market operations

Answer 11

Issues such as raising finances from financial markets

Question 12

What is financial control

Answer 12

Monitoring plans that are put into action

Question 13

What is the primary objective of the firm

Answer 13

Value maximisation (shareholders’ wealth maximisation)

Question 14

What do shareholders expect

Answer 14

The maximum possible increase in wealth for the level of risk they bear

Question 15

Problems with profit maximisation concept

Answer 15

Lack of objectivity
Time period
Risk is ignored in calculation
Opportunity cost

Question 16

What is the Stakeholder approach

Answer 16

Business should serve all who it impacts

Conflicts with Shareholders Wealth Maximisation

Question 17

What is corporate governance

Answer 17

System in which businesses are directed and controlled

Question 18

What is the agency problem

Answer 18

Managers may pursue their own interests which conflict with shareholders’ interests

Question 19

How to protect shareholders’ interests

Answer 19

Disclosure
Accountability
Fairness

Question 20

What is Disclosure

Answer 20

Producing info about performance

Question 21

What is Accountability (protecting shareholders’ interests)

Answer 21

Defining the roles and duties of directors to ensure they act in shareholders’ interests

Question 22

What is fairness (protecting shareholders’ interests)

Answer 22

Rules prohibiting gaining benefit from access to ‘inside’ information which is not available to shareholders

Question 23

What are steps in the planning process

Answer 23

Setting aims and objectives of the business
Considering available options
Select option and develop long-term plans
Develop plans

Question 24

What is the difference between strategic plans and tactical plans

Answer 24

Strategic = Long term
Tactical = Short term

Question 25

What are the main financial statements

Answer 25

Income statement
Cash flow statement
Balance sheet

Question 26

What are external financial variables

Answer 26

Corporate tax rate
Interest rate for borrowing
Inflation

Question 27

What are internal financial variables

Answer 27

Involve policies and business agreements

• Capital expenditure commitments
• Financing agreements
• Payment, accounting and dividend policies