Lecture 1 Flashcards
Roles of management
Strategic
Operations
Risk
What is strategic management
Develop objectives and formulate strategy (long-term plan) to achieve the objectives
What is operations management
Day-today control over the various business functions
What is risk management
Identify and properly manage risks faced by a business
Key finance functions
Financial planning
Financial control
Investment project appraisal
Financing and capital market operations
What is Financial planning
Evaluate the viability of proposed courses of business action (financial statements)
What is Investment project appraisal
Assessing the profitability and riskiness of proposed investment projects
What is Financing Decisions
Identify and assess possible sources of finance.
Aim to achieve appropriate balance between long-term and short-term finance
What are internally generated funds
Retentions from profits
What are externally generated funds
Debt plus equity
What is capital market operations
Issues such as raising finances from financial markets
What is financial control
Monitoring plans that are put into action
What is the primary objective of the firm
Value maximisation (shareholders’ wealth maximisation)
What do shareholders expect
The maximum possible increase in wealth for the level of risk they bear
Problems with profit maximisation concept
Lack of objectivity
Time period
Risk is ignored in calculation
Opportunity cost
What is the Stakeholder approach
Business should serve all who it impacts
Conflicts with Shareholders Wealth Maximisation
What is corporate governance
System in which businesses are directed and controlled
What is the agency problem
Managers may pursue their own interests which conflict with shareholders’ interests
How to protect shareholders’ interests
Disclosure
Accountability
Fairness
What is Disclosure
Producing info about performance
What is Accountability (protecting shareholders’ interests)
Defining the roles and duties of directors to ensure they act in shareholders’ interests
What is fairness (protecting shareholders’ interests)
Rules prohibiting gaining benefit from access to ‘inside’ information which is not available to shareholders
What are steps in the planning process
Setting aims and objectives of the business
Considering available options
Select option and develop long-term plans
Develop plans
What is the difference between strategic plans and tactical plans
Strategic = Long term Tactical = Short term
What are the main financial statements
Income statement
Cash flow statement
Balance sheet
What are external financial variables
Corporate tax rate
Interest rate for borrowing
Inflation
What are internal financial variables
Involve policies and business agreements
- Capital expenditure commitments
- Financing agreements
- Payment, accounting and dividend policies
