Lecture 9 Flashcards
Sole traders
own all assets of a business and are responsible for all the risks, obligations and debts
Partnerships and joint ventures
can establish an ordinary or special partnership to operate a business with other people
-> advantages: combine overseas capital or expertise with business networks and ownership of resources here
Companies must have:
- a registered name
- one or more shares
- one or more shareholders
- one or more directors
- registered company with the companies office
Three main forms of businesses in NZ
- sole traders
- partnerships and joint ventures
- Companies
Structure of Companies
- shareholders
- board of directors
- top management (CEO, COO, CFO etc)
- staff
Shareholders
owners of the company
Agency problems
a manager who is principally an agent for stockholders acts in his own interest instead of maximising market value
- claiming high expenses
- avert risk to secure own position
Ways to combat agency problems
- compensation plans
- board of directors
- takeovers
- monitoring
Accounting
preparation of accounting records
Economics
study of choices made by people who are faced with scarcity
Finance
consists of investments, the decisions of institutions as they choose to invest, and managerial finance (business finance) which involves the actual management of the firm.
Role Financial Manager
- make ‘project’ decisions
- issue shares
- borrow
- certainty against market fluctuations (hedging, futures)
- short term decisions
Payback Period
time until cash flows recover the initial investment of the project
payback rule
specifies that a project be accepted if its payback period is less than the specified cut off period
Disadvantages of Payback Period
- no account of time value of money
- no value given to cash flows after the cut-off
- cut-off is arbitrary
- emphasis is on liquidity
