M2: IFS Flashcards
What is finance?
Finance is the process of obtaining money and using that money to give maximum advantage to the organisation.
What is a stakeholder?
(State the types of them)
Stakeholder is any individual or organisation who has a vested interest in the activities and decision making of a business.
Primary SH - They actively contribute to the workings of a company. These types of stakeholders include customers and managers.
Secondary SH - Take part in the activities of the company, but on a lower, general level. These types of stakeholders tend to help with administrative processes, financial and legal matters.
Direct SH - Are involved with the day-to-day activities of the company. Employees can be an example as their daily tasks revolve around working at the business.
Indirect SH - Pay attention to the company and outcomes and results rather than the process of completing it. They concern themselves with things like pricing, packaging and availability. Customers are an example.
What is the difference between shareholders and stakeholders?
Shareholders own the business and benefits directly from the increase in value of the business (primary interest is maximising profits).
Stakeholders have an interest in the business but do not own it.
Who are the different types of stakeholders and what is their importance to management?
Employees, customers, suppliers, competitors, government, society and creditors.
Managers have to manage these different stakeholders and balance their interests with shareholders.
What is the main role of the finance function?
1) Investing (R&D, Fixed assets, staff),
2) Financing (loans, shares, bonds)
3) Managing the daily finance activities (Working capital - cash, stock, debtors, creditors)
What are the main different types of entities?
- Public sector bodies in the UK have a duty to provide ‘best value’ which is about securing the cheapest service and should consider the overall value, including economic, environmental, and social value.
- Charities and voluntary organisations (often referred to as the ‘third sector’), usually serve a particular group or have a particular aim such as to treat or research a disease, or to bring about social change.
What are the objectives (financial and non-financial) of the financial manager?
Financial:
- Maximise profits
- Minimise costs
- Maximise sales
- Growing EPS
- Growing dividends
- Reduce long term borrowing
- Improve efficiency
Non-financial:
- Becoming a market leader
- Generating good trading relationships with
customers and suppliers
- Addressing the needs of employees
- Addressing the needs of management
- Ensuring the business is developed in a
sustainable way
Explain why environmental, social and governance (ESG), community awareness and sustainability are important non-financial objectives of a financial manager.
Shareholders and investors consider these
factors when they appraise a particular investment and thus these ESG factors compliment the overall
decision-making process.
What is a corporate financial plan?
The financial plan details how the objectives in the corporate plan are going to be achieved using the available finances.
Why is a financial plan important for an entity?
A financial plan ensures the financial manager can meet their objectives in both the short term and long term.
What factors might affect the financial plan?
- Environmental constraints
- Government policy on prices, competition,
wages, employment - Monetary policy, interest rates, taxation,
inflation - Changing patterns of trade, tastes, trends
- Market structure and quality
- Position in the market
- Number of customers, suppliers, and
competitors
What is a financial manager’s motivation and how is this achieved?
To motivate directors to act on behalf of the company and prioritise the wealth of the shareholder group, they are awarded remuneration packages which may include some or all of the following:
* A basic annual salary
* A pension
* An annual bonus if a set target is achieved.
* Share options.
What are the three main sources of management information (and give examples of each)?
Internal, External and communicated.
Examples:
Internal - Financial accounting information, Internal documents e.g emails, Stock management systems.
External - Customer data, Supplier information such
as prices and discounts, Government info e.g tax
rates.
Communicated - Instant messaging, Information sent via email or MS teams, Blogs, vlogs and online
talks
Who are the two types of users of financial information (and give examples of each type)?
Internal and external users.
Examples:
Internal - The board of directors, Management with functional responsibilities, Team leaders and employees.
External - Suppliers, Customers, Government agencies such as HMRC and Providers of finance.
What are the four main uses of information available to management and why is financial information important for these areas?
1) Planning - A concise mission statement and strategy leads to the creation of business goals and
objectives.
2) Control - Budgets, KPIs and other plans should be used by management to guide the behaviour of
employees.
3) Decision making – Management are responsible for informed decision making.
4) Performance evaluation - Managers at all levels in an organisation must evaluate performance.
