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BPP FIN > Module 1 > Flashcards

Module 1 Flashcards

1
Q

Ultimate objective for finance?

A

Maximise the value of the company

- maximise shareholder wealth (if profit seeking)

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2
Q

What is market capitalisation?

A

Market value

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3
Q

How to calculate market capitalisation?

A

Market share price x number of shares

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4
Q

What is the objective of financial management in a corporation?

A

Maximise shareholder wealth

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5
Q

How are public sector bodies measured?

A

Economy
Efficiency
Effectiveness

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6
Q

Subject of finance can be thought of as

A

Obtaining money and using that money to give maximum advantage to the organisation

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7
Q

What are the three key finance functions?

A

Investment
Financing
Management of daily financial activities

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8
Q

Any investment undertaken should

A

Increase profits in the longer term adding to the market value of the organisation

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9
Q

What is the cost of capital?

A

The cost of obtaining funding

E.g interest rate, opportunity cost

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10
Q

How is an investment worthwhile?

A

Return expected to arise must be greater than the cost of capital

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11
Q

Foregoing dividends to shareholders to invest the money would?

A

May cause shareholders to sell shares

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12
Q

What is capital structure?

A

Split between debt and equity

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13
Q

An increase in the debt within an organisation makes the organisation what from the point of view from the shareholder?

A

More risky

Got an obligation so riskier, obliged to pay interest

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14
Q

Working capital calculation?

A

Stock + debtors + cash - creditors = working capital

Stock
Debtors
Cash
Creditors

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15
Q

What is included in management of daily activities?

A

Stock management
Debtor management
Cash management
Creditors

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16
Q

What is overtrading?

A

Take on too many new customers (debtors)
Tie up cash (buying stock)
Delay payments to suppliers

As a result of rapid expansion
Not lacking in profit but lacking in cash

17
Q

Aim of stock management?

A

To ensure an optimum amount of stock is held

Avoid cost of holding for too long but ensure meet demand

18
Q

Downside of debtors?

A

Lack of cash has to be found elsewhere

Should be cautious and chase aged debtors

19
Q

Chief executive makes

A

Long term strategic decisions

20
Q

In a larger business the role of financial management may be seen to be undertaken by who?

A

The board of directors

21
Q

Maximising shareholder wealth is long or short term?

A

Long term objective

22
Q

How many years are long medium and short term?

A

Long 5-10
Medium in between
Short up to 1 year

23
Q

The relationship between the shareholders and the management is known as what?

A

Agency relationship
Exists when someone hires another to represent his or her own interests
(Large public company)

24
Q

What may the renumeration packages consist of?

A

Basic annual salary
Pension
Annual bonus if set target is achieved
Share options

25
Q

Annual bonus should never be related to what?

A

A target based on an increase in the share price

  • not their fault if stock market crashes
  • would encourage to make risky decisions
26
Q

Rewards should be in areas that are?

A

In managers control

Motivation to prevent untoward behaviour

27
Q

Organisations strategy will be set out in a?

A

Corporate plan

28
Q

A financial plan is?

A

Subsidiary to the corporate plan

The planning and provision of adequate financial resources to meet existing obligations as they fall due and to finance future business developing

29
Q

When drawing up the financial plan managers should consider what?

A

Environmental constraints
Market structure and quality
Products and skills

30
Q

What are the key considerations of financing?

A

Cost of capital
Dividends
Capital structure

31
Q

For any investment to be worthwhile

A

The return expected should be greater than the cost of capital

32
Q

Any investment undertaken should?

A

Increase profit a in the longer term adding to the market value and shareholder wealth

BPP FIN (14 decks)

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