Module 1 - Internal Finance Strategy Flashcards
Market Capitalisation
The market share price times the number of shares issued
Objective of financial management
Maximise shareholder wealth - generate profits without taking uneccessary risks
Public sector entities duty
To provide best value not cheapest service
Three key financial functions
Investing
financing
managing daily financial activities
Investments should?
Increase profits in the longer term adding to the market value of the organisation and increasing shareholders wealth
Considerations of financing
Timescales, flexibility and cost
Compromise in working capital?
Having enough money tied up in each area but not too much that it results in inefficient use of resources
Return from shares compared to bank?
Should be greater due to the risk attached to it
Agency relationship
Relationship between the management and the shareholders of a company
Remuneration packages of directors may consist of
- basic annual salary
- pension
- annual bonus if set target is achieved
- share options
How should the annual bonus be set for a director?
Not related to an increase in the share price as quoted on the stock exchange but instead for example pre or post tax profits of x% as more related to financial managers performance
Share options for a director
Reward the director by allowing him or her to purchase a certain number of shares in the organisation at a specific price during a specified period in the future- perhaps link price to indices or outperforming other businesses
Corporate plane
Sets out the company’s overall vision and mission statement and is designed to guide the future direction of the organisation
Financial plan
Subsidiary to the corporate plan and may be defined as the planning and provision of adequate financial resources to meet existing obligations as they fall due and to finance future business development. Must cover three financial functions
