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PRELIM - 1ST SEMESTER > Prof (PC) 1 - Financial Management > Flashcards

Prof (PC) 1 - Financial Management Flashcards

1
Q

What is Financial Management?

A

Financial Management means planning, organizing, directing and
controlling the financial activities such as procurement and
utilization of funds of the enterprise.

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2
Q

It is about controlling the flow of money in and out of the organization.

A

Financial Management

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3
Q

It plays a vital role in a company’s success.

A

A finance manager

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4
Q

avoiding bankruptcy and ensuring the business has enough money to continue operating.

A

Keeping the company solvent

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5
Q

by setting the right price for existing products and services, discontinuing unprofitable products and services, and evaluating the potential profit of new products and services.

A

Maximizing profitability

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6
Q

monitoring, spending, and looking for ways to reduce overhead.

A

Minimizing costs

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7
Q

for venture capitalists, stock shareholders, and other investors.

A

Ensuring a good return on investment (ROI)

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8
Q

by attracting more investment via positive ROI.

A

Raising capital

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9
Q

to make sure the organization has enough cash—not only to function but to invest in growth.

A

Cash forecasting

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10
Q

by ensuring the company complies with the appropriate regulations.

A

Reducing risks and avoiding fines

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11
Q

The Company’s Goal

A

People who save money for investment could have a better chance of satisfying their wants and maximizing their money’s utility.

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12
Q

The primary objective of a company’s finance manager is…

A

to maximize the return money could offer to the people who trust the company.

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13
Q

The Company’s Goal

A

People who invest in the stock of a particular company will contribute toward maximizing their investment’s utilities

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14
Q

The financial manager of a company plays a crucial role in the company’s goals, policies, and success. The responsibilities of a financial manager include the following:

A
  1. Investment decision
  2. Financing decision
  3. Dividend policy division
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15
Q

This entails an outflow of resources with the expectation of benefiting in the form of cash inflows in the near future.

A

Investment decision

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16
Q

Investments have to be evaluated in terms of their expected returns and corresponding risks, which can affect the company’s valuation in the market.

A

Investment decision

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17
Q

A financial manager finds ways to fund the activities of a company. He/she must know where to outsource funds and consider the best possible financing mix or capital structure for a company-for example, short or long-term debt or equity financing-in order to meet the expected return on investment.

A

Financing decision

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18
Q

The main goal of the financing decision is to look for resources that will give a company the lowest weighted average cost of capital (WACC).

A

Financing decision

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19
Q

It is equally important to know what sound dividend policy is a good financial signal to the market that continually assesses the company.

A

Dividend policy division

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20
Q

The dividend policy determines the kind of stockholders a company has. If a company has an aggressive dividend policy, its stockholders are expected to be aggressive as well.

A

Dividend policy division

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21
Q

It is achieved if most of the net income is reinvested back to the company.

A

Aggressiveness - Dividend policy decision

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22
Q

What are the types of business organizations?

A

Sole Proprietorship, Partnership, and Corporation

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23
Q

It is a business owned by a single person.

A

Sole Proprietorship

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24
Q

What are the advantages of a sole proprietorship?

A
  1. Ease of formation.
  2. Control over operations.
  3. No sharing of profits.
  4. Simplicity.
  5. No taxation.
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25
Q

A sole proprietorship is simple to establish. It does not require tedious documents similar to that of a partnership or corporation.

A

Ease of formation

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26
Q

There are no co-owners; the owner has complete control over daily operations, thereby speeding up the decision-making process

A

Control over operations

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27
Q

All profits of the business belong to the owner.

A

No sharing of profits

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28
Q

A sole proprietorship is subject to less government regulations than a partnership or corporation.

A

Simplicity

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29
Q

The business itself is not subject to tax. However, the income or loss generated from the business should be included and form part of the income generated by the owner, which is subject to tax. The tax is graduated based on the total income of the taxpayer.

A

No taxation

30
Q

What are the disadvantages of a sole proprietorship?

A
  1. Limited life
  2. Unlimited liability
  3. Difficulty in raising capital
  4. Limitation of skills
31
Q

The death or bankruptcy of the owner results in the dissolution of the business.

A

Limited life

32
Q

The owner is personally liable for the company’s debts and actions.

A

Unlimited liability

33
Q

The rapid expansion of a sole proprietorship operation is very difficult to achieve because it has limited access to borrowing large amounts of money.

A

Difficulty in raising capital

34
Q

A proprietor, as compared to a partnership and corporation, has limitations in terms of skill application. It is quite rare to see a proprietor who has all the skills involving finance, marketing, and operations.

A

Limitation of skills

35
Q

It is composed of two or more persons who agree to contribute money, property, or services for the purpose of dividing the profits between or among themselves.

A

Partnership

36
Q

It is subject to a 30% tax similar to that of a corporation. According to the National Internal Revenue Code Sections 20 and 24.

A

An ordinary partnership

37
Q

The following information is needed in the Articles of Partnership:

A
  1. name of the partnership
  2. principal place of business
  3. date of effectivity and life of the partnership
  4. purpose of the partnership
  5. names, addresses, and contributions of the partners
  6. agreement regarding the manner of management of the partnership
  7. manner of dividing the profits between or among the partners
  8. manner of liquidating the partnership with the rights and duties of the partners
  9. arbitration of disputes
38
Q

What are the advantages of a partnership?

A
  1. Convenient organization
  2. Manageability
  3. Good capitalization
39
Q

A partnership is relatively easy to organize, as it is subject to only a few government regulations.

A

Convenient organization

40
Q

It is easy to handle because a group of people who share common expertise is running the business.

A

Manageability

41
Q

The combined capital resources of partners offer better capitalization as compared to that of a sole proprietorship.

A

Good capitalization

42
Q

What are the disadvantages of a partnership?

A
  1. Limited life
  2. Unlimited liability
  3. Mutual Agency
  4. Difficulty in raising capital
43
Q

The withdrawal, death, or bankruptcy of a partner will result in the dissolution of a partnership. Likewise, the admission of a new partner ends a previously existing partnership.

A

Limited life

44
Q

Each partner is personally liable to creditors for debts incurred by other partners acting for a partnership.

A

Unlimited liability

45
Q

Each is an agent of the company and can bind the partnership through agency. His/her partner acts within the scope of the partnership business.

A

Mutual Agency

46
Q

Although it is relatively easier for a partnership to obtain the capital required for expanding operations, it is still difficult to raise large amounts of partnership capital because the ability to do so is limited by each partner’s personal wealth and borrowing power

A

Difficulty in raising capital

47
Q

It is an organization owned by several people that is recognized as a separate legal entity by law.

A

Corporation

48
Q

It is responsible for its own acts to the extent of its own assets only, not those of the individual stockholders.

A

Corporation

49
Q

The owners of a corporation are called?

A

shareholders or stockholders

50
Q

It is evidenced by its readily transferable shares of stock issued or sold.

A

The ownership interest in a corporation

51
Q

are required to pay income taxes and file separate tax returns.

A

Corporations

52
Q

The shareholders do not have to include their corporation’s net income in their personal tax returns except for earnings paid out to them in the form of dividends.

A

Corporation

53
Q

Accordingly, (blank) may be taxed twice: first, as the corporation’s income, and second, as shareholders’ income if dividends are declared.

A

Corporate income

54
Q

What are the advantages of a corporation?

A
  1. Limited liability
  2. Indefinite life
  3. No mutual agency
  4. Ease of obtaining additional capital
  5. Ease of transfer of ownership interest
  6. Separate legal entity
55
Q

The special legal status enjoyed by a corporation acts as a barrier to protect the owners/shareholders from losses beyond the amount of their investment.

A

Limited liability

56
Q

Unlike in a sole proprietorship and partnership, the life of a corporation is unaffected by the withdrawal of shareholders in any way because the corporation is treated legally as if it were a person separate from its owners.

A

Indefinite life

57
Q

Shareholders who are not legal agents or officers cannot bind a corporation by their actions. If they own many shares, they may bear a strong influence on its management team, but they cannot unilaterally bind the corporation legally without the specific authorization of the corporation itself.

A

No mutual agency

58
Q

Corporations are aptly structured for borrowing large sums of money. They also have a legal structure that enables them to sell small ownership interests or shares to the general public.

A

Ease of obtaining additional capital

59
Q

As the ownership of a corporation is done through the purchase of shares of stock, it is simple to transfer ownership interest. Shareholders can ordinarily sell their shares to others without obtaining the company’s approval, whereas a sole proprietorship cannot sell partial interests in business, nor can a partner sell a partnership interest without dissolving the partnership.

A

Ease of transfer of ownership interest

60
Q

By virtue of its special legal status, a corporation has the power to buy, own. or sell property. Furthermore, it can enter into contracts and can sue or be sued.

A

Separate legal entity

61
Q

What are the disadvantages of a corporation?

A
  1. Double taxation.
  2. More government control.
  3. More costly to organize.
  4. More involved decision-making process.
  5. Dilution of earnings and control.
62
Q

Corporate income is initially subject to the payment of income taxes by the corporate entity itself. In addition, the shareholders are required to pay income taxes on the portion of corporate earnings distributed to them in the form of dividends.

A

Double taxation

63
Q

Corporations are governed and influenced largely by national government regulations

A

Move government control.

64
Q

The establishment of a corporation entails the payment of legal
fees.

A

More costly to organize.

65
Q

In corporations, making important business decisions may be time-consuming. Decision-making is usually referred up to the chain of command, often necessitating the agreement and final approval of a corporation’s board of directors.

A

More involved decision-making process.

66
Q

A typical corporation has a large number of shareholders who must share the earnings and control of the corporation with other owners.

A

Dilution of earnings and control.

67
Q

What are the misconceptions of Financial Management?

A
  1. Financial management is accounting
  2. Financial management is a review of mathematics.
  3. Financial management is a branch of statistics
68
Q

The most common misconception about financial management is that it is similar to accounting because it utilizes financial statements to arrive at certain decisions. It is true that accounting provides financial information necessary to arrive at a sound decision; however, the tools used in making decisions are different from the ones used in accounting.

A

Financial management is accounting

69
Q

In making financial decisions, multiple formulas are used before arriving at a decision. With the computation of present values, future values, annuities, and other values, finance is thought to
be “too mathematical.” Mathematics is always present in the decision-making in financial management. To a certain extent, financial management also uses calculus, math of investments, and algebra before arriving at a decision. Similar to accounting, mathematics is one of the tools used in decision-making.

A

Financial management is a review of mathematics.

70
Q

Statistics is often used to ascertain the risks involved in decision-making. Standard deviations, correlation coefficient, coefficient of determinations, and forecasting tools and techniques are used to measure risks before making financial decisions. As statistics is part of the decision-making process, financial management is often believed to be a branch of statistics.

A

Financial management is a branch of statistics

71
Q

What are the 7 goals of financial management in business?

A
  1. Keeping the company solvent
  2. Maximizing profitability
  3. Minimizing costs
  4. Ensuring a good return on investment (ROI)
  5. Raising capital
  6. Cash forecasting
  7. Reducing risks and avoiding fines

PRELIM - 1ST SEMESTER (4 decks)

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