S1 - scope and nature Flashcards
what is enterprise value
= value of bonds + value of shares
what is the dividend decision
how much of a firms funds should be reinvested in the business and how much should be returned to the owners
what does a financial manager do
investment decisions
Financing decisions
Short term financial planning
Oversee accounting and audit function
Ensure financial welfare of firm
Operate in the best interest of shareholders
what is the agency problem
separation of ownership and control
Managers v shareholders
Conflict of objectives
Align objectives through corporate governance and incentives
Fama and Jenson - stock compensation, BOD can replace managers, take-over threat, threat of insolvency, labour market reputation
what is corporate governance
specifies distribution of rights and responsibilities among different participants in the corporation such as board, managers, shareholders and other stakeholders
Spells out rules and procedures for making decisions on corporate affairs
Corporate transparency - amount of financial and corporate information available to the public
Rights of shareholders
Responsibilities of shareholders
Rights of stakeholders
Disclosure and transparency
Role and structure of the board
what are financial markets
any market place where the trading of securities occurs
Stock market, bond market, forex market, derivatives market
Vital to smooth operation of capitalist economies
dealer v agency market
dealer market = sell to dealer and they make a profit when resold
Agency market - hire agent to sell for you at higher price and they charge commission
what is the market index
provides summary information about the performance of the constituent shares
Starting value of index points when created
Returns on constituents are determined from their share price
Returns are averaged to determine overall increase or decrease in return for the index
Investors use it to gauge market movement
