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CR SBM > SBM > Flashcards

SBM Flashcards

1
Q

What are some things to think about in comparing purchasing a large asset (e.g. a plane) or renting?

A

NPV, liquidity (can we afford the large payout initially), risk (of fall in demand and restrictions on asset),

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2
Q

Things to discuss in a possible future failure of an asset use:

A

Contract break costs, provisions, onerous leases, carrying amount, profit on sale, AFS.

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3
Q

What is a joint operation?

A

Joint arrangement where the parties that have joint control have rights to the assets and obligations for the liabilities. Not structured through a separate entity.

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4
Q

What is a joint venture?

A

A joint arrangement where the parties that have joint control have rights to the net assets of the arrangement.

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5
Q

What is a joint arrangement?

A

An arrangement where two or more parties have joint control with a contractual agreement.

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6
Q

How does a joint operation differ from a joint venture in organisation?

A

Exit route is clearer, you can just sell or withdraw your own assets, each party manages it’s own contribution, the strategy is finite, joint operations lend themselves to shorter term projects.

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7
Q

What is a good checklist of things to think about when choosing between debt or equity?

A

Cost, Gearing, Signalling Effect, Availability, Security, Duration, Control, Cash flow, Covenants

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8
Q

What is the flat yield?

A

The amount the investor gets per year / the amount they paid for the bond.

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9
Q

What is the formula relating to growth, return on net assets, book value of debt, earnings retention rate (i) etc.?

A

g = b (ROA + (D/E)(ROA - i (1 - t ) ))

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10
Q

What are the advantages of multilateral netting off? (and problems)

A

Reducing the number of transactions and as such, transaction costs. Less loss of interest through having money in transit. But it needs strict control procedures, also some countries may use restrictions as it could be seen as tax avoidance.

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11
Q

How do you do multilateral netting off?

A

Translate all to the required currency, then work out net receivable/ payable for each division. etc.

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12
Q

What are the three levels of inputs used to measure fair value?

A

1: Measurements based on unadjusted quoted prices in active markets fir identical items, level 2: quoted prices for similar items. level 3: based on unobservable data supported by little or no market activity

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13
Q

What should be done if you get negative good will?

A

1) Reassess the identification and measurement of identifiable assets, liabilities and contingent liabilities and the measurement cost of the business combination. 2) recognise the excess in PnL are reassessment. Dr Negative goodwill, Cr PnL.

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14
Q

What are the good kinds of due diligence to do on a company you are acquiring?

A

Financial, Commercial, Operational, IT, Legal, Human resources.

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15
Q

What is commercial due diligence?

A

Compliments financial due diligence, considers company markets and external economic environment. Used for advance planning of post-acquisition strategy.

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16
Q

What is financial due diligence?

A

Review of financial position, risk, projections, attest to fair values, projections of cash flows.

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17
Q

What is operational due diligence?

A

Considers operational risks and possible improvements.

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18
Q

What is legal due diligence? (that might be done on a company to acquire).

A

Valuation (hidden liabilities, uncertain rights, onerous contracts). The acquisition process, tems of takeover. The new group.

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19
Q

How would you design a KPI?

A

A quantifiable measure that can be used for setting strategic targets and monitoring performance by comparing actuals to targets.

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20
Q

Who gets paid on liquidation and in what order?

A

Liquidator fees are paid first, then fixed charges holders (loans secured on assets) then floating charge holders, then unsecured creditors, then ordinary share holders.

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21
Q

Can any company issue bonds?

A

Only listed companies.

22
Q

Which is the most expensive for a company out of: Secured bank loans, Redeemble bonds, convertible bonds, undated bonds?

A

Convertible bonds, they have more issue costs

23
Q

How do you do ROCE?

A

PBIT / Capital (warning, do not just use profit)

24
Q

What is the formula that converts Equity Beta (Be) to Asset Beta (Ba)?

A

Be = Ba (1 + (1 - t) (D / E) )
OR
Be = Ba x (Ve / (Ve + Vd (1 - t)))

25
Q

What is the recommendation by the UK corporate governance code for the number of NEDs in an audit comittee?

A

At least 3 members or which all are NEDs.

26
Q

What is the main difference between FCF valuations and FCFE valuations?

A

For FCF don’t deduct interest payments, discount at WACC then deduct MV of debt. For FCFE deduct interest payments and use Ke as discount rate.

27
Q

How do you do an APV valuation?

A

Discount expected future cashflows at ungeared figure, Calculate benefits of tax relief on future interest payments, discounted at the pre-tax cost of debt less any issue costs. APV = base case + PV of financing effects.

28
Q

How do you work out the economic value added?

A

Net operating profit after tax less (WACC x capital employed)

29
Q

How do you calculate the enterprise value from the EVA?

A

PV of future EVAs plus the opening invested capital. (Then MV of equity is this value subtracted the MV of debt)

30
Q

If an entity is loss making, what kind of valuations could you do?

A

Net asset, or use EBITDA (depreciation may be too high), free cash flow…

31
Q

What are the 7 types of due diligence to discuss in due diligence questions?

A

Commercial, Financial, Legal, Technical, HR, IT, Tax.

T FLITCH

32
Q

What is limited assurance?

A

“We have found no reason to believe that…”

33
Q

What is reasonable assurance?

A

Positively worded assurance.

34
Q

What are the 4 key principles of deciding on remunerations?

A
  • Director remuneration set by NEDs.
  • Bonuses related to measurable performance on shareholder value
  • Full transparency of director’s remuneration in accounts.
  • Should be sufficient to attract and motivate directors of appropriate quality.
35
Q

What are some good principles in issuing share options as remuneration? (3 points)

A

Shouldn’t be exercisable in less than 3 years. Directors should be encouraged to hold onto shares after exercise. The shares shouldn’t be exercisable on the same date.

36
Q

What are the 7 best principles of corporate governance?

When asked to talk about corporate governance, perhaps list these and describe how they’re going

A
  • Chairman and Chief exec are separate
  • At least 50% Ind NEDs
  • Audit committee of NED monitor external auditor performance
  • Exec Dir remuneration set by Ind NEDs in remuneration committee
  • Nomination committee exists to ensure board has good skills.
  • Sound risk management policies
  • Board to communicate with integrity to stakeholders.
37
Q

What are the independent non executive directors for essentially?

A

So the directors don’t just make decisions in their own interest but also consider minority shareholders for example.

38
Q

What are the 4 parts of a balanced scorecard?

A

Financial perspective, Customer perspective, Internal (what generates success), Innovation and learning (new products)

39
Q

In terms of targets and rewards, what is the difference between traditional budgeting and beyond budgeting?

A

Traditional: Incremental targets with fixed incentives. Beyond: Stretch goals with relative targets.

40
Q

In terms of planning and controls, what is the difference between traditional budgeting and beyond budgeting?

A

Traditional: Fixed and annual plans. Beyond: Continuous planning KPI’s and rolling forecasts.

41
Q

In terms of resources and co-ordination, what is the difference between traditional budgeting and beyond budgeting?

A

Traditional: Pre-allocated resources, central co-ordination. Beyond: Resources on demand, dynamic coordination.

42
Q

In terms of Organisational Culture, what is the difference between traditional budgeting and beyond budgeting?

A

Traditional: Central control, focus on managing numbers. Beyond: Local control of goals focus on value creation.

43
Q

When is hedge accounting permitted?

A

When derivatives are used as the hedging instrument (e.g. commodity futures for ammonia). The exception is that foreign currecy may be hedged by non-derivatives (e.g. money market cover arrangements).

44
Q

What is “Integrated reporting”?

A

It aims to combine the different strands of reporting (financial, management commentary, governance and remuneration, and sustainability reporting) into a coherent whole that explains the organisation’s ability to create and sustain value.

45
Q

What are executive information systems good for?

A

Facilitating improved decision making, increasing amount of information available, consistency, tactical information (such as budgets - enabling managers to control), external information.. But it may present an information overload, need for training and questions over the extent of data captured.

46
Q

Which IAS is about construction contracts?

A

IAS 11 - it will tell you things about the stage of completion for example.

47
Q

What is a good definition of behaving in a Socially responsible manner?

A

Maximising the benefits and minimising the negative side effects of the economic, social and environmental areas.

48
Q

What could be some good controls to have in place to avoid fraud in employees stealing cash?

A

Separate system of recording and reporting cash, segregation of duties (and being rotated), Internal audit to review cash transactions, analytical procedures.

49
Q

What is strategic procurement?

A

Development of a business partnership of strategic value. Usually long term and single source with product design and supplier capacity arrangements.

50
Q

What is strategic management accounting?

A

Rather than just internal financial information it also looks at non financial information, competitors, market growth etc.

CR SBM (2 decks)

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