The Financial Manager and the Company Flashcards
What is the financial managers #1 job?
To maximize the current value of a company’s shares.
What are the three main types of decisions the financial manager makes?
- Capital budgeting decisions
- Financing Decisions
- Working capital management decisions
Who is a stakeholder?
A stakeholder is someone other than the owner who has a claim on the cash flows of the company.
- Managers
- Employees
- Suppliers
- Government
- Creditors
What matters most to investors?
Cash is what investors ultimately care about when making an investment. The value of any asset - shares, bonds or a business - is determined by the future cash flows it will generate.
What is a sound investment?
A sound investment is one where future cash flows exceed the cost of the project.
What is capital structure?
Capital structure is the mix of debt and equity on the balance sheet.
What are the major responsibilities of the CFO?
The CFO reports directly to the CEO and focusses on managing all aspects of the company’s financial side, as well as working closely with the CEO on strategic issues.
Identify three financial officers who typically report to the CFO?
- The treasurer.
- The Risk Manager
- The controller
- The internal auditor
How does risk in cash flow affect value?
Investors do not like risk and must be compensated for bearing it.
What is an agency relationship?
An agency relationship arises whenever one party, called the principal, hires another party called the agent to perform some service on behalf of the principal.
What is an agency cost?
Agency costs are the costs incurred because of conflicts of interest between a principal and an agent.
What is an ethical business culture?
An ethical business culture is one where people have a set of moral principles that helps them identify ethical issues and make ethical judgements without being told what to do.
Why do we not just maximise profit?
Because profit does not take into account risk and not necessarily equate with higher cash flows.
What is the capital budgeting decision?
Which ideas will generate free cash flow.
