The Meaning Of Financial Management Flashcards
What is shareholder primacy?
The pursuit of profit only at all costs without considering the wishes of broader stakeholders. Staut compares this to fishing with dynamite, catch lots of fish today, none tomorrow
State the 6 capitals
Finance
Human
Intellectual
Manufactured
Natural
Social and Relationship
How is the CFO involved in the formulation of the Integrated Report ?
CFOs are informed by the CG rules described in the King IV report which holds the governing body and Audit Committee accountable for the integrity of the IR and overseeing the compilation process.
Explain what it means when we say that the FM has a stewardship responsibility.
The FM has a responsibility to care about the legislation and frameworks within which the business operates. Thus a fiduciary duty of care exists on the part of the FM charged with the financial management responsibility
Explain the concept of the 3Ps.
It is sometimes referred to as the Triple Bottom Line…
Explain the 3Es in relation to non-profit or government organizations.
Economic, Efficient and Effective use of resources under the control of the said organization.
Explain the 3Es in relation to non-profit or government organizations.
Economic, Efficient and Effective use of resources under the control of the said organization.
Explain “Economic “
The acquisition of resources at the lowest cost
Explain “Efficient “.
How well the resources are being used (doing things correctly)
Explain “Effectiveness “
How well the resources have been deployed (doing the correct things)
What are the 6 Capitals
Financial Capital
Manufactured Capital
Intellectual Capital
Human Capital
Social and Relationship Capital
Natural Capital
King IV is for Inclusive Capitalism. Explain this.
Financial Capital is only of six to consider in doing business.
Explain Sustainable Development
Dvt that meets the needs of the present without compromising the ability of future generations to meet their needs
Explain Stakeholder Inclusivity
There is an interdependent relationship between the entity and the stakeholders
Explain the Stewardship model as a perspective of doing business
The stewardship model emphasizes businesses serving society by prioritizing ethics, resource stewardship, and societal advancement over profit.
Explain Conscious Capitalism
It embodies the idea that profit and and prosperity go hand in hand with social justice and environmental stewardship and that entities that practice conscious capitalism have a higher purpose than maximisation of shareholder returns
State the other phrase for a business model
Value-creation model
Explain the Value-creation model
The business processes and activities and outputs that result in increased, decreased, or transformed outcomes, including neutral, positive, or negative effects.”
Define a stakeholder
These are entities or individuals that can affect or are affected by the actions and activities of the entity
State the specific disclosure requirements in respect of stakeholder relationships as envisaged by the King IV Report
- An overview of the arrangements for governing and managing stakeholder relationships
- Key areas of focus for the reporting period
- Actions taken to monitor the effectiveness of stakeholder management
- Future areas of focus
Why is stakeholder engagement so important?
- Enables the entity to better understand the operating environment
- Enables more effective management of risk
- Enables more equitable social investment and development
- Enables product and service improvement
Explain Integrated Reporting
Is a combination of varying reports (financial, mgt commentary, governance and remuneration and sustainability reporting) explaining an entity’s ability to create and sustain value
Name the surprise element of the Integrated Report
Should communicate future strategy choices and the KPIs the entity will measure in future periods
What is kę
The shareholders required return (for the risk taken in investing). The higher the risk, the greater the potential return needs to be to attract investors or justify the risk.
Define Capital Markets
These are markets which trade in long term finance eg the JSE
There is primary finance and secondary finance. Differentiate the two:
Primary Finance: Raising new capital by issuing fresh securities (e.g., IPOs). Funds go directly to the issuer.
Secondary Finance: Trading existing securities in markets (e.g., stock exchanges). Funds flow between investors.
State the stock exchanges in South Africa
The JSE
The Cape Town Stock Exchange (originally A4x)
A2X
ZAR X had it’s license suspended by the FSCA (Financial Sector Conduct Authority) due to liquidity and capital concerns
Define underwriting costs
Underwriting costs are the expenses associated with the process of raising capital through the issuance of securities. These costs typically include fees paid to underwriters (such as investment banks or financial institutions) for managing and guaranteeing the issuance, legal and regulatory expenses, marketing, and other related costs.
There are two ways to raise equity on the JSE
- The Main Board
- The Alternative Exchange (Alt x)
List the requirements for raising equity on the JSE via the Main Board
- Subscribed capital of at least R50m in the form of at least 25 million issued shares
- Satisfactory profit history of at least 3 years with audited financial statements and audited profits of at least R15m before tax in the year prior
- Subscribed capital of R500m
- A company must run an independent business with a history of revenue, control at least 50%+1 voting shares of its assets, or have significant involvement in managing its assets.
- At least 20% of each class of equity security should be held by the public to maintain reasonable liquidity.
State the requirements for raising equity finance on the JSE via the Alternative Exchange (Alt x)
- The Applicant issuer must appoint a Designated Advisor
- Share capital of at least R2m (including reserves but excluding minority interest)
- The public should hold at least 10% of each class of equity security to ensure reasonable liquidity
- Directors must complete or arrange to complete the Alt* Director Induction Program (DIP).
- An executive financial director with proven experience must be appointed and confirmed in writing to the JSE by the audit committee.
- A profit forecast is needed for the rest of the financial year and one full year, unless full historical data for the last 3 years is available.
- 50% of each director’s and DA’s shares must be held in trust by auditors or attorneys to prevent public trading.
- The applicant must control at least 50% + 1 of the voting shares over its assets.
What significant thing happened to the South African Pension Funds Act in 2011
Since 2011, the South African Pension Funds Act requires pension funds to consider ESG factors for long-term asset performance.
What is the book value of equity?
Share capital on the statement of financial position plus the shareholder’s reserves.
