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A - Financial Management Function

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Relationship between corporate Strategy and Financial Objections
- Strategy
  - Course of Action to achieve an objective
  - Corporate
    - Key Term: Corporate Strategy is concerned with the overall purpose and scope of the organisation and how value will be added to the different parts (business units) of the organisation.  Johnson, Scholes and Whittington.
    - Direction of business as a whole
  - Business
    - how to tackle particular Markets
  - Operational
    - strategy for departments of the business
- Corporate Objectives
  - Profitability ROI
  - Market Share
  - Growth
  - Cashflow
  - Customer Satisfaction
  - Product Quality
  - Industrial relations
  - Added Value
- Financial Objectives
  - Profit Maximisation
    - Limitations
      - Can be manipulated
        Provisions
        Capitalisation
        Adding overhead into inventory
      - Does not account for Risk
      - Does not account for the volume of investment: hence financial measures include: Roce, EPS, Yeilds on investment
      - Short Term
  - Shareholder Wealth Maximisation
    - Business Valuation
      - SFP
        Going Concern
        If profits rise each year the company will be profitable to investors
        Not a measure of Market Value
      - Break-up Basis
        Only of interest when threatened with liquidation or selling off to raise cash
      - Market Values
        The price at which the company's stocks and shares are traded
        Most Relevant
        Shareholder Wealth = Dividend & MV of Shares
        Shareholder Return = Dividend + CG growth = (P1-P0+D1)/P0
  - Earnings per Share growth
    - Past Data
    - Easily manipulated by policies, mergers or acquisitions
  - DPS
  - Gearing
- Non-Financial Objectives
  - Welfare of Employees
    - Good Wages
    - comfortable and sage working conditions
    - Training & Career Development
    - Good Pensions
  - Welfare of Management
    - Self Interest
      - High Salaries
      - Cars
      - Perks
  - Provision of a service
    - as with British Gas
  - fulfilment of responsibilities towards customers
    - Honest
    - Fair
    - Reliable
    - After Sales Care
  - fulfilment of responsibilities towards suppliers
    - A companies size could give it considerable power as a buyer
    - power should not be used unscrupulously
  - Welfare of society as a whole
    - compliance with laws
    - minimise pollution
    - Green Policies
    - Contribute to local community
  - Growth
  - Diversification
  - R&D
Purpose
- Explain Relationship between Financial Management and Financial Accounting and Management Accounting
  - Financial Management
    - Management of Finance
  - Financial Accounting
    - External Information
      - detail performance over a defined period and state of affairs at the end of that period
      - Legal Requirement
      - Business as a whole
      - Monetary nature
      - Historic
      - Set legal format
  - Management Accounting
    - Internal Information
      - Aid, plan, control actives and aid decision making
      - no legal requirement
      - No Strict Rules govern preparation or presentation
      - Focus on specific areas
      - Non-monetary measures
      - Historical and Future planning
- Management of organisations finances in order to achieve the financial objectives of the company
  - Private Sector objective is usually to maximise shareholders wealth
  - Financial planning
    - funds for needs
      - Short Term
        purchases of inventory
        Smooth Receivables, payables and Cash
        Ensure working capital requirements are met (Day-to-Day running)
      - Medium/Long Term
        Purchase of Non-Current Assets
        Plant
        Equip
  - Financial Control
    - Are objectives being met? Are Assets being used efficiently?
      - Compare data
        Actual v's forecast
        Adjust historical data to reflect expected future changes
        Adjust for economic development if relevant
  - Financial Management Decisions
    - Dividend
      - pay dividend = less retention of Profits
    - Investment
      - Cost v's Benefit
    - Financing
      - How to raise funds
        Long- Term
        Short Term
        Retention of Profits = less dividends
    - Management of Risk
Relationship of Stakeholders and Corporate Objectives
- Stakeholders
  - Key Term: Individuals or groups who are affected by the activities of the firm classified as internal, connected and external
  - Internal
    - Staff and Pensioners
      - highest return for work
      - Continued employment
      - Max Benifits
    - Managers and Directors
      - Max own rewards
      - Max Shareholder Return
        Key Term: Agency Relationship = Managers act as agents for the shareholder, using delegated powers to run the company in the shareholders best interests
        Director can be removed by Shareholders
        Directors want Company's Report & A/c's, with proposed dividend for Shareholders approval at AGM
      - Conflict
        if no shares, what is incentive to be efficient
        Profit related pay may encourage short-term profits at the expense of needed invetments
  - connected
    - Shareholders
      - Maximise Wealth
      - entrust day to day running of business to Directors and managers
    - Debt Holders (Bond Holders)
      - raised finance could be used for risky investment decisions
      - Rely on management to generate cashflow to make payments on time
      - Security
        exercise security if defaulted
      - apply for Co to be Wound up
    - Customers
    - Bankers
      - Interest
      - Capital repayment
        Asset Secured
    - Suppliers
      - paid in full
      - Paid in terms
      - Continue Trading
    - Competitors
  - External
    - Government
      - Political Objectives
        Taxes
        Grants
        Health & Safety
        Training Initiatives
      - Macroeconomic Policies
        Economic Growth
        High employment
        inflation
        Interest Rates
        FX
    - Pressure Groups
    - Local & national Communities
    - Professional & Regulatory Bodies
- Performance Management Describe & apply measuring achievement of objectives
  - Ratio Analysis
    - Debt and Gearing Ratios
      - how much the company owes
      - Debt/equity
      - Debt/ debt+equity
    - Profitability
      - Profit/ Loss
      - Profit Growth
      - PBT
        eliminates variations due to tax that would not affect the underlying profitability of the company's operations
      - PBIT
        Operating Profit
        excludes interest and tax
      - ROCE
        PBIT/ CAPITAL EMPLOYED
        Capital Employed
        Sharesholders' funds + long-term liabilities
        Total Assets - current liabilties
        Comparitors
        Prior Years
        Industry
        Current Market Borrowing
        NB: Roce incurs higher risk
        NB: ROCE suggests profitable use of current borrowing
        analyse
        Profit Margin x asset turnover = ROCE
      - ROE
        PAT / Shareholders' Equity
        Comparitors
        Industry
        High =good management of Expenses and investments or higher gearing with higher risk
        Earning Power
    - Investment Ratios
      - EPS
      - Changes in Shareholder return
        Dividend
        Share Price
        Growth Expected
      - P/E
        MV Share/ EPS
        share worth
      - Dividend Cover
      - Dividend Yield
        DPS / Ex div MV ps
    - Du Pont System
      - Return on Equity
        Return on Investment
        Return on Sales (Profit Margin)
        Net Income
        Sales
        -
        Total Costs
        Sales
        /
        Asset Turnover
        Sales
        Total Assets
        Non-Current Assets
        +
        Current Assets
        /
        x
        Total Assets / equity
        x
- how to encourage achievement of Corporate Objectives and resolve the Agency Problem
  - Regulatory
    - Corporate Governance codes of best practice
      - Framework
      - Ethics
      - Accountability
      - Nomination committee
      - Board
      - Directors
      - Audit Committee
    - stock exchange regulations
      - Ensures fairness and efficiency
  - Goal Congruence
    - managerial reward
      - Rewarding with Shares
        ...making managers owners
        remuneration
        ESOPs - Executive Share Options
        Selected employees
        Option to subscribe for shares at a fixed price after a set date
      - Performance related pay
        Bonus Related to profits
      - Benefits
        incentive
        attract and keep valuable employees
        KPI's Clear expectations
        Continued improvement
      - Problems
        dysfunctional behaviour
        Pad budgets
        may not motivate as reward is too distant
        Self- Interest at expense of team work
        Higher output at expense of Quality
NFP - an organisation whose attainment of its prime goal is not assessed by economic measures. However in the pursuit of that goal it may undertake Profit Making Activities
- NFP Objective
  - VFM
    - Best possible combination of services from the least resources, maximising benefits for lowest possible cost
    - Max benefits, lowest cost
    - Importance
    - EEE
      - Effectiveness
        Extent to which declared objectives/goals are met
      - Efficiency
        Relationship between input and outputs
      - Economy
        attaining the appropriate quantity and quality of inputs at lowest cost to achieve a certain level of output
  - Performance Measures
    - Outputs can seldom be measured alone
    - Multiple Objectives
    - Inputs
    - subjective
    - Comparitors
      - Like for Like
      - Historical
      - Unit Cost Measurement
    - Broader
      - proportion of total undergraduate population attending by subject
      - Proportion of students graduating and classes of degrees obtained
      - Amount of private sector research funds attracted
    - Operational
      - Unit cost per operating unit
      - student ration; staff workload
      - Class Size
      - Courses offered
  - Discuss impact of NFP Status on Financial and other Objective

Información

Descripción: Financial Management
Creado por: Usuario eliminado · ene 2017
Actualizado: 12 ene 2017
Visitas: 52
Etiquetas: drill down into section a of f9 financial management syllabus
Historial: Creado por Denise H · 22 dic 2016

Copiado por Denise H · 11 ene 2017
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A - Financial Management Function

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