5982998
Description
Flashcards by Marinda Steenkamp, updated more than 1 year ago
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Created by Marinda Steenkamp
almost 8 years ago
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| Question | Answer |
| Define Finance | The science and art of managing money. |
| Define the managerial finance function | It is the role within the firm and its relationship to economics and accounting, as well as the primary activities of the financial manager. |
| Explain what is meant by its relationship to economics. | The primary economic principle used in managerial finance is marginal cost-benefit analysis, the principle that financial decisions should be made and actions taken only when the added benefits exceed the added costs. |
| Explain what is meant by its relationship to accounting. | Its focus relates to the emphasis on cash flows where its primary functions are: 1. develop and report data for measuring the performance of the firm 2. assess its financial position 3. comply with and file reports required by securities regulators 4. to file and pay taxes |
| Who performs managerial finance roles? | 1. Financial analysts 2. Cash manager 3. Credit analysts |
| Provide the three major legal forms of business | 1. Sole Proprietorship 2. Partnership 3. Company/Corporation |
| What are the typical responsibilities of the board of directors? | 1. Approve strategic goals and plans 2. Setting general policy 3. Guiding corporate affairs 4. Approving major expenditure |
| What are the responsibilities of the MD or CEO? | To manage the day-to-day operations and carrying out the policies established by the board of directors |
| What are the three primary goals of financial management? | 1. Profit Maximisation 2. Maximising the rate of return 3. Maximising shareholders wealth (most important) |
| How can a firm maximise its value/wealth? | By maximising the value of its shares, thus by increasing the current share price. |
| What is outstanding shares? | It is the number of shares issued to the Public/open market. |
| What do companies commonly use to measure their profits? | Earnings per share (EPS) It represents the amount earned during a period on behalf of each outstanding share. It is an indicator of a company's profitability. |
| What is the formula for EPS? | Net Income - Dividend on prefered stock Average Outstanding Shares |
| What is the primary activities of a Financial Manager? | In addition to the ongoing involvement in financial analysis and planning: 1. Making investment decisions - the type of assets a firm holds 2. Making financing decisions - how the firm raise money to pay for these assets |
| Describe the nature of the principal-agent relationship between owner and manager. | The manager is the agent who as been given decision making authority by the owner in order to act on behalf of the owner. |
| Explain the concept of Agency problem. | When a manager act in its own best interest instead of the shareholders. |
| How can a firm address the agency problem? | Ensure that managers interest are aligned with shareholders interest by including a compensation plan linked to the firm's performance or stock options. |
| What is the function of financial institutions? | They serve as intermediaries between savers of funds and borrowers of funds. |
| What is the financial market? | It is the meeting place for savers and borrowers. |
| What are the two types of financial markets? | 1. Money Market 2. Capital Market |
| What happens in the money market? | It is the market where short-term debt securities are bought and sold. |
| What happens in the capital market? | It is the market where long-term debt securities are bought and sold. E.g. of such are: Bonds Shares |
| Explain the difference between primary and secondary markets. | Primary Market is where securities are being sold of the first time by listed companies and governments. Secondary Market is where the securities, originally in the primary market, are traded. |
| Name the two types of primary market transactions: | 1. Private placement where securities are presented to specifiec buyers. 2. Public offering where it is made available to the general public. |
| the chief financial manager (Treasurer) Is commonly responsible for handling financial activities, such as: | ‒ financial planning and fund raising, ‒ making capital expenditure decisions, ‒ managing cash, ‒ managing credit activities, ‒ managing the pension fund, and ‒ Managing foreign exchange. |
| the chief accountant (Controller) Typically handles the accounting activities, such as | ‒ corporate accounting, ‒ tax management, ‒ financial accounting and ‒ Cost accounting. |
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