Accounting Profit and Investment Analysis
28 Questions
3 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the main difference between profit maximization and wealth maximization?

  • Wealth maximization focuses only on short-term profits.
  • Wealth maximization does not take into account time value of money.
  • Profit maximization does not account for the timing of funds, while wealth maximization does. (correct)
  • Profit maximization considers risk factors while wealth maximization does not.

    • Why might profit maximization not lead to the highest possible share price?

  • It relies only on profit without considering timing of cash flows. (correct)
  • It does not differentiate between short-term and long-term profits.
  • It focuses solely on immediate cash flows.
  • It fails to acknowledge the total revenue.

    • What issue can arise, even when a firm is profitable?

  • Consistent high earnings per share.
  • Inability to attract investors.
  • Excess funds available for reinvestment.
  • Insufficient cash flow to meet obligations. (correct)

    • In the context of long-term and short-term strategies, which concept accounts for both?

    <p>Wealth maximization.</p> Signup and view all the answers

    What is an essential factor that wealth maximization incorporates, which profit maximization overlooks?

    <p>Risk factors in investments.</p> Signup and view all the answers

    How does increased risk typically affect a firm's share price?

    <p>It tends to decrease the share price.</p> Signup and view all the answers

    What is the main concern of social responsibility for an organization?

    <p>Observing responsibility towards society beyond profit maximization.</p> Signup and view all the answers

    Which of the following is NOT considered a basic element of social responsibility?

    <p>Continuous competition to outperform others.</p> Signup and view all the answers

    How should socially responsible companies frame their policies?

    <p>To promote both societal and environmental well-being.</p> Signup and view all the answers

    Which of the following best describes the relationship between profit maximization and social responsibility?

    <p>Profit maximization can coexist with social responsibility.</p> Signup and view all the answers

    What is a significant advantage of cooperatives regarding member voting rights?

    <p>Every member is entitled to only one vote.</p> Signup and view all the answers

    Which of the following is not considered a disadvantage of cooperatives?

    <p>Easier and less costly to form.</p> Signup and view all the answers

    What does finance primarily study in relation to economic resources?

    <p>Financial allocation and investment choices.</p> Signup and view all the answers

    What is one consequence of the restrictions placed by the Cooperative Code?

    <p>Challenges in sustaining the cooperative.</p> Signup and view all the answers

    What is a primary economic principle emphasized in managerial finance?

    <p>Marginal cost-benefit analysis.</p> Signup and view all the answers

    What method do accountants primarily use for recognizing revenues and expenses?

    <p>Accrual method</p> Signup and view all the answers

    What is a primary responsibility of the financial manager?

    <p>Cash flow management</p> Signup and view all the answers

    Which of the following activities is NOT typically associated with a treasurer's role?

    <p>Marketing products</p> Signup and view all the answers

    What do investment decisions in finance primarily concern?

    <p>Assets on the balance sheet</p> Signup and view all the answers

    Which type of decisions does a finance manager make regarding obtaining necessary funds?

    <p>Financing decisions</p> Signup and view all the answers

    What is a key advantage of partnerships compared to sole proprietorships?

    <p>Ability to raise more capital</p> Signup and view all the answers

    What disadvantage related to partnerships involves the stability of the business?

    <p>Dissolution upon partner withdrawal or death</p> Signup and view all the answers

    Which characteristic distinguishes a corporation from a partnership?

    <p>Is considered an individual entity by law</p> Signup and view all the answers

    What is a significant disadvantage faced by corporations that affects their profitability?

    <p>Requirement to pay income and dividend taxes</p> Signup and view all the answers

    In terms of ownership, what is a defining requirement for cooperatives?

    <p>Require at least 15 founding members</p> Signup and view all the answers

    Which of the following is an advantage of forming a corporation?

    <p>Ease of transferring ownership</p> Signup and view all the answers

    What is a common disadvantage associated with partnerships?

    <p>Potential for divided authority</p> Signup and view all the answers

    What legal power is unique to corporations compared to other business structures?

    <p>Ability to sue and be sued</p> Signup and view all the answers

    Study Notes

    Accounting Profit

    • Defined as net income after deducting direct costs and expenses from total revenue.

    Profit Maximization vs Wealth Maximization

    • Profit Maximization:

      • Ignores the time value of money.
      • Does not consider uncertainty of future earnings.
      • Fails to differentiate between short-term and long-term profits.

    • Wealth Maximization:

      • Considers the time value of money.
      • Accounts for risk factors affecting future earnings.
      • Incorporates strategies for both short-term and long-term profit optimization.

    Investment Analysis

    • Investment A totals P 28.00 over three years with earnings of P 14.00, P 10.00, and P 4.00.
    • Investment B totals P 30.00 with earnings of P 6.00, P 10.00, and P 14.00.
    • Investment choice isn't clear-cut; profit maximization may not yield the highest share price due to factors like timing, cash flow availability, and risk assessment.

    Timing and Cash Flow

    • Receiving funds sooner is preferred; timing affects project profitability and valuation.
    • It is possible for a profitable firm to experience cash flow issues due to mismatched expense and revenue timing.

    Risk Consideration

    • Profits do not equate to guaranteed cash flows; cash is essential for business operation.
    • Risk affects share prices inversely, necessitating a balance between risk and return in financial strategies.

    Social Responsibility

    • Social responsibility extends beyond profit maximization to encompass ethical and societal commitments.
    • Businesses are encouraged to promote societal well-being while minimizing negative impacts.

    Elements of Social Responsibility

    • Entity: Can be an organization or individual.
    • Social Awareness: Recognizes responsibilities to the environment and society.
    • Goals: Businesses aim to thrive and maximize profit while contributing positively to society.

    Business Structures

    • Partnerships:

      • Advantages include shared talents and easier capital raising.
      • Disadvantages involve unlimited liability and potential for internal disagreements.

    • Corporations:

      • Legally recognized, can own property, and engage in contracts.
      • Advantages include limited liability and perpetual existence;
      • Disadvantages involve regulatory burdens and double taxation on profits.

    • Cooperatives:

      • Owned collectively, requiring a minimum of 15 members, and formed under specific laws.
      • Advantages include tax exemptions and ease of formation;
      • Disadvantages include management challenges and restrictions on profit distribution.

    Differences Between Finance and Accounting

    • Finance emphasizes cash flows and actual inflows/outflows; accounting relies on accrual methods.
    • Financial managers focus on cash timing, while accountants recognize revenues and expenses based on transactions, not cash flow timing.

    Role of Financial Managers

    • Administer finances across business types, manage cash, secure financing, oversee pension plans, and mitigate risks.
    • Responsible for investment decisions (asset efficiency) and financing decisions (optimal funding combinations).

    Key Financial Managerial Activities

    • Investment Decisions: Focus on asset structure and efficiency.
    • Financing Decisions: Manage short and long-term financing strategies, optimizing costs associated with funding.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Description

    Explore the key concepts of accounting profit, profit maximization versus wealth maximization, and the intricacies of investment analysis. This quiz will help you understand the importance of timing and cash flow in making investment decisions, as well as the differences between strategies for achieving short-term and long-term financial goals.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser