Overview of Financial Management (MATHBUSFIN)
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Questions and Answers

What is the primary focus of finance?

  • Circulation of money and banking
  • Investing in high-risk securities
  • Decisions about how money is raised and used (correct)
  • Managing human resources in business

Which area of finance specifically involves making decisions about securities for investment portfolios?

  • Banking
  • Investments (correct)
  • Managerial Finance
  • Financial Markets and Institutions

What is a major goal that firms typically pursue?

  • Reducing operational expenses
  • Minimizing risk at all costs
  • Maximizing cash inflows only
  • Increasing overall value (correct)

What aspect of finance aids in understanding decisions in marketing and management?

<p>Managerial Finance (A)</p> Signup and view all the answers

Which of the following is NOT counted as a financial institution?

<p>Manufacturing companies (C)</p> Signup and view all the answers

What do ethical considerations and good governance contribute to in a business context?

<p>Successful business practices (C)</p> Signup and view all the answers

Which statement accurately reflects the principle regarding cash value in finance?

<p>More cash inflow is preferred to less cash inflow. (D)</p> Signup and view all the answers

In the context of finance, what is defined as the system that includes the circulation of money and provision of banking facilities?

<p>Finance (C)</p> Signup and view all the answers

What does earnings per share (EPS) represent?

<p>Net income divided by the number of outstanding shares (D)</p> Signup and view all the answers

What is meant by the intrinsic value of a stock?

<p>An estimate of a stock's true value based on risk and return (C)</p> Signup and view all the answers

How can executive compensation typically be structured?

<p>Through a mix of salary, bonuses, and stock options (C)</p> Signup and view all the answers

Why is business trend awareness important?

<p>It enhances forecasting ability and aids in decision-making (D)</p> Signup and view all the answers

What percentage faster do small businesses with a website tend to grow compared to those without?

<p>40% (D)</p> Signup and view all the answers

What does the term stock price refer to?

<p>The current market price that a share is trading for (C)</p> Signup and view all the answers

Which of the following is NOT a benefit of business trend awareness?

<p>Reduced competition in the market (D)</p> Signup and view all the answers

What components are generally included in executive compensation?

<p>Salary, bonuses, stock options, and perquisites (A)</p> Signup and view all the answers

What is a major disadvantage of a proprietorship?

<p>Unlimited personal liability (A), Limited life (C)</p> Signup and view all the answers

How does a partnership differ from a proprietorship?

<p>Partnerships have two or more owners (B)</p> Signup and view all the answers

What is a key advantage of a corporation?

<p>Unlimited life (C)</p> Signup and view all the answers

What is a common limitation of Limited Liability Partnerships (LLPs)?

<p>Difficulty in transferring ownership (D)</p> Signup and view all the answers

Which tax structure is associated with S Corporations?

<p>Taxed like partnerships (D)</p> Signup and view all the answers

What is the main goal of management regarding shareholder wealth?

<p>Maximize the firm's common stock price (A)</p> Signup and view all the answers

Which of the following is a characteristic of a Limited Liability Company (LLC)?

<p>Offers limited liability protection (C)</p> Signup and view all the answers

What ethical obligation do managers have regarding shareholders?

<p>Behave ethically and comply with laws (C)</p> Signup and view all the answers

What is the primary goal of a corporation as mentioned in the content?

<p>Maximizing stock price (A)</p> Signup and view all the answers

Which of the following is NOT a mechanism to ensure managers act in shareholders' best interests?

<p>Friendship with employees (B)</p> Signup and view all the answers

How can business trends be utilized by a company?

<p>To gauge current strategies and identify needed improvements (B)</p> Signup and view all the answers

What does business ethics reflect?

<p>A company's conduct towards stakeholders (C)</p> Signup and view all the answers

What element is considered a part of managerial actions to maximize stockholder wealth?

<p>Dividend Policy Decisions (A)</p> Signup and view all the answers

Which of the following best describes business ethics?

<p>The moral conduct and standards of a company (A)</p> Signup and view all the answers

What is a potential consequence of a lack of adherence to business ethics within a company?

<p>Damage to reputation (C)</p> Signup and view all the answers

Which factor does NOT directly impact the measurement of a firm's commitment to business ethics?

<p>Employee's performance incentives (A)</p> Signup and view all the answers

Flashcards

What is Finance?

The branch of economics that focuses on decisions related to money, including how it's raised and used.

Finance Value Principle

The most valuable asset is cash received sooner, as opposed to later.

Webster's Definition of Finance

Activities that involve the circulation of money, lending credit, investing, and providing banking facilities.

Sole Proprietorship

A business structure where the owner is personally responsible for all debts and obligations.

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Partnership

A business structure where two or more individuals share ownership and responsibility for the business.

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Corporation

A legal entity separate from its owners, offering limited liability and the ability to raise capital more easily.

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Social Enterprise

A business formed to pursue a specific social or environmental goal, often with a focus on community benefit.

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Primary Goal of a Firm

The pursuit of maximizing shareholder wealth by making sound financial decisions.

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Business Trend Awareness

Knowing and understanding current and future trends in the business environment helps companies make better decisions, adapt to changing market conditions, and gain a competitive edge.

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Business Ethics

The ethical principles and guidelines that govern a company's conduct towards its employees, customers, community, and shareholders.

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Ethics and Reputation

A company's reputation and trustworthiness are built on their ethical behavior and actions.

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Managerial Actions vs. Shareholder Interests

Managers are naturally inclined to act in their own self-interest, not always aligning with the goals of the company's shareholders.

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Motivating Managers

Different mechanisms such as performance-based compensation, shareholder involvement, and the threat of takeovers can encourage managers to act in the best interests of shareholders.

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Corporate Goal: Stockholder Wealth Maximization

The primary goal of a corporation is to maximize the wealth of its shareholders, which translates to maximizing the company's stock price.

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Capital Structure Decisions

Decisions related to how a company finances itself, including debt and equity financing.

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Capital Budgeting Decisions

Decisions about how a company invests its capital in projects or new ventures, such as launching a new product or expanding into a new market.

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What is EPS?

Earnings per share (EPS) is a financial metric that measures a company's profitability per share of outstanding common stock. It's calculated by dividing the company's net income by the number of outstanding shares.

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What is intrinsic value?

Intrinsic value refers to the 'true' value of a stock, based on its expected future earnings, growth, risk, and other fundamental factors. It's not easily measurable but can be estimated.

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What's the difference between stock price and intrinsic value?

Stock price is the current market value of a single share of a company's stock. It is constantly changing based on supply and demand in the market.

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What's executive compensation?

Executive compensation refers to the financial rewards and other benefits given to company executives in exchange for their services. It often includes salary, bonuses, stock options, and benefits.

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What is business trend awareness?

Business trend awareness is the ability to recognize and understand emerging trends in the business world. It helps businesses adapt to changes and stay competitive.

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How does business trend awareness help with forecasting?

Being aware of business trends helps companies make better forecasts about their future performance. They can analyze current trends to predict future industry developments.

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How does business trend awareness help with improvement?

Business trend awareness helps companies identify areas for improvement and adaptation. By understanding current trends, businesses can adjust their strategies to stay relevant.

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How does business trend awareness help with competition?

Companies can leverage business trends to gain a competitive edge. By adopting successful trends early, businesses can differentiate themselves and outperform competitors.

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Proprietorship

A business structure where a single individual owns and manages the entire company. They are personally liable for all debts and obligations.

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Limited Liability Partnership (LLP)

A form of partnership where each partner's liability is limited to their investment in the business. This means their personal assets are not at risk.

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Limited Liability Company (LLC)

A business structure combining elements of partnerships and corporations. It offers limited liability and is taxed like a partnership, avoiding double taxation.

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Shareholder Wealth Maximization

The primary goal of a publicly owned company's management, focused on increasing the value of the company's stock for its shareholders.

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Balancing Shareholder Value and Society's Interests

A company's ethical obligation to consider society's well-being and not solely focus on maximizing shareholder value at the expense of social and environmental responsibility.

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Study Notes

Holy Angel University School of Business and Accountancy

  • The school offers courses in business and accountancy
  • The school is part of Holy Angel University
  • The course material covers an overview of financial management

Overview of Financial Management (MATHBUSFIN)

  • Finance is about decisions concerning money (cash flows)
  • Financial decisions involve how money is raised and used
  • Value is preferred over less value
  • Earlier receipt of cash is more valuable
  • Less risky assets are more valuable
  • Finance is a complex system involving money circulation, credit, investments, and banking.

Learning Outcomes

  • Understanding basic financial concepts
  • Different forms of business organizations and their advantages/disadvantages
  • Major business goals
  • Role of ethics and good governance in successful businesses
  • Differences between foreign and U.S. firms, and factors influencing financial decisions in multinational firms

What is Finance?

  • Decisions about cash flows

  • How money is raised and used

  • Value and the time it's received

  • Risk and valuation

  • Finance is a 'system' that encompasses money circulation, granting credit, investment, and banking.

Jobs in Finances

  • Finance prepares students for jobs in: Banking, Investments, Insurance, Corporations, and Government.
  • Accounting students need to understand marketing, management, and human resources. Finance impacts decisions in these areas.

General Areas of Finance

  • Financial markets and institutions
  • Investments
  • Financial services
  • Managerial finance

Financial Markets and Institutions

  • Banks, insurance companies, savings and loans, credit unions are key components of the financial services market place.

Investments

  • Finance focusing on decisions businesses and individuals make when choosing investment securities.

Financial Services

  • Functions provided by organizations involved in managing money.

Managerial Finance

  • Decisions made by businesses regarding cash flows (inflows and outflows).

Alternative Forms of Business Organization

  • Proprietorship
  • Partnership
  • Corporation

Proprietorship

  • Advantages: Easy formation, few government regulations, no corporate income taxes.
  • Limitations: Unlimited personal liability, limited life, transferring ownership is difficult, capital raising is challenging.

Partnership

  • Similarities to a proprietorship, with two or more owners.

Corporation

  • Advantages: Unlimited life, easy transfer of ownership, limited liability, and easy capital raising.
  • Disadvantages: High setup and reporting costs, double taxation.

Hybrid Forms of Business Organization

  • Limited Liability Partnership (LLP)
  • Limited Liability Company (LLC)
  • S Corporation

Limited Liability Partnership (LLP)

  • A general partnership where each partner isn't liable for other partners' debts

Limited Liability Company (LLC)

  • A relatively new business form, combining features of corporations and partnerships

S Corporation

  • A corporation with (max) 100 stockholders, taxed like a proprietorship/partnership. Income is taxed just once.

Balancing Shareholder Value and Societal Interest

  • Goal is shareholder wealth maximization (maximizing stock price).
  • Managers must operate ethically and consider societal constraints.

Managerial Actions to Maximize Shareholder Wealth

  • Strategic decisions related to capital structure, budgeting, and dividend policies are important to achieve maximization of shareholder wealth.

Should Earnings per Share (EPS) Be Maximized?

  • Earnings per share (EPS) equals net income (NI) divided by the number of outstanding shares (EPS= NI/Shares)
  • Investors use EPS to gauge stock value.

Intrinsic Values, Stock Price, and Executive Compensation

  • Intrinsic value is an estimate of a stock's "true" value based on accurate risk and return data.
  • Stocks' market price relates to the current trading price on the market.
  • Executive compensation includes salary, bonuses, company stock, and other benefits, ideally aligning with organizational and government regulations.

Intrinsic Value

  • Measured based on accurate risk and return data
  • Can be estimated, but not precisely measured

Stock Price

  • Current trading price for a share of publicly traded company stock.

Executive Compensation

  • Combining financials (salary, bonuses) with non-financial benefits (perquisites)
  • Designed to consider government regulation, tax laws, company needs, and employee performance.
  • Being aware of changing business practices.
  • Online presence is crucial for small businesses. (higher growth)
  • Knowledge of trends helps forecasting, improving strategies, and navigating competition.

Why is Business Trend Awareness Important?

  • Necessary for businesses to follow trends and improve strategies
  • Important for forecasting and adapting to changes

Enhanced Forecasting Ability

  • Understanding current and future trends makes forecasting easier
  • Crucial for making effective decisions and capitalizing on opportunities

Helps in Determining Required Changes for Improvement

  • Trends are useful benchmarks
  • Strategies that do not align with trends should be adjusted.

Business Ethics

  • A standard of conduct and moral behavior, encompassing how a company treats its employees, customers, community, and stockholders.
  • Reputations of firms depend on the practice of ethical conduct and good standards

Stockholders versus Managers

  • Managers are naturally inclined to act in their own best interests.
  • Mechanisms to motivate managers in the best interest of shareholders: stakeholder intervention, compensation incentives, and threat of takeover.

Goals of the Corporation

  • Primary goal is shareholder wealth maximization.
  • Maximizing shareholder wealth translates to maximizing stock price
  • Managerial incentives and social responsibility are relevant considerations
  • Important Decisions: Capital Structure, Capital Budgeting, and Dividend Policy.

Managerial Actions to Maximize Stockholder Wealth

  • Capital Structure Decisions
  • Capital Budgeting Decisions
  • Dividend Policy Decisions

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Holy Angel University School of Business and Accountancy Financial Management PDF

Description

This quiz covers key concepts in financial management, including cash flow decisions, the value of money over time, and the different forms of business organizations. Understand the role of ethics in business and explore the differences between foreign and U.S. firms. Perfect for students in Holy Angel University's School of Business and Accountancy.

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