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B294 - Unit 1 - Coggle Diagram
B294 - Unit 1
Organisations
Features
Combination of individuals
Working towards common goals
e.g.
Improving animal welfare
RSPCA
Helping vulnerable women
SHELTER
Generating profit
Individual departments
Specialise in one area
Purchasing
R&D
Sales
Finance
HR
Marketing
IT
Operations
Production
Legal
Function in broader environment
Different stakeholders
Scope
Types
Public
Government-owned
Voluntary
Charities
Private
Businesses
Sell
Goods
Services
Legal entity
Incorporated
Business can
Enter contracts
Enter agreements
Employ people
Own property
Sue or be sued
Be treated as an entity
Limited liability
Unincorporated
Owner and business are the same
Personal / unlimited liability
Role of financial management
Definition
Van Horne & Wachowicz (2008)
Decision-making on
Dividend distribution
How much?
If any
Current confidence vs future plans
Impact on
Share price
Shareholder relationships
Long-term
Financial health
Goals
Investment
Employees / management
Raising money
to finance
How much?
Where from?
External
Bank loan
Bonds / debentures
Issue of shares
Grants
Internal
Retained earnings?
1 more item...
Managing risk
Exposure
Fluctuations
Interest rates
Exchange rates
Unstable governments
Investing money
Assets
Long-term
Plant and machinery
Land and buildings
Capital budgeting
Analyse investment opportunities
3 more items...
Short-term
Raw materials
Inventory
Receivables
Working capital management
Enough to meet liabilities
2 more items...
Generally acts in owners interest
Maximise value of business
Function
Generally with
Financial director
Finance manager
CFO
Goals
Maximise shareholder wealth
Number of shares x current share price
Present value of future benefits
Increase company share price
Affected by
Associated risk
Higher
Compensation for shareholders
Lower value
Lower
Size of future benefits
Worthy investment?
Timing of future benefits
Longer = lower value
Sooner = higher value
Benefit from
Dividends
Sale of shares
Ensure social responsibility
Sustainability
Anti-slavery laws
Child labour
Environmental impact
Value to society
Maximise profits
Highest earnings per share
Net profit / number of shares issued
Disadvantages
Ignores timing of benefits
Sooner or later?
Reinvested if sooner?
Could investment be used differently?
Ignores future prospects
Short-termism
Long-term suffering
Become uncompetitive
Ignores risk
Not all investments succeed
Could lead to trouble
Higher risk generally = higher reward
Lower risk generally = lower reward
Ignores time value of money
Shareholders vs managers
Managers should
Act in shareholder interests
Managers may
Have power to ignore shareholders
Improper balance of information
Managers have direct control
Trusted by shareholders
Try to achieve own goals
Conflict with shareholders
Agency problem
Jensen and Meckling (1976)
Methods to overcome
Comprehensive compensation plans
Tied to shareholder interests
1 more item...
Pre-set goals and objectives
Fair?
Excessive?
Shareholders vote on pay
Remuneration report
Provides transparency?
Job security
Maximise own compensation