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Mostly key notes to prepare for a financial management exam
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1. GOALS WITH BIG NUMBERS – REVENUE AND PROFIT.- Corporate Financial Failure: corporate financial failure in a few words is the closing
of a company's operations leading to inability to reach sufficient profit or
revenue to pay the business expenses.
- Review Cycle – A process a company puts in place to review and amend its
targets. As it moves towards its Financial goals. A review cycle should measure
the set financial goals into weekly or even monthly time periods. Each time
setting a new target to measure and reach. To see if they’re reaching their
targets.
2.
- PP (PAY BACK PERIOD) It enables the firm to work out how long is going to take for
this new investment to actually pay for itself. (how much time will take for the
investment to be paid from the money its making.)
- ARR (ACCOUNTING RATE OF RETURN.) its an attempt to calculate the prediction of
how much extra money come into the business. How much revenue increases over a
period of money. And how long it will take for it to return. As long as the revenue is
more than the cost of borrowing then its an investment worth going ahead with.
A FIRM SHOULD USE BOTH OF THESE MEASURES WHEN CONSIDERING EXPANDING
INTO NEW DIMENSIONS.
- Debt funding and equity funding
- Debt and equity financing
- Dividend meaning: a cash dividend policy is the policy a company uses to
structure its dividend payout to shareholders. It’s the distribution of funds or
money paid to stockholders generally as part of the corporation’s current
earnings or accumulated profits. Cash dividends are only paid directly in
money
IF A COMPANY IS NOT MAKING ANY MONEY OR HAVING MUCH LESS PROFIT THEIR
SHAREHOLDERS ARE LESS LIKELY TO PAY THEIR DIVIDENTS.
IF A COMPANY DOESN’T PAY DIVIDENTS THEN SHAREHOLDERS WILL GET SCARED THAT THE
COMPANY IS NOT MAKING ANY MONEY. THIS MAY CAUSE THE SHAREHOLDERS TO SELL
THEIR SHARES IN THE COMPANY AND SO THE VALUE OF THE COMPANY WILL DROP. THIS
WILL CAUSE PROBLEMS WITH BANKS AND LENDINGS AS WELL.
3.
- STOCK (ARE THEY MANAGING STOCK WELL?)
- CASH (DO THEY HAVE ENOUGH CASH IN THE BUSINESS IF ANY PROBLEMS ARISE?)
- DEBTORS AND CREDITORS. (ARE THEY BEING OWED MONEY?, FOR HOW LONG?,
AND WHAT ARE THEY SPENDING WHILE BEING OWED.)
PROBLEMS WITH CASH FLOW? –
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