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Question ( for writting ) What are functions of corporate finance ? One of the core functions of corporate finance is to make wise use of the financial resources available to the company The functions may include the management of investments, creating and managing the process for issuing shares of stock or offering corporate bonds, and acquisitions of property or other companies, mergers, corporate restructures, or the selling of the company assets What are objectives of corporate finance? Some main objectives of corporate finance are making wise use of financial resources, developing an operating budget for all financial needs of the company, tracking income generated together with other departments of the company The general goal of corporate finance is to ensure that the company is achieving the maximum profits while incurring the minimum amount of expenditure How can a company raise capital? A company can raise more capital in two ways: Debt financing and equity financing A company can increase its equity by issuing new shares In addition, a company can get debt financing by issuing new bonds, or borrowing money from banks, or other financial institutions What are advantages and disadvantages of owner's capital? Owner's capital is the most exposed form of capital because a return is received only after all other calls on company's profits have been satisfied In the case of bankruptcy, the owner's equity will be repaid only after everyone else including employees, creditors, banks On the other hand, in successful times, the owners have a claim on all the net profit of the company What are advantages and disadvantages of venture capital? The advantage of venture capital is that the venture capital company does not usually interfere in the running of the company However, the venture capital company usually demands a much faster and higher rate of return than an owner would expect from his/her own capital What are advantages and disadvantages of long-term loans? Long term loans provide companies opportunities to raise more capital In times of prosperity, long term loans can give the owners much better returns because net profits will be a much higher percentage of equity after interest payments on the long term debt However, in harder times, the owner' s earnings will drop dramatically as interest payments soak up most of the company’s profits 7 What are advantages and disadvantages of listed security markets ( Stock Exchange) ? The listed security market has the advantage of providing the long-term opportunity of raising capital by issuing fresh shares However , at least 25 % of the equity must be in public hands-thereby reducing the control of the original owners How is working capital of a company classified? Working classified into types: Permanent working capital and temporary working capital Permanent working capital is tied up keeping the business flowing throughout the year, while temporary working capital is needed from time to take account of seasonal, cyclical or unexpected fluctuation in the business What is the task of finance manager in managing inventories? It's the job of the finance manager to minimize the stocks of raw materials, the level of the work in progress and the quantity of finished goods 10 What is the task of finance manager in managing debtors? It's the task of finance manager to see that generous credit terms are negotiated with suppliers, but minimal credit terms are offered to customers A balance must be achieved between getting and giving good credit terms to attract customers and maintain positive relationships with suppliers on the one hand, and minimizing cash outlay on the other hand 11 What is the task of finance manager in managing cash? It's the task of finance manager to ensure that adequate cash is always available for meeting the company's day-to-day debls and that there is also a small reserve on hand to meet contingencies 12.What are differences between 'selling' and 'marketing' concept? The "selling concept" assumes that resisting consumers have to be persuaded by vigorous hard-selling techniques to buy non-essential goods and services Products are sold rather than bought The "marketing concept"', an the contrary, assumes that the producer's task is to find wants and fill them Producers make products that will be bought 13.What are 4Ps in the marketing mix ? What are included in each element of marketing mix ? 4Ps of the marketing mix are product, place, promotion and price Products include quantity, features, style, brand name, size, packaging, services and guarantee Place includes distribution channels, location of points of sale, transport, inventory size Promotion groups together advertising, publicity, sales promotion and personal selling Price includes the basic list price, discounts, the length of the payment period, creadict terms, 14.What are the most common mistakes in setting the price? Companies usually make common mistakes in setting prices Pricing is too cost oriented Price is not revised often enough to capitalize on market changes Price is set independently of the rest of marketing mix rather than as an intrinsic element of marketing- positioning strategy Price is not varied enough for different product items and market segments 15.How are prices set in different types of organizations / corporations? Prices are set in different ways in different types of organizations In small companies, prices are often set by top management In large companies, prices are handled by divisional and product-line managers In industries prices are determined by a pricing department 16.What is financial accounting information? For what purposes is financial accounting information used? Financial accounting refers to information describing financial resources, obligations and activities of an economic entity Financial accounting information is designed primarily to assist investors and creditors in deciding where to place their scarce investment resources (for people outside the organization) 17 What are the tasks of accountants in general? Accountants record daily business transactions in a journal Periodically, they transfer figures from the journals to ledgers They maintain financial records in order to find out if the businesses are making a profit 18 What is management accounting information? For what purposes is management accounting information used? Management accounting information involves the development and interpretation of accounting information Management accounting information is designed to assist management in running the business in setting the y's overall goals, evaluating the performance of departments and individuals, deciding whether to introduce a new line of products, and in making virtually all types of managerial decisions 19.What are differences between financial accounting and management accounting ? Financial accounting refers to information describing financial resources, obligations and activities of an economic entity Financial accounting information is designed primarily to assist investors and creditors in making their investment decisions, whereas management accounting information is designed mainly to assist management in running the business 20 What is financial analysis? For what purposes is financial analysis used internally and externally? Financial analysis is the selection, evaluation, and interpretation of financial data, along with other pertinent information, to assist in investment and financial decision making It is used internally to evaluate issues such as employee performance, efficiency of operations and credit policies, and externally to evaluate potential investments and the credit-worthiness of borrowers, among other things 21 What three types statements show / indicate? Three types of financial statement are the balance sheet, the income statement and the cash flow statement The balance sheet shows the company's financial situation on a particular date It lists the company's assets, its liabilities and shareholders' funds The income statement shows earnings and expenditures It usually gives figures for total sales or turnover and costs and overhead The cash flow statement shows the flow of cash in and out of the business between balance sheet dates 22.What are sources of data available for financial analysis? They are financial statement data, market data, and economic data The primary source (financial statement data) is the data provided by the company in its annual reports and required disclosures Second source (market data) such as the market prices of securities is found in the financial press and the electronic media daily Another source is economic data such as GDP or CPl that is readily available from government and private sources 23.What are the tasks of internal auditors? Internal auditors continuously review operating procedures and financial records and report to management on the current state of the company's fiscal affairs They also make suggestions to management for improvement in the operating procedures They check the accounting records in regard to completeness and accuracy, making sure that all irregularities are corrected Overall, the internal auditors seek to ensure that the various departments of the company follow the policies and procedures established by management 24 What is internal auditing? What are advantages and disadvantages of Internal auditing? Internal auditing is done by accountants accounting department of the company Thanks to internal audit, the management knows the current state of the company's fiscal affairs, and any deviations from the standard operating procedures, as well as receives suggestions for improvements in the standard operating procedures However, a weakness exists in internal auditing Ifa report is unfavorable, it may not be shown to the person in management who can correct the problem As a result, management receives the false impression on the company's operation 25.Why governments encourage exports? What should governments to encourage exports? Governments encourage exports because a country enjoys an advantage if it exports more than it imports and wealth accrues to the exporting country They have special programs to encourage exports such as providing marketing information, establishing trade missions, subsidizing export and providing tax benefits or incentives 26 How should governments restrict imports? For what purposes? Governments restrict imports by imposing taxes and quotas The governments restrict imports to protect the domestic industries and provide employment for the population 27 Name trade barriers? What are the reasons for imposing trade barriers? They are tariffs on imports, quotas on imports, subsidies and embargoes Nations commonly use trade barriers to protect domestic employment, to protect relatively young domestic industries, to prevent unfair trade practices foreign firms, to prevent dumping, and to protect firms and industries that produce output vital to the security and defense of Complete sentences UNIT TOPIC 16 Corporate finance Corporate finance is a broad term that is used to collectively identify the various financial dealing undertaken by a corporation One of the core functions of corporate finance is making wise use of financial resources available to the company Finance can be collected from many sources such as shares, banks, financial institutions and so on Two types of corporate finance are fixed capital and working capital Fixed capital is used to purchase fixed assets such as land, buildings, machinery and so on Working capital is used to purchase raw materials and pay the day-to-day expenses like salaries, rent, taxes electricity bill, etc A company can raise finance from various sources such as issuing shares, debentures or taking loans and advances 17 Funding the business The advantage of venture capital is that the venture company does not usually interfere in the running of the company Gearing /relationship /equity capital / invested/ business /longterm debt In harder times, the owners' earnings may drop dramatically because interest payments soak up most of the company’s profit At least 25 percent of the equity must be in public hands, thereby reducing the control of the original owners Venture capital is available for investment in an enterprise that offers the probability of profit along with the possibility of loss 19 Maketing 1.”Place “ involves using the best possible channels of distribution such as leading supermarket chains “ Market opportunities “ means possibilities of filling un satisfied needs in sectors in which a company can profitably produce goods or services 3.Target consumers are people or a group of people who are targeted to buy a certain product 4.It is the job of a product manager or a brand manager to look for ways to increase sales by changing the marketing mix 5 Market segmentation is dividing a market into distinct group of buyers who have different requirements or buying habits Sales representative are people who contact existing and potential customers and try to persuade them them to buy goods or services market environment refers to factors and forces that affect a firm’s ability to build and maintain successful relationships with customers Information from an organization’s marketing department would be used to guide the actions of other department within the firm Four elements of the marketing mix are product ,place ,promotion and price 10 In the marketing , products include quality,feature and style 20 Setting the price Through most of history, price were set by buyers and sellers negotiating with each other Sellers would ask for a higher price than they expected to receive , and buyer would offer less than the expected to pay Non-price factors have become relatively more important in buyer -choice behavior in recent decades Price still remains one of the most important in buyer - choice behavior in recent decades Price is the only element in the marketing mix that produces revenue, the other element represent cost In small companies , prices are often set by top management rather than by the marketing or sale department In Large companies, pricing is handled by divisional and product-line managers 21 What is accounting? Financial accounting focuses on the reporting of the organization’ financial information to external users of the information One of the function of accounting is to provide certain types of quantitative information that management and others can use make decisions The term “financial accounting , management accounting , and tax accounting “ are often used in describin the types of accounting information most widely in the business community Accounting is simply the mean by which we measure and describe the result of economic activities Financial accounting refer to information describing the financial resources , obligations and activities of an economic entity Tax accounting means anticipating the “ tax effect “ of business transactions and structuring these transactions in a manner that will minimize the income tax burden 22 Financial statements 1.The balance sheet is a financial statement that summarizes a company’s assets, liabilities and shareholder equity at a specific point in time Three major categories listed in the balance sheet are assets, liabilities and owner’s equity Examples of asset accounts that are reported on the balance sheet include cash, petty cash, temporary, investments, supplies, land, building, etc The annual report comprises the income statement, the balance sheet, and the statement of cash flows, as well as footnotes to these statement The profit and loss account shows earnings and expenditures The balance sheet shows the financial situation on a particular date, generally the last day of a financial year The balance sheet lists the company’s assets, its liabilities and shareholder’s funds The company’s net asset consists of share capital,,share premium and the company’s reserves including the year’s retained profits The ledger is an accounting book containing all the accounts of a company 10 Financial statements which assist owners in assessing the performance and position of their business can guide their investment decisions 11 These reports are usually presented to the top management as one of their bases in making business decisions 12 Income statement and balance sheet accounts are compared with each other to see how efficiently company is using its assets to generate profits 25 Financial analysis A turnover ratio is a measure of the gross benefit, relative to the resources expended A return on investment ratio provides information on the profit, relative to the assets employed to produce that profit A liquidity ratio provides information on a company’s ability to meet its short-term obligations Financial analysis is the selection, evaluation, and interpretation of financial data, along with pertinent information, to assist in decision-making A component percentage is the ratio of a component of an item to the item A profitability ratio provides information on the amount of income from each dollar of sales A financial ratio is a comparison between one bit of financial information and another A ratio is a mathematical relation between one quantity and another In financial analysis , you need to examine events that help explain the company’s present condition and may have a bearing on its future prospects 10 A coverage ratio is a measure of a company’s ability to satisfy particular obligations 11 A return ratio is a measure of the net benefit , relative to the resources expended 12 Financial analysis is performed by professionals who prepare reports using ratios that make use of information taken from financial statements 13 The external financial analysis is done on the basis of published financial statements by those who not have access to the accounting information 14 An activity ratio provides information on a company’s ability to manage its resources efficiently 15 A financial leverage ratio provides information on the degree of a company’s fixed financing obligations and its ability to satisfy financing obligations 16 A shareholder ratio describes the company’s financial condition in terms of amounts per share of stock 26 Auditing Auditing is an accounting function that involve the review and evaluation of financial records Internal auditor make suggestions to the management for improvements in the standard operating procedures Internal auditors review operating procedures and financial records and report to management 4.Internal auditors check the accounting records in regard to completeness and accuracy, making sure that any irregularities are corrected Auditing is the task of checking and affirming the fairness and reliability of financial records on the basis of accounting standards The emphasis placed on different parts of the internal auditor’s report varies from company to company An audit is an objective examination and evaluation the financial statement of an organization to make sure that records are done fairly and accurately 27 International business International trade develops because certain countries are able to produce some goods more efficiently than other countries a certain climate in particular country may allow that country to grow agricultural product in abundance A basis for mutually beneficial trade is that one country has a comparative advantage Wealth accrues to the exporting country if it exports more than it imports Dumping is the selling on a foreign market at a price below the cost of production The governments want to protect important domestic industry because that industry provides employment for the population International trade not only result in increased efficiency but also allows countries to participate in a global economy 29 Trade barriers Trade barriers are any of a number of government-placed restrictions on trade between nations Free trade refers to the theoretical removal of all trade barriers , allowing for completely free and unfettered trade 3.Trade barriers prevent the country from depending on these imports and allow greater reliance on domestic production Trade barriers prevent the reduction of domestic production and domestic employment A specific tariff is a certain amount of tax for each unit of the product Embargoes are used to prevent the import and export of anything with another country A tariff increases the price of item , raise revenue for the government , and controls consumption through market forces The balance of payments is the amount of money that goes in and out of a country 30 Trade surpluses and deficits A trade surplus is an economic measure of a positive balance of trade, where are country’s exports exceed it imports The merchandise trade balance looks at visible goods such as wine, videocassette recorders and motorcycles A trade deficit is an economic measure of a negative balance of trade in which a country’s imports are more than its exports All of these payments and transfers of funds are added up in a country’s capital account Visible goods are tangible goods that can actually be loaded on a ship, airplane or whatever means of transport Balance of payments includes not only payments abroad, but the goods, services, and all transfers of fund that cross international borders Trade surplus means that the value of a country’s exports exceeds the value of its imports Trade balance is the different in value between the goods a country buys from abroad and goods it sells abroad The current account tells us which countries have been profitable and unprofitable traders by that time  ... accounting information? For what purposes is management accounting information used? Management accounting information involves the development and interpretation of accounting information Management... Financial accounting information is designed primarily to assist investors and creditors in deciding where to place their scarce investment resources (for people outside the organization) 17 What are... department 16.What is financial accounting information? For what purposes is financial accounting information used? Financial accounting refers to information describing financial resources, obligations