Back to notes
Why is understanding basic terms and concepts crucial in financial management?
Press to flip
These fundamentals are essential for grasping more complex topics that will be covered later in the course.
What is meant by profit maximization?
Profit maximization refers to ensuring maximum profitability of the firm often focusing on short-term financial gains.
How does wealth maximization differ from profit maximization?
Wealth maximization aims at increasing the value of shareholders' investments over the long-term, considering sustainability and risks, while profit maximization focuses on short-term gains and often ignores risks and timing of returns.
Name the three main tasks involved in the role of a finance manager.
Procurement of funds, employment of funds, and maximizing returns.
What are the main objectives of financial management?
The main objectives are profit maximization and wealth maximization.
What does the scope of financial management include?
Procurement, employment, and distribution of funds.
What are the types of decisions involved in financial management?
Investment decision, financing decision, and dividend decision.
Define the money market.
The money market involves short-term debt transactions.
How does a finance manager balance risk and return?
By evaluating and selecting investments that provide the best balance between expected returns and acceptable levels of risk.
What is the risk-return trade-off in financial management?
The risk-return trade-off implies that higher risks usually lead to higher potential returns, and finance managers must balance these in their investment decisions.
Explain the modern role of a finance manager compared to the traditional role.
The modern role of a finance manager includes managing funds and risk, and ensuring maximum returns due to global competition, beyond just procuring funds as in the traditional role.
Describe the key difference between financial accounting and financial management.
Financial accounting focuses on recording and reporting financial transactions, while financial management involves planning, managing, and distributing financial resources.
What is the importance of the dividend decision in financial management?
The dividend decision determines how much profit should be distributed to shareholders versus reinvesting in the business, impacting shareholder satisfaction and business growth.
Define the capital market.
The capital market involves long-term securities such as stocks and bonds.
Why might profit maximization be considered a limited objective?
Profit maximization can be limited as it often ignores risks and the timing of returns, focusing purely on short-term gains rather than long-term sustainability and value.
Previous
Next