Financial Policy Decisions
The first section discusses financial and non-financial objectives. Financial objectives are often evaluated using ratios and growth trends, while non-financial objectives include human, intellectual, natural, and social/relationship factors. In the UK and USA, the focus for incorporated entities is on maximizing shareholder wealth, which is measured by the market value of shares. The notes also address how economic factors like interest rates, exchange rates, and inflation can impact financial objectives.
Sources of Long-Term Finance
This section explores capital structure, debt, and equity finance. It describes different types of debt, including zero-coupon bonds. The notes also explain how to calculate returns on debt, such as interest yield and redemption yield. The document also covers dividend policies, including steady dividends, scrip dividends (offering a choice between cash or shares), and high-growth companies that pay no dividends.
Financial Risks
This section identifies and explains various financial risks, including interest rate risk and currency risk. The notes explain that interest rate risk arises from uncertainty about future interest payments on borrowings or earnings from deposits. It also mentions that businesses with foreign currency dealings face currency risk, which can be influenced by political uncertainty and economic factors. Hedging techniques such as forward contracts and futures are introduced as ways to manage these risks.
Business Valuation
The final section of the notes covers business valuation and related topics. It defines different types of business integration, such as horizontal and vertical integration. The document also discusses methods for valuing unquoted companies, such as the net assets basis. The notes introduce the Capital Asset Pricing Model (CAPM) to measure systematic risk and the Efficient Market Hypothesis (EMH), which describes how market prices reflect available information at weak, semi-strong, and strong levels of efficiency. The notes also discuss the key components of an integrated report, which include an organizational overview, governance, and business model.
No comments:
Post a Comment