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[12:58:42] --------------------------Paper F9-------------------------[13:00:03] davisdadon: hello all
[13:00:07] davisdadon: we're about to start
[13:00:13] nuwanpriyadarshana: hi
[13:00:19] davisdadon: the notes for this session can be downloaded
[13:00:22] davisdadon: here
[13:00:23] davisdadon: http://opentuition.com/wp-content/blogs.dir/1/files/groupdocuments/17/1286257834-A.Financialmanagementfunction.pdf
[13:00:51] davisdadon: we'll be discussing
[13:01:01] davisdadon: the A part of the syllabus
[13:01:07] davisdadon: Financial management function
[13:01:24] davisdadon: be warned it is heavily theory
[13:01:36] davisdadon: the first question
[13:01:41] davisdadon: What is Financial Management?
[13:02:13] nuwanpriyadarshana: it is how do u raise and manage finance
[13:02:43] davisdadon: agree candi?
[13:02:48] davisdadon: preston?
[13:03:01] nuwanpriyadarshana: am i correct?
[13:03:14] davisdadon: i was waiting for the others to respond
[13:03:22] nuwanpriyadarshana: ok
[13:03:24] davisdadon: Financial management is concern with the management of all matters
associated with the cash flow of an organisation both short-term and long term.
[13:03:34] nuwanpriyadarshana: good
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[13:03:40] davisdadon: how a company uses its funds
[13:03:49] davisdadon: What should be considered before a decision to invest is made?
[13:04:11] nuwanpriyadarshana: return, risk
[13:04:27] nuwanpriyadarshana: time duration(maturity)
[13:04:33] nuwanpriyadarshana: isnt it?
[13:04:55] candijordan: cool im here
[13:05:04] nuwanpriyadarshana: u cool
[13:05:07] nuwanpriyadarshana: ?
[13:05:14] davisdadon: retun, risk, short-term profitability, liquidity
[13:05:29] nuwanpriyadarshana: good
[13:05:35] nuwanpriyadarshana: carry on
[13:05:39] davisdadon: now explain those?
[13:05:45] davisdadon: what is return?
[13:06:06] nuwanpriyadarshana: benifit for the investment
[13:06:23] davisdadon: {nuwanpriyadarshana} yes
[13:06:31] candijordan: return are wat u generate from an investment
[13:06:52] davisdadon: i take it everyone here is familiar with net present value
[13:06:57] davisdadon: ?
[13:07:11] nuwanpriyadarshana: yes of course
[13:07:22] nuwanpriyadarshana: we shd
[13:07:46] davisdadon: as we're getting the theory out the way we wont do any NPV calculation today
[13:07:58] davisdadon: but we HAVE to know how to calculate NPV
[13:08:03] davisdadon: what is risk?
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[13:08:37] nuwanpriyadarshana: risk is uncertainity of the return and capital of the investment
[13:08:45] nuwanpriyadarshana: isnt it?
[13:08:58] davisdadon: {nuwanpriyadarshana} elaborate
[13:09:11] candijordan: risk and return goes hand in hand
[13:09:47] candijordan: because the more risky an investment is the more returns they will generate
[13:10:08] nuwanpriyadarshana: risk is some kind of uncertanity that is not recovery of getting return
for the investment and
[13:10:08] davisdadon: {candijordan} but what is risk?
[13:10:39] davisdadon: {nuwanpriyadarshana} risk is not uncertainty its probability
[13:10:55] davisdadon: it is the probability that an event will occur
[13:10:56] davisdadon: (june's pastpapaper dealt with risk measurement in the form of joint
probability)
[13:11:12] nuwanpriyadarshana: differace?
[13:11:23] nuwanpriyadarshana: prob n uncert?
[13:11:30] davisdadon: risk is NOT based on a hunch that an event MIGHT occur it is a quantified
assessment of what might occur
[13:11:30] candijordan: probable
[13:12:14] candijordan: so risk is quantifiable
[13:12:15] nuwanpriyadarshana: ok
[13:12:25] davisdadon: {nuwanpriyadarshana} im not sure if prob. and uncertainty can be used
interchangeably
[13:12:29] candijordan: probables are not?
[13:12:41] davisdadon: did anyone attempt the june pastpaper?
[13:12:49] davisdadon: or seen it?
[13:12:52] candijordan: no
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[13:12:55] candijordan: sorry
[13:12:57] nuwanpriyadarshana: nope
[13:13:01] davisdadon: ok
[13:13:18] davisdadon: there is a question on joint probability
[13:13:24] davisdadon: meaning
[13:13:35] davisdadon: probability is based on percentages
[13:13:42] davisdadon: if i say for example
[13:13:50] nuwanpriyadarshana: there are two three probabilities?
[13:13:55] davisdadon: yes
[13:14:05] davisdadon: {nuwanpriyadarshana} so you understand then
[13:14:20] davisdadon: {candijordan} have you heard of joint probability before?
[13:14:20] nuwanpriyadarshana: ok
[13:14:29] candijordan: no
[13:14:42] candijordan: it doesnt ring a bell
[13:14:56] davisdadon: {candijordan} probability is expressed sometimes in percentages
[13:15:22] candijordan: uh huh
[13:15:27] davisdadon: the probability that a coin lands heads or tails is 50%
[13:15:41] nuwanpriyadarshana: simple?
[13:15:43] davisdadon: dont worry we'll explain when we get there
[13:15:47] davisdadon: for now
[13:15:59] davisdadon: know that risk is based on probabilities
[13:16:05] davisdadon: and its not wild guesses
[13:16:15] nuwanpriyadarshana: ok
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[13:16:30] candijordan: ok
[13:16:41] davisdadon: short term profitability why is that important in investment appraisal?
[13:17:24] nuwanpriyadarshana: to genarate working capital?
[13:17:27] nuwanpriyadarshana: ??
[13:17:46] candijordan: to be able to cover their expenses
[13:17:54] davisdadon: {candijordan} yes
[13:17:58] davisdadon: {nuwanpriyadarshana} yes
[13:18:22] davisdadon: short-term profitability is important because if too little profit is made
[13:18:35] davisdadon: during the early stages of the project
[13:18:43] davisdadon: the company may struggle to keep
[13:18:58] davisdadon: fininacing the project for the longer term.
[13:19:08] davisdadon: clear?
[13:19:12] candijordan: cool
[13:19:23] nuwanpriyadarshana: yes
[13:19:50] davisdadon: with that said liquidity should be easy to answer
[13:20:13] davisdadon: why would a company consider liquidity before making an investment decision?
[13:20:13] nuwanpriyadarshana: 1 minut pls
[13:20:45] candijordan: liquidity is how easy their assts are convertible into cash
[13:21:07] davisdadon: {candijordan} hmmm
[13:21:15] davisdadon: {candijordan} not exactly
[13:21:30] davisdadon: {candijordan} what would you call a company that is liquid
[13:21:31] davisdadon: ?
[13:21:32] nuwanpriyadarshana: ok. i came
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[13:21:59] davisdadon: {nuwanpriyadarshana} why would a company consider liquidity before making
an investment decision?
[13:22:10] candijordan: a co that has more assets than liablities?
[13:22:21] nuwanpriyadarshana: going concern
[13:22:32] davisdadon: {nuwanpriyadarshana} elaborate
[13:23:03] nuwanpriyadarshana: if dont have liquidity we cant servive
[13:23:05] davisdadon: {candijordan} not exactly
[13:23:22] nuwanpriyadarshana: like wise company also same
[13:23:27] davisdadon: {nuwanpriyadarshana} what does being liquid mean?
[13:23:27] nuwanpriyadarshana: isnt it?
[13:23:44] davisdadon: when we speak about liquidity we're talking about
[13:23:47] nuwanpriyadarshana: ability to pay
[13:23:49] davisdadon: cash and cash equivalents
[13:23:53] davisdadon: {nuwanpriyadarshana} yes
[13:23:56] candijordan: isnt being liquid is being able to meet ur liabilites
[13:24:21] davisdadon: yes - but mainly current debt
[13:24:31] nuwanpriyadarshana: ok. carry on
[13:24:37] nuwanpriyadarshana: go ahead
[13:25:17] davisdadon: {candijordan} you can have $1,000,000 in non-current assets but if you have no
cash, your business is dead
[13:25:34] nuwanpriyadarshana: yes, taht is ri8
[13:25:34] davisdadon: someone mentioned working capital
[13:25:41] davisdadon: what is that?
[13:25:45] candijordan: ok so to rephrase
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[13:26:30] candijordan: liquidity is ur current assets to meet ur current liabilties
[13:26:42] nuwanpriyadarshana: it is capital for day to day business
[13:27:08] nuwanpriyadarshana: is it?
[13:27:11] davisdadon: {candijordan} yes, hence cash and cash equivalents
[13:27:13] davisdadon: {nuwanpriyadarshana} yes
[13:27:23] davisdadon: Working capital is the cash resource available to the business on a day-to-day
basis and used to finance the current assets such as inventory and receivable
[13:27:44] davisdadon: Without it the business would run out of cash and become insolvent
[13:27:58] davisdadon: similar again to ..... liquidity
[13:28:09] nuwanpriyadarshana: yes......go go ahead..................... fast
[13:28:13] davisdadon: ok
[13:28:18] davisdadon: What are some disadvantages of working capital?
[13:28:35] nuwanpriyadarshana: less profitability
[13:28:49] davisdadon: {nuwanpriyadarshana} yes
[13:28:55] davisdadon: Working capital does not directly provide any returns
[13:29:01] nuwanpriyadarshana: ok
[13:29:07] davisdadon: Returns come from using the capital assets that depend on the working capital
[13:29:18] nuwanpriyadarshana: ok
[13:29:28] nuwanpriyadarshana: ri8
[13:29:56] davisdadon: calculation time
[13:30:03] nuwanpriyadarshana: ok
[13:30:07] davisdadon: Calculate the funding an organisation requires?
[13:30:11] candijordan: ok
[13:30:30] nuwanpriyadarshana: information?
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[13:30:30] davisdadon: they are no figures tho :)
[13:30:52] davisdadon: how would you calculate the funding an organisation requires?
[13:31:23] nuwanpriyadarshana: fom differant sources
[13:31:28] davisdadon: such as
[13:31:40] nuwanpriyadarshana: lshare issurance
[13:31:43] nuwanpriyadarshana: loan
[13:31:47] nuwanpriyadarshana: debenture
[13:31:53] davisdadon: Existing assets + new investments – Disposal of investments +/- changes in
working capital
[13:31:55] nuwanpriyadarshana: sale of fixed asset
[13:32:01] davisdadon: *requires not has
[13:32:24] davisdadon: Calculate the funding an organisation has?
[13:32:53] nuwanpriyadarshana: did not get qestion correctly
[13:33:02] nuwanpriyadarshana: pls explain
[13:33:11] davisdadon: ok
[13:33:29] davisdadon: an organisation requires funds to keep functioning
[13:33:35] nuwanpriyadarshana: ok
[13:33:39] davisdadon: granted funds come from various places
[13:33:44] davisdadon: debt and equity
[13:33:45] nuwanpriyadarshana: ok
[13:33:48] nuwanpriyadarshana: ok
[13:33:50] davisdadon: to keep it short
[13:34:01] davisdadon: so my question os not how much funding it HAS
[13:34:06] davisdadon: but REQUIRES
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[13:34:29] davisdadon: assets + new investments
[13:34:42] davisdadon: obviously disposals lower assets
[13:34:49] davisdadon: so they are minus
[13:34:57] davisdadon: and the changes in working capital
[13:35:08] davisdadon: which can go up + or down [13:35:24] candijordan: ok
[13:35:25] davisdadon: just absorb that a bit
[13:35:31] davisdadon: and compare it to this
[13:35:38] davisdadon: the funding it HAS
[13:35:46] davisdadon: existing funds
[13:35:53] candijordan: brb
[13:36:13] davisdadon: retained earnings (equity)
[13:36:24] davisdadon: and loans (debt)
[13:36:42] davisdadon: losses decrease the funding it has
[13:36:47] davisdadon: and profits increase
[13:36:55] davisdadon: new loans increase
[13:37:04] davisdadon: repayments decrease
[13:37:24] nuwanpriyadarshana: ok good. that is cash flow statement. isnt it?
[13:37:34] davisdadon: :)
[13:37:48] davisdadon: {nuwanpriyadarshana} you're connecting the dots
[13:38:12] nuwanpriyadarshana: mean?
[13:38:18] davisdadon: so if you work out the funds a company has
[13:38:28] davisdadon: and the funds it requires
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[13:38:56] davisdadon: as a manager you should know the difference is the funds you need to raise
[13:39:24] nuwanpriyadarshana: carry on u all. iam very hungry. it is 11.05 pm
[13:39:30] nuwanpriyadarshana: i am off
[13:39:43] davisdadon: ok
[13:39:48] candijordan: im back
[13:40:08] davisdadon: what should be the aims of the financial management team?
[13:40:34] davisdadon: {nuwanpriyadarshana} download the notes everything here is covered there
with simplicity
[13:41:04] davisdadon: what should be the aims of the financial management team?
[13:41:12] candijordan: the main aim is to maximize shareholder wealth
[13:41:21] davisdadon: {candijordan} yes
[13:41:26] davisdadon: what else?
[13:41:55] davisdadon: The aims of the financial management team should be aligned with those of the
wider corporate strategy
[13:42:00] davisdadon: what ever those are
[13:42:05] davisdadon: •
Maximising shareholder’s wealth
[13:42:12] davisdadon: •
Maximising profits
[13:42:17] candijordan: to ensure that the finances of the co are properly managed
[13:42:17] davisdadon: •
Satisficing/satisfying
[13:42:32] davisdadon: the last one satisfying
[13:42:37] davisdadon: what is that?
[13:43:12] candijordan: satisfying the shareholders
[13:43:23] davisdadon: hmm
[13:43:28] candijordan: as well as the managers
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[13:43:36] davisdadon: Satificing is where an organisation is primarily concern about surviving rather
than growing
[13:43:46] candijordan: hmmm
[13:43:55] candijordan: never heard of that
[13:44:13] candijordan: but ok
[13:44:25] davisdadon: remember the aims of the financial management team is basically to make
shareholders happy
[13:44:35] davisdadon: shareholders may want a business
[13:44:40] davisdadon: to make huge profits
[13:44:48] davisdadon: and some may just want a steady income
[13:45:19] davisdadon: which means keep the profit at one level
[13:45:29] davisdadon: and keep it going
[13:45:53] davisdadon: what does it mean to maximise shareholder's wealth?
[13:47:22] candijordan: its ensuring that the shareholders receive the highest possible return from their
investments
[13:47:26] davisdadon: james joined
[13:47:29] davisdadon: the question is
[13:47:36] davisdadon: what does it mean to maximise shareholder's wealth?
[13:47:37] candijordan: am i right?
[13:47:50] davisdadon: {candijordan} yes you are
[13:47:56] candijordan: yeah
[13:48:00] candijordan: lol
[13:48:08] davisdadon: shareholder's wealth comes from where though?
[13:48:28] candijordan: shares
[13:48:44] davisdadon: good
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[13:48:57] candijordan: can debt also be included
[13:49:01] davisdadon: good profits mean the share value increase
[13:49:05] davisdadon: dividends
[13:49:17] davisdadon: {candijordan} explain?
[13:49:50] candijordan: sorry i think i had it confused with something else
[13:49:55] davisdadon: ok
[13:50:08] candijordan: so yes shares
[13:50:30] davisdadon: what is a stakeholder?
[13:50:45] davisdadon: notice not WHO is a stake holder
[13:50:55] davisdadon: WHAT is a stakeholder?
[13:51:13] candijordan: a stakeholder is someone who has interestss in a company. how it runs its
affairs
[13:51:28] davisdadon: {candijordan} :) on the ball
[13:51:39] candijordan: aye eeee
[13:51:43] davisdadon: stakeholder is someone who has an interest in the company
[13:51:53] davisdadon: a relationship of some sort with the company
[13:52:06] davisdadon: and can exert influence over the company
[13:52:19] davisdadon: WHO are stakeholders?
[13:52:25] candijordan: government
[13:52:33] candijordan: employees
[13:52:41] candijordan: labor unions
[13:53:01] candijordan: communities
[13:53:11] candijordan: creditors
[13:53:41] davisdadon: customers
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[13:53:46] davisdadon: shareholder **************
[13:53:49] candijordan: yes customers
[13:54:01] candijordan: owners
[13:54:18] davisdadon: and if you looks at the def. of what is a stakeholder then you can conclude that
even
[13:54:31] davisdadon: local people living near the business
[13:54:32] candijordan: the public
[13:54:35] davisdadon: yes
[13:54:58] davisdadon: this is why theory is important :)
[13:55:11] kwmpeter: hello guyz
[13:55:14] davisdadon: what is a shareholder?
[13:55:18] davisdadon: {kwmpeter} hey
[13:55:35] davisdadon: what is a shareholder? (not a dumb question you'll see in a min.)
[13:56:24] candijordan: a shareholde is someone who has a right to receive interest from the enity
[13:56:34] candijordan: wait let me rephrase
[13:56:46] davisdadon: {candijordan} if i lend money to the company i have that right too
[13:57:03] candijordan: they are part owners of the company
[13:57:21] davisdadon: {candijordan} yes
[13:57:28] davisdadon: they have equity in the company
[13:57:33] davisdadon: in the form of shares
[13:57:45] davisdadon: receive dividens
[13:57:51] davisdadon: share of profits
[13:57:53] davisdadon: etc...
[13:57:58] davisdadon: Give example of conflicts between stakeholders?
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[13:58:03] davisdadon: *examples
[13:58:04] candijordan: ok
[13:58:43] candijordan: btween stakeholders and shareholders
[13:59:15] davisdadon: let me rephrase
[13:59:35] davisdadon: give examples of conflicts between different stakeholders?
[14:00:08] candijordan: hmm
[14:00:14] davisdadon: {candijordan} a shareholder is a stakeholder remember
[14:00:42] candijordan: ok the risk return factor
[14:00:51] davisdadon: employees vrs shareholders
[14:01:15] candijordan: oh u mean that
[14:01:17] davisdadon: here is two stakeholders that can have conflicts
[14:01:32] davisdadon: public vrs the company
[14:01:45] davisdadon: i dont want you just list them though
[14:01:50] davisdadon: let me give you them
[14:02:05] davisdadon: employees and unions may demand more pay
[14:02:15] davisdadon: and shorter working weeks
[14:02:17] davisdadon: BUT
[14:02:39] davisdadon: this will affect the level of profitability expected by shareholders
[14:02:46] davisdadon: that's a conflict there
[14:02:55] davisdadon: Public vrs the company
[14:03:12] davisdadon: the company may produce a product that pollutes the environment
[14:03:18] davisdadon: think of noise pollution
[14:03:30] davisdadon: that's a conflict
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[14:03:49] davisdadon: customers vrs employess
[14:04:02] davisdadon: customers may demand extra services from employee
[14:04:04] davisdadon: s
[14:04:17] davisdadon: which may not fit their job description
[14:04:22] candijordan: hold on 2 seconds plz
[14:04:33] davisdadon: {candijordan} ok
[14:05:05] kwmpeter: i'm also doing f9
[14:05:06] nuwanpriyadarshana: i had dinner. i came back davisdon
[14:05:16] davisdadon: ok
[14:05:22] davisdadon: candi moved
[14:05:31] davisdadon: any questions so far on what we discussed?
[14:05:35] nuwanpriyadarshana: ok. what i missd?
[14:05:51] davisdadon: def of a shareholder and stakeholder
[14:06:13] candijordan: im back
[14:06:15] davisdadon: we're now discussing the fact that stakeholder's interest may conflict
[14:06:25] nuwanpriyadarshana: ok
[14:06:43] nuwanpriyadarshana: carry on
[14:06:46] kwmpeter: shareholder owns share stocks, stakeholders have interest inthe company's
activities
[14:07:40] candijordan: wat is the question
[14:08:05] davisdadon: {kwmpeter} a shareholder is a stakeholder
[14:08:34] kwmpeter: bcos he has an interest in the company's activities
[14:08:41] davisdadon: brb
[14:08:51] kwmpeter: but a stakeholder isn;'t a shareholder
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[14:10:07] davisdadon: back
[14:10:13] davisdadon: ok let me explain something
[14:10:18] kwmpeter: ok
[14:10:20] davisdadon: a shareholder is a stake holder
[14:10:21] nuwanpriyadarshana: k
[14:10:24] davisdadon: stakeholders are:
[14:10:27] davisdadon: and i list them
[14:10:29] davisdadon: customers
[14:10:39] davisdadon: employees
[14:10:44] davisdadon: debt holders
[14:10:52] davisdadon: eployee unions
[14:10:55] davisdadon: government
[14:10:59] davisdadon: the public
[14:11:09] davisdadon: ANYONE who has an interest in the company
[14:11:15] nuwanpriyadarshana: ok
[14:11:18] kwmpeter: ok
[14:11:21] davisdadon: or can exert influence over the company
[14:11:27] davisdadon: a shareholder
[14:11:40] davisdadon: has equity interest in the company in the form of shares
[14:11:46] davisdadon: they receive dividends
[14:11:52] davisdadon: and a share of profit
[14:12:12] davisdadon: *they are not entitle to dividends though unless they are preferrence shares
[14:12:21] nuwanpriyadarshana: shareholder is a key owner of a company
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[14:12:33] davisdadon: yes
[14:12:50] davisdadon: stakeholders naturally conflict
[14:12:58] davisdadon: as a customer you want low prices
[14:13:06] davisdadon: but shareholders want profits
[14:13:15] davisdadon: employees want higher wages
[14:13:35] davisdadon: but shareholders want higher profits and wages are expensive
[14:13:42] nuwanpriyadarshana: sharehoder want high profit
[14:13:46] davisdadon: moving on
[14:13:50] nuwanpriyadarshana: ok
[14:14:03] davisdadon: this bring us to a very particular conflict
[14:14:04] candijordan: ok was now going to give an eg
[14:14:19] davisdadon: which will go into corporate governance
[14:14:25] davisdadon: the REAL meaty matter
[14:14:37] nuwanpriyadarshana: agency theory
[14:14:48] davisdadon: shareholders own the company but WHO runs the business?
[14:14:53] davisdadon: {nuwanpriyadarshana} exactly
[14:15:11] kwmpeter: directors
[14:15:18] davisdadon: {kwmpeter} yes
[14:15:20] nuwanpriyadarshana: Management
[14:15:23] candijordan: managers
[14:15:24] davisdadon: {nuwanpriyadarshana} yes
[14:15:36] candijordan: directors
[14:15:41] davisdadon: now is a manager/director a stakeholder?
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[14:15:42] nuwanpriyadarshana: candi ok
[14:15:49] nuwanpriyadarshana: yes
[14:15:56] candijordan: yes
[14:15:57] davisdadon: will they conflict?
[14:15:58] kwmpeter: yes
[14:16:03] kwmpeter: yea
[14:16:03] nuwanpriyadarshana: yes
[14:16:05] davisdadon: how?
[14:16:08] candijordan: because they r employees
[14:16:21] candijordan: the work for the shareholders
[14:16:27] nuwanpriyadarshana: coz they want salary. salary is an expense
[14:16:34] davisdadon: {nuwanpriyadarshana} yes
[14:16:40] kwmpeter: bcfos they expect better remunerations
[14:16:41] nuwanpriyadarshana: it reduce profits
[14:16:43] davisdadon: tell me more about how directors are paid?
[14:17:01] kwmpeter: based on profits
[14:17:09] davisdadon: {kwmpeter} yes exactly
[14:17:12] nuwanpriyadarshana: non executive as per performance
[14:17:18] kwmpeter: they may inflate profits so as to get better pay
[14:17:19] candijordan: directors are paid based on the profits
[14:17:40] davisdadon: so directors are paid base on profits and they run the business
[14:17:42] candijordan: that the enity generate
[14:18:15] davisdadon: so we need to align the goals of managers with those of shareholders
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[14:18:16] nuwanpriyadarshana: ok davis
[14:18:23] davisdadon: because they run the business
[14:18:23] candijordan: correct
[14:18:24] nuwanpriyadarshana: yes
[14:18:36] davisdadon: How can goal congruence be achieved?
[14:18:57] candijordan: they want profit maximisation whereas shareholders want wealth maximisation
[14:19:04] davisdadon: answer this as though it were an ACCA question
[14:19:08] nuwanpriyadarshana: good corporate governance principals
[14:19:08] davisdadon: cause it can come
[14:19:22] davisdadon: as a b part
[14:19:30] kwmpeter: ok
[14:19:38] davisdadon: How can goal congruence be achieved?
[14:19:48] nuwanpriyadarshana: wht about my answer?
[14:19:52] nuwanpriyadarshana: davis?
[14:20:04] davisdadon: {nuwanpriyadarshana} yes you're correct
[14:20:43] davisdadon: with this question you can talk all over your face if you understand the conflict
[14:21:01] candijordan: its achieved by ensuring a balance between the 2
[14:21:04] davisdadon: think of ways you will control the conflict
[14:21:16] davisdadon: *manage the conflict
[14:21:33] candijordan: implementing reward schemes
[14:21:38] nuwanpriyadarshana: establish goals
[14:21:39] davisdadon: {candijordan} yes
[14:21:42] davisdadon: {nuwanpriyadarshana} yes
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[14:22:02] nuwanpriyadarshana: performnce base salary instead of fixed
[14:22:03] candijordan: or having performance related pay being implemented
[14:22:06] davisdadon: would you reward a director base on the profit fig on SOCI?
[14:22:25] nuwanpriyadarshana: no.shd not
[14:22:31] davisdadon: why not?
[14:22:37] davisdadon: :)
[14:22:37] candijordan: soci?
[14:22:49] davisdadon: Statement of Comprehensive Income
[14:23:01] nuwanpriyadarshana: he may ammend incorectly soci
[14:23:12] candijordan: i know i was jus wondering if i was right
[14:23:18] davisdadon: {candijordan} :( you have to know the new names of the statements
[14:23:29] davisdadon: ok
[14:23:33] candijordan: ok
[14:23:38] davisdadon: In order to achieve goal congruence there should be introduction of careful
designed remuneration packages for managers
[14:23:50] nuwanpriyadarshana: davis?
[14:23:58] nuwanpriyadarshana: my doubt?
[14:24:00] davisdadon: Including share options as part of a manager’s remuneration package
incentivises the managers to try and maximise the share price as this will maximise the capital gains they
will achieve
[14:24:02] candijordan: i mean i knew what soci meant just that i wanted to know if that was correct
[14:24:33] nuwanpriyadarshana: u said why not?..................................???
[14:24:53] davisdadon: {nuwanpriyadarshana} i was asking you why not because i wanted you to
elaborate
[14:25:02] davisdadon: profit is subjective
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[14:25:11] nuwanpriyadarshana: ok
[14:25:11] davisdadon: defer a few expenses
[14:25:19] davisdadon: change a few depreciation policies
[14:25:28] davisdadon: increase asset value
[14:25:35] davisdadon: and you get instant profit
[14:26:05] linda4: creative accounting
[14:26:07] davisdadon: Objectives and targets can be set and if they are met then bonuses are paid in
accordance with an agreed formula
[14:26:14] davisdadon: {linda4} :) yes
[14:26:23] davisdadon: and when you run a business for the owner
[14:26:27] davisdadon: its easy to do
[14:26:34] nuwanpriyadarshana: that is what i said. isnt it?
[14:26:47] davisdadon: {nuwanpriyadarshana} yes
[14:26:48] nuwanpriyadarshana: creative accounting
[14:26:50] candijordan: true profits can b manipulated
[14:27:01] davisdadon: but if this comes as a question for 4 marks
[14:27:27] davisdadon: you shouldnt have to be thinking
[14:27:35] davisdadon: if you understand the conflict
[14:27:47] nuwanpriyadarshana: so
[14:27:47] davisdadon: the same can be answered for employees
[14:27:52] candijordan: ploicies can be changed
[14:27:53] nuwanpriyadarshana: ok
[14:27:56] davisdadon: performance related pay
[14:27:57] candijordan: ok
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[14:28:01] nuwanpriyadarshana: ok
[14:28:11] davisdadon: moving on
[14:28:16] nuwanpriyadarshana: yes
[14:28:18] candijordan: ok
[14:28:31] davisdadon: what is a not-for-profit organisation?
[14:28:55] davisdadon: and dont say they dont make profit!
[14:29:03] nuwanpriyadarshana: it is basicaly have other objective such as social work
[14:29:04] davisdadon: cause that is wrong!
[14:29:10] candijordan: an organisation whose aim is not to maximise profit
[14:29:12] davisdadon: {nuwanpriyadarshana} yes
[14:29:18] davisdadon: {candijordan} yes
[14:29:37] davisdadon: their main aim is not to generate a profit but provide a service
[14:29:50] nuwanpriyadarshana: make profits but that is not their main objective
[14:30:15] davisdadon: Not-for-profit organisations are established to pursue non-financial aims and
exist to provide services to the community
[14:30:23] davisdadon: Such organisations need fund to finance their operations
[14:30:29] nuwanpriyadarshana: yes
[14:30:31] davisdadon: Their major constraint is the amount of funds that they would be able to raise
[14:30:39] davisdadon: As a result not-for-profit organisations should seek to use the limited funds so as
to obtain value for mone
[14:30:53] davisdadon: What does value for money mean?
[14:31:22] nuwanpriyadarshana: what is the value added to the society. isnt it?
[14:31:36] candijordan: getting the best possible output from the resources available
[14:31:45] davisdadon: {candijordan} exactly
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[14:31:52] nuwanpriyadarshana: me?
[14:31:53] candijordan: at the best possible price
[14:31:57] davisdadon: {nuwanpriyadarshana} uh
[14:32:08] davisdadon: {nuwanpriyadarshana} im not sure i understand what you meant
[14:32:36] davisdadon: Value for money simply means getting the best possible service at the least
possible cost. Value for money involves providing a service which is economical, efficient and effective
[14:32:52] nuwanpriyadarshana: ok. thanks
[14:32:52] candijordan: the 3 E's
[14:33:03] davisdadon: yes
[14:33:07] davisdadon: explain them
[14:33:11] davisdadon: economical
[14:33:15] davisdadon: efficient
[14:33:19] davisdadon: effective
[14:33:34] nuwanpriyadarshana: good
[14:33:39] nuwanpriyadarshana: thanks
[14:33:41] candijordan: economy - obtaining the resources at a fair price
[14:33:49] davisdadon: {candijordan} yes
[14:34:00] davisdadon: Economy means resourcing and purchasing the inputs at minimum cost
consistent with the required quality of the output
[14:34:20] candijordan: effectiveness - ensuring they obtain the best results from the resources
[14:34:23] davisdadon: getting the best quality product at the cheapest preice
[14:34:44] candijordan: and efficiency - making good use of them
[14:34:50] davisdadon: yes
[14:34:59] davisdadon: effectiveness means doing the right thing
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[14:35:09] davisdadon: efficient means doing the right thing WELL
[14:35:19] nuwanpriyadarshana: yes
[14:35:44] davisdadon: this is the end of the session we've covered
[14:35:47] davisdadon: from the syllabus
[14:35:53] davisdadon: A
FINANCIAL MANAGEMENT FUNCTION
1.
The nature and purpose of financial management
2.
Financial objectives and relationship with corporate strategy
3.
Stakeholders and impact on corporate objectives4.
for-profit organisations
Financial and other objectives in not-
[14:36:09] candijordan: cool
[14:36:21] davisdadon: we didnt'nt however go into great detail with
[14:36:29] davisdadon: Corporate governance
[14:36:36] nuwanpriyadarshana: thanks. when is the next session davisdon?
[14:36:40] davisdadon: i've reserve that to the next session
[14:36:51] davisdadon: am
[14:36:57] davisdadon: i have the date on the forum
[14:36:58] candijordan: thusday
[14:37:02] davisdadon: let me take a look
[14:37:10] nuwanpriyadarshana: ok
[14:37:18] davisdadon: yes it thursday
[14:37:21] nuwanpriyadarshana: what time
[14:37:25] nuwanpriyadarshana: ?
[14:37:27] davisdadon: same time
[14:37:30] davisdadon: 6pm uk
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[14:37:34] nuwanpriyadarshana: ok
[14:37:37] candijordan: same batty time same batty place
[14:37:43] nuwanpriyadarshana: topic
[14:37:43] candijordan: :)
[14:37:45] davisdadon: the notes are on the forum
[14:37:53] linda4: I must say very good job from u guys
[14:37:54] davisdadon: B. Financial Management Environment
[14:37:57] candijordan: u have to put up part 2
[14:37:57] nuwanpriyadarshana: 2nd chaptr
[14:38:03] davisdadon: yes
[14:38:08] nuwanpriyadarshana: ok
[14:38:18] davisdadon: please please please know the theory