0_Intro 2526 def_.pptx

# Introduction to financial management and company financial health Financial management is crucial for a company's success, focusing on maintaining financial health through profitability, liquidity, solvency, and effective cash flow management, ultimately aiming to maximize shareholder value. ## 1. Introduction to financial management and company financial health Financial management is the oil that keeps the engine of a company running. It encompasses understanding and managing a company's financial performance and health. This involves analyzing key financial indicators to make informed decisions that lead to the sustainable growth and success of the business. ### 1.1 Why financial management? Financial management is essential for several reasons, primarily revolving around the company's ability to generate profits and sustain its operations. #### 1.1.1 Profitability Profitability refers to the company's ability to generate earnings. It can be viewed in two main ways: * **General profitability:** This is typically measured by the net income reported in the financial statements. * **Operational profitability:** This focuses on the profit generated from the core business operations. A key metric for operational profitability is the **Sales Margin**, which indicates the profit generated for every dollar of sales. The formula for Sales Margin is: $$ \text{Sales Margin} = \frac{\text{Operating Profit}}{\text{Sales}} \times 100 $$ > **Example:** If a company reports sales of \$657.3 million with an operational profit (EBIT) of \$109.7 million, its sales margin is calculated as \$109.7 million / \$657.3 million * 100 = 16.7%. This means that for every dollar of sales, the company generates 16.7 cents in profit from its operations. #### 1.1.2 Liquidity Liquidity refers to a company's ability to meet its short-term obligations. * **Direct liquidity:** This is assessed by looking at the company's cash and current investments readily available in its financial statements. * **Current Ratio:** This is the most frequently used measure of liquidity. It compares a company's current assets to its current liabilities. The international standard suggests a minimum Current Ratio of 1. The formula for the Current Ratio is: $$ \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} $$ > **Tip:** A Current Ratio below 1 might indicate that a company has trouble meeting its short-term debts, while a very high ratio could suggest inefficient use of assets. #### 1.1.3 Solvency (Financial Structure) Solvency, also known as the financial structure, examines where a company's funding comes from and its ability to meet its long-term obligations. * **Degree of financial independence:** This ratio indicates the proportion of assets financed by equity. A higher degree of financial independence suggests lower risk. $$ \text{Degree of financial independence} = \frac{\text{Equity}}{\text{Total Assets}} $$ For instance, if equity is 300 million dollars and total assets are 1000 million dollars, the degree of financial independence is 300 million dollars / 1000 million dollars = 30%. * **Debt-to-equity ratio:** This ratio measures the extent to which a company is using debt to finance its operations compared to equity. $$ \text{Debt-to-equity ratio} = \frac{\text{Debt}}{\text{Equity}} $$ Using the previous example, if debt is 700 million dollars and equity is 300 million dollars, the debt-to-equity ratio is 700 million dollars / 300 million dollars = 2.33. A higher ratio indicates greater financial leverage and potentially higher risk. #### 1.1.4 Cash flow Cash flow is critical for a business's survival. It refers to the actual movement of money into and out of the business. A company can be profitable on paper but still face bankruptcy if it doesn't have enough cash to pay its bills. > **Why can a business show a profit and not have enough cash to pay its obligations?** > * **Timing of cash receipts and payments:** Revenue may be recorded when a sale is made, but the cash may not be received for weeks or months, while expenses (payables) may be due sooner. > * **Averaging expenses:** Budgeting by averaging monthly expenses can mask large, infrequent payments (e.g., quarterly insurance premiums). > * **Money tied up in assets:** Cash might be invested in long-term assets or used to pay down debt, reducing available liquid funds. > * **Unexpected expenses:** Unforeseen costs, such as supplier price increases or emergency repairs, can create a cash shortfall. Effective cash flow management requires not just budgeting but also a dedicated cash flow budget to manage payables and ensure sufficient funds are on hand. ### 1.2 Company types Understanding different business structures is fundamental to financial management as it impacts liability, taxation, and funding capabilities. #### 1.2.1 Sole proprietorship * **Definition:** Owned by a single individual. * **Advantages:** Easy to set up, control, and dissolve; minimal formalities; flow-through taxation (no double taxation). * **Disadvantages:** Unlimited personal liability for business obligations; funding is limited to the owner's resources or business profits. * **Taxation:** Income is taxed on the owner's personal income tax return. #### 1.2.2 Partnership * **Definition:** Owned by more than one person. * **Types:** * **General partnership:** All partners have unlimited liability. * **Limited partnership (LP):** Features at least one general partner with unlimited liability and one or more limited partners with liability limited to their investment. * **Advantages:** More sources of funding and expertise. * **Disadvantages:** Shared control; limited or no protection of personal assets for general partners. #### 1.2.3 Corporation * **Definition:** A legal entity separate from its owners, offering limited liability. * **Advantages:** Limited liability for shareholders (personal assets are protected); greater access to funding sources. * **Disadvantages:** More complex and expensive to establish; potential dilution of individual control. ##### 1.2.3.1 C-Corporation (C-Corp) * **Definition:** The standard corporate structure recognized by tax authorities. * **Key Feature:** It is a separate legal entity, protecting shareholders' assets from creditors. * **Taxation:** Subject to **double taxation** – profits are taxed at the corporate level, and then again at the personal level when distributed as dividends to shareholders. This is a significant disadvantage for many small businesses. ##### 1.2.3.2 S-Corporation (S-Corp) * **Definition:** A variation of the C-Corp that allows profits and losses to be passed through directly to shareholders' personal income without being subject to corporate tax rates. * **Requirements:** Typically has a limit on the number of shareholders (e.g., 100), can only have one class of stock, and shareholders must be U.S. citizens or residents. * **Taxation:** The S-Corp itself does not pay corporate tax. ##### 1.2.3.3 Limited Liability Company (LLC) * **Definition:** A legal entity that provides personal liability protection to its owners (similar to a corporation) but is not recognized as a separate taxpaying entity by tax authorities. * **Taxation:** Owners must choose one of the other tax structures (sole proprietorship, partnership, or corporation) for tax purposes. > **Tip:** The choice of business structure significantly impacts how profits are taxed, the owner's personal liability, and the ease of raising capital. ### 1.3 Business structure Beyond company types, the internal organizational structure of a business influences decision-making, authority, and operational efficiency. #### 1.3.1 Organizational chart An organizational chart visually represents the company's structure, including reporting lines and hierarchical relationships. #### 1.3.2 Authority types * **Line authority:** Refers to the direct authority to make decisions and issue commands along the chain of command. It also implies a line of responsibility. * **Staff authority:** Is supportive and advisory, without direct decision-making power. Staff roles often provide expertise or assistance (e.g., legal counsel). #### 1.3.3 Organizational structures Common organizational structures include: * **Line organization:** A simple hierarchical structure with clear lines of authority. * **Line-staff organization:** Combines line authority with staff support functions. * **Functional organization:** Organizes departments based on specific business functions (e.g., marketing, finance, production). * **Divisional organization:** Organizes by product, geographic region, or customer market. * **Matrix organization:** Creates a dual reporting relationship, where employees report to both a functional manager and a project manager. This is useful for coordinating complex projects but can lead to conflicts due to the "unity of leadership" principle being violated. #### 1.3.4 The financial function The financial function within a company is typically headed by a Chief Financial Officer (CFO). Key roles within finance include: * **Accounting:** Responsible for financial statements and reporting. * **Treasury:** Manages cash and funding. * **Controller:** Oversees cost accounting and ratio analysis. * **Tax:** Manages tax compliance and strategy. * **Risk Management:** Identifies and mitigates financial risks. * **Internal Audit:** Ensures internal controls and compliance. * **External Auditor:** Provides an independent assurance on financial statements. #### 1.3.5 Fundamental decisions in financial management Financial managers make critical decisions in three main areas: * **Capital budgeting:** Deciding which long-term assets to acquire to maximize net benefits for the firm. * **Financing:** Determining how to fund short-term and long-term assets by finding the optimal mix of debt and equity. This directly links to solvency. * **Working capital management:** Managing short-term assets and liabilities to promote cash flow growth. This is closely linked to liquidity. Poor decisions in these areas can lead to bankruptcy. ### 1.4 Business reports Various reports provide insights into a company's performance and health: * **Financial Statements (FS):** Offer a view of financial performance and position, but can be limited in scope. * **Annual Report (AR):** A comprehensive report including financial statements, management discussion, and other relevant information. * **Integrated Report (IR):** Expands on the Annual Report to include the company's impact on stakeholders and the environment. * **Sustainability Report:** Focuses specifically on the company's environmental, social, and governance performance. ### 1.5 The goal of the firm The overarching goal of a firm is not simply to maximize market share or short-term profits, but rather to **maximize the value of the firm's shares**. * **Why not just maximize market share?** Aggressively pursuing market share through low prices can erode profitability and lead to insolvency. * **Why not just maximize profits?** Accounting profits can differ from economic profits and cash flows. Profits earned may not equal cash received due to the time value of money and accounting practices. * **Maximizing shareholder value** considers future cash flows, risk, and investment opportunities, providing a more holistic and sustainable objective. The value of shares is a benchmark that reflects investors' expectations about the company's future performance, new ventures, and its overall risk profile. > **Tip:** Shareholder value maximization is achieved by making decisions that increase the expected future cash flows of the company, considering the associated risks. The four common categories for company goals are client satisfaction, financial gain, growth, and employee development/satisfaction, with financial gain (and ultimately shareholder value) being the primary driver for many for-profit entities. --- # Company types and business structures The provided document outlines various types of business organizations in the US, detailing their structures, advantages, and disadvantages, alongside an overview of business organizational structures and the financial function within a company. ## 2. Company types and business structures ### 2.1 Company types The United States recognizes several primary types of business organizations: #### 2.1.1 Sole proprietorship * **Definition:** A business owned and run by a single individual. * **Examples:** Barbershops, butcher shops. * **Advantages:** * Easy to establish, control, and dissolve with minimal formalities. * Flow-through taxation: Income is taxed only on the owner's personal income tax return, avoiding corporate-level taxation. * **Disadvantages:** * Unlimited personal liability: The owner is personally responsible for all business obligations, putting their personal assets at risk. * Funding is limited to the owner's resources or business profits. * **Taxation:** Income is taxed at the owner's individual rate. The business itself does not pay corporate tax. * **Naming Convention:** The business name can be the same as the owner's name. To operate under a different name, a "Doing Business As" (DBA) filing is required. #### 2.1.2 Partnership * **Definition:** A business owned by more than one person. * **Types:** * **General Partnership:** All partners have unlimited liability. * **Limited Partnership (LP):** Includes at least one general partner with unlimited liability and one or more limited partners whose liability is limited. * **Advantages:** * Access to more sources of funding. * Greater pool of expertise. * **Disadvantages:** * Shared control among partners. * Limited or no protection of owners' personal assets, particularly for general partners. #### 2.1.3 Corporation * **Definition:** A legal structure that is a separate legal entity from its owners (shareholders). This is also known as a limited company (LC). * **Advantages:** * Limited liability for shareholders: Their personal assets are protected, and liability is limited to their investment or commitments. * The corporation itself is responsible for its obligations and actions. * Greatest access to various sources of funds. * **Disadvantages:** * More difficult and expensive to establish. * Can dilute individual control over the firm. ##### 2.1.3.1 C-Corporation (C-Corp) * **Definition:** The standard corporation type under IRS rules, commonly used by large, publicly traded companies. * **Key Feature:** It is a separate legal entity, protecting shareholders' assets from creditor claims. * **Taxation:** Subject to double taxation. Profits are taxed once at the corporate level, and then again at the personal level when distributed as dividends to shareholders. Many small businesses avoid this structure due to double taxation. ##### 2.1.3.2 S-Corporation (S-Corp) * **Definition:** A variation of the C-Corp, allowing corporate income and profits to be passed directly through to shareholders. * **Taxation:** Shareholders report their share of the corporation's income/profit on their personal tax returns and pay taxes at their individual income tax rates. The S-Corp itself does not pay corporate tax. * **Requirements:** * Can have no more than 100 shareholders. * Can have only one class of common stock (no preferred stock). * Shareholders must be U.S. citizens or residents (corporations or partnerships cannot be shareholders). #### 2.1.4 Limited Liability Company (LLC) * **Definition:** A legal entity that is recognized as a legal person but is not treated as a separate taxpaying business structure by the IRS. * **Advantages:** * Provides personal liability protection for owners, as granted by state law. This is a significant advantage compared to sole proprietorships and general partnerships. * **Taxation:** Owners of an LLC must choose one of the other four business structures (sole proprietorship, partnership, C-Corp, or S-Corp) for tax purposes. > **Tip:** The choice of business structure significantly impacts liability, taxation, and administrative requirements. Carefully consider these factors based on the business's scale, risk tolerance, and funding needs. > **Example:** A freelance graphic designer might opt for a sole proprietorship due to its simplicity and low startup cost, accepting the unlimited personal liability. A startup tech company seeking significant outside investment would likely choose a C-Corp to attract investors and limit shareholder risk, despite the double taxation. A small consulting firm with a few partners might consider an LLC for liability protection while benefiting from pass-through taxation. ### 2.2 Business structure Business structure refers to how a company is organized, often visualized through an organizational chart. #### 2.2.1 Key elements of business structure * **Line Authority:** Represents the direct line of responsibility and decision-making power within an organization. * **Span of Control:** The number of subordinates a manager can effectively supervise. * **Unity of Leadership:** The principle that each employee should report to only one supervisor to avoid conflicting directives. * **Staff Authority:** Pertains to supportive or advisory roles, such as legal counsel or HR, which provide expertise but do not have direct decision-making authority over operational lines. #### 2.2.2 Organizational Structures * **Horizontal Structure (Flat):** Characterized by fewer hierarchical levels, less formal structure, and potentially blurred departmental boundaries. This can lead to less employee autonomy but requires less management oversight. * **Vertical Structure:** Features clearly defined roles and responsibilities with distinct hierarchical levels. This offers more employee autonomy but requires more management oversight. #### 2.2.3 Common Organizational Structures * **Line Organization (Hierarchical):** A traditional, top-down structure where authority flows directly from top management down through subordinates. * **Line-Staff Organization:** Combines line authority with staff authority, allowing for specialized advice and support. * **Functional Organization:** Organizes employees based on their specialized skills and functions (e.g., marketing, finance, operations). * **Divisional Organization:** Structures the company into separate divisions, often based on product, geographic region, or market. * **Product Structure:** Divisions are organized around specific products. * **Geographic Structure:** Divisions are organized by geographical regions. * **Market or Consumer Structure:** Divisions are tailored to specific customer segments. * **Matrix Structure:** A complex structure where employees report to two or more managers, typically a functional manager and a project manager. * **When Used:** For coordinating complex activities or efficiently allocating specialists across different departments. * **Disadvantages:** Can lead to ambiguity, power struggles, stress, and conflicts due to the disappearance of the unity of leadership principle. ### 2.3 The Financial Function The financial function is critical for a company's health and success, overseeing capital management, funding, and short-term operations. #### 2.3.1 Key Roles within the Financial Function * **Chief Financial Officer (CFO):** The executive responsible for managing the financial actions of a company. * **Accounting:** Focuses on preparing and reporting financial statements. * **Treasurer:** Manages the company's cash and its sources. * **Controller:** Oversees cost accounting, financial ratios, and reporting for internal management. * **Other Roles:** Include tax management, risk management, internal auditing, external auditing, and compliance and ethics oversight. #### 2.3.2 Fundamental Decisions in Financial Management * **Capital Budgeting:** Deciding which long-term assets (e.g., machinery, buildings) the firm should acquire to maximize net benefits. This decision has implications for the firm's solvency. * **Financing:** Determining how to pay for both short-term and long-term assets by finding the optimal mix of debt and equity financing. This decision is closely linked to solvency. * **Working Capital Management:** Managing short-term resources (current assets) and obligations (current liabilities) to promote cash flow growth. This is directly related to the company's liquidity. > **Tip:** Poor decisions in capital budgeting, financing, or working capital management can lead to bankruptcy. A strong financial function ensures these decisions are strategically aligned with the company's overall goals. ### 2.4 Business reports Various reports provide insights into a company's performance and health: * **Financial Statements (FS):** Offer a view of the company's financial value and health, though often considered a limited perspective. * **Annual Report (AR):** A comprehensive report detailing a company's activities throughout the preceding year. * **Integrated Report (IR):** Extends beyond financial performance to include the company's impact on various stakeholders and the environment. * **Sustainability Report:** Specifically focuses on the company's environmental, social, and governance (ESG) performance. ### 2.5 The Goal of the Firm The primary goal of a firm is generally to **maximize the value of its shares**. This goal is preferred over others like solely maximizing market share or immediate profits because: * **Market Share:** While selling at low prices might increase market share temporarily, it can lead to an inability to cover costs and sustain operations. * **Profits:** Accounting profit does not always equate to economic profit or available cash. Furthermore, profit earned may not be equivalent to cash received due to the time value of money. * **Shareholder Value:** Maximizing share value considers future cash flows, new product development, target market strategies, and the associated business risks, providing a more holistic and forward-looking objective. > **Tip:** A business can show a profit on paper but lack sufficient cash to meet its obligations due to poor cash flow planning. This can occur if revenue is recognized before cash is received, or if expenses are not accurately budgeted over time (e.g., averaging annual insurance premiums monthly without accounting for large quarterly payments). Maintaining adequate liquidity is as crucial as profitability for business survival. --- # Business reports and financial statement analysis This topic explores various business reports and their critical role in evaluating a company's financial health and overall value. ### 3.1 Types of business reports Business reports provide insights into a company's performance, financial standing, and strategic direction. Key types include: * **Financial Statements (FS):** These offer a limited view of value and health creation, primarily focusing on quantitative financial data. * **Annual Report (AR):** A more comprehensive report that typically includes financial statements, management discussion and analysis, and other relevant information for shareholders. * **Integrated Report (IR):** This type of report expands beyond financial performance to include a company's impact on its stakeholders and the environment, offering a holistic view of value creation. * **Sustainability Report:** Specifically details a company's environmental, social, and governance (ESG) performance. ### 3.2 The goal of the firm The ultimate goal of a firm is to **maximize the value of the firm's shares**. This objective is preferred over solely maximizing market share or accounting profits for several reasons: * **Maximizing Market Share (Volume):** While selling goods or services at a low price can increase market share temporarily, it may not be sustainable if the firm cannot cover its costs and remain in business. * **Maximizing Profits (Revenue – Costs):** * **Accounting Profit vs. Economic Profit:** Accounting profit may differ from economic profit, which considers opportunity costs. * **Profit vs. Cash:** Profit earned on paper does not always translate to actual cash received. The time value of money means that cash received later is worth less than cash received today. * **Shareholder Value as a Benchmark:** Maximizing shareholder value considers: * Future cash flows are anticipated. * New products and target customer groups are evaluated. * The risks associated with the business are taken into account. ### 3.3 Profitability, Liquidity, and Solvency Managing and monitoring a company's financial health is crucial. This involves assessing three key areas: #### 3.3.1 Profitability Profitability refers to a company's ability to generate earnings. * **General Profitability:** Measured by Net Income as reported in the financial statements. * **Operational Profitability:** Measured by the Sales Margin. The formula for Sales Margin is: $$ \text{Sales Margin} = \frac{\text{Operating Profit}}{\text{Sales}} \times 100 $$ * **Example:** For the first half of 2025, Lotus Bakeries reported sales of €657.3 million with an operational profit (EBIT) of €109.7 million. The sales margin is calculated as: $$ \text{Sales Margin} = \frac{109.7 \text{ million euros}}{657.3 \text{ million euros}} \times 100 \approx 16.7\% $$ This indicates that approximately 16.7 cents of profit are generated for every euro of sales. #### 3.3.2 Liquidity Liquidity refers to a company's ability to meet its short-term obligations. * **Direct Liquidity:** Assessed by the amount of cash and current investments readily available in the financial statements. * **Current Ratio:** A commonly used measure of liquidity, defined as: $$ \text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} $$ An international standard suggests a minimum Current Ratio of 1. > **Tip:** A business can show a profit on paper but still lack sufficient cash to pay its obligations due to poor cash flow planning. Sales recorded as revenue may not translate into actual cash for weeks or months, depending on payment terms. #### 3.3.3 Financial Structure (Solvency) Solvency relates to a company's long-term financial stability and its ability to meet its long-term debt obligations. It examines the company's financial structure, i.e., where its funding comes from. * **Degree of Financial Independence:** Measures the proportion of assets financed by equity. $$ \text{Degree of Financial Independence} = \frac{\text{Equity}}{\text{Total Assets}} $$ For example, if Equity is 300 units and Debt is 700 units, making Total Assets 1000 units, the Degree of Financial Independence is 300 / 1000 = 30%. * **Debt-to-Equity Ratio:** Another measure of financial structure, indicating the proportion of debt financing relative to equity financing. $$ \text{Debt-to-Equity Ratio} = \frac{\text{Debt}}{\text{Equity}} $$ Using the same example, the Debt-to-Equity Ratio is 700 / 300 = 2.33. ### 3.4 Cash Flow Cash flow refers to the real-time stream of money entering and leaving a business. It is distinct from profit. A business might be profitable but experience cash shortages if: * **Receivables are not collected promptly.** * **Payables are managed poorly.** * **Money is tied up in investments.** * **Large payments are due periodically but only budgeted for as monthly averages.** * **Unexpected bills or price increases occur.** > **Tip:** To avoid cash flow problems, it is essential to prepare a cash flow budget in addition to a master budget. Reviewing vendor and supplier payment terms is also crucial. Negotiating new payment terms, securing a line of credit, or using personal assets can help cover cash shortfalls. ### 3.5 The Financial Function The financial function within a company is responsible for managing the firm's financial health. Key roles and decisions include: * **Chief Financial Officer (CFO):** Oversees the entire financial operation. * **Accounting:** Responsible for financial statements and reporting. * **Treasurer:** Manages cash and funding. * **Controller:** Oversees cost accounting and financial ratios. * **Taxes:** Manages tax liabilities. * **Risk Manager:** Identifies and mitigates financial risks. * **Internal Auditor:** Reviews internal controls and financial processes. * **External Auditor:** Provides an independent opinion on financial statements. * **Compliance and Ethics Director:** Ensures adherence to regulations and ethical standards. Fundamental decisions in financial management include: * **Capital Budgeting:** Deciding which long-term assets to acquire to maximize net benefits. * **Financing:** Determining how to pay for assets by finding the optimal mix of debt and equity, which links directly to solvency. * **Working Capital Management:** Managing short-term resources and obligations by adjusting current assets and liabilities to promote cash flow growth, which links directly to liquidity. Poor decisions in these areas can lead to bankruptcy or business failure. --- ## Common mistakes to avoid - Review all topics thoroughly before exams - Pay attention to formulas and key definitions - Practice with examples provided in each section - Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Financial Management | The strategic planning, organizing, directing, and controlling of financial undertakings within an organization, as well as the art and science of managing money. | | Profitability | A measure of a company's ability to generate earnings relative to its revenue, operating costs, or other measures. It indicates how well a company is performing financially. | | Sales Margin | A profitability ratio that shows the percentage of revenue remaining after deducting the cost of goods sold. It is calculated as (Sales - Cost of Goods Sold) / Sales. | | Liquidity | A company's ability to meet its short-term obligations using its most liquid assets. It is a measure of the company's financial health and stability. | | Current Ratio | A financial ratio that measures a company's ability to pay off its current liabilities with its current assets. It is calculated as Current Assets / Current Liabilities and an international standard minimum is 1. | | Solvency | A company's ability to meet its long-term debts and financial obligations. It is a measure of the company's long-term financial viability and is often assessed through its financial structure. | | Financial Structure | The composition of a company's liabilities and owners' equity. It indicates how the firm's assets are financed through debt and equity. | | Sole Proprietorship | A business owned and run by one individual, where there is no legal distinction between the owner and the business. The owner is personally liable for all business debts. | | Partnership | A business arrangement between two or more parties to undertake an enterprise in a common business. Partners share in the profits or losses of the business. | | Corporation | A legal entity that is separate and distinct from its owners. It has its own rights and liabilities and its shareholders have limited liability. | | C-Corporation | The standard type of corporation in the United States, taxed separately from its owners. Profits are taxed at the corporate level and again at the individual level when distributed as dividends. | | S-Corporation | A special type of C-corporation that elects to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. The corporation itself does not pay corporate income tax. | | Limited Liability Company (LLC) | A business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. | | Business Structure | The organizational framework of a company, defining roles, responsibilities, and reporting relationships, often represented by an organizational chart. | | Line Authority | The authority to give commands to subordinates and to demand obedience. It represents a direct chain of command in an organization. | | Staff Authority | Authority held by individuals or departments that advise or assist line managers. They typically do not have direct decision-making power over operational matters. | | Span of Control | The number of subordinates a manager can effectively manage. A narrow span of control means fewer subordinates per manager, while a wide span means more. | | Unity of Command | A principle that states each subordinate should report to only one superior to avoid confusion and conflicting instructions. | | Organizational Chart | A diagram that depicts the structure of an organization, showing the positions, relationships, and lines of authority among employees. | | Capital Budgeting | The process a business undertakes to evaluate potential major projects or investments. It involves assessing the profitability and feasibility of long-term capital expenditures. | | Working Capital | A measure of a company's short-term financial health, calculated as Current Assets minus Current Liabilities. It represents the readily available funds for day-to-day operations. | | Financial Statement | A formal record of a company's financial activities and position, typically including the income statement, balance sheet, and cash flow statement. | | Annual Report (AR) | A comprehensive report on a company's activities throughout the preceding year. It is intended to give shareholders and other interested people a more detailed look at the company's performance. | | Integrated Report (IR) | A comprehensive report that explains how an organization's strategy, governance, performance, and prospects, in the context of its external environment, create value over the short, medium, and long term. | | Cash Flow | The net amount of cash and cash-equivalents being transferred into and out of a business. Positive cash flow indicates more money is coming in than going out. | | Shareholder Value | The value delivered to a company's shareholders, typically measured by the increase in share price and dividends paid, reflecting the overall financial health and future prospects of the firm. |