9 accountants operate on an accrual basis recognizing

This preview shows 6 out of 9 pages.

9. Accountants operate on an accrual basis, recognizing revenues at the point of sale and expenses when incurred. The financial manager focuses on the actual inflows and outflows of cash, recognizing revenues when actually received and expenses when actually paid. The accountant primarily gathers and presents financial data; the financial manager devotes attention primarily to decision making through analysis of financial data. 10. The two key activities of the financial manager as related to the firm’s balance sheet are: a. Making investment decisions: Determining both the most efficient level and the best mix of assets; and b. Making financing decisions: Establishing and maintaining the proper mix of short- and long-term financing and raising needed financing in the most economical fashion.
Image of page 6

Subscribe to view the full document.

6 Gitman • Principles of Managerial Finance, Twelfth Edition Investment decisions concern the left-hand side of the balance sheet (current and fixed assets). Financing decisions deal with the right-hand side of the balance sheet (current liabilities, long-term debt, and stockholders’ equity). 11. Profit maximization is not consistent with wealth maximization due to: (1) the timing of earnings per share, (2) earnings that do not represent cash flows available to stockholders, and (3) a failure to consider risk.
Image of page 7
Chapter 1 The Role and Environment of Managerial Finance 7 12. Risk is the chance that actual outcomes may differ from expected outcomes. Financial managers must consider both risk and return because of their inverse effect on the share price of the firm. Increased risk may decrease the share price, while increased return is likely to increase the share price. 13. The goal of the firm , and therefore all managers, is to maximize shareholder wealth. This goal is measured by share price; an increasing price per share of common stock relative to the stock market as a whole indicates achievement of this goal. 14. Corporate governance refers to a system of organizational control that is used to define and establish lines of responsibility and accountability among major participants in the corporation. These participants include the shareholders, board of directors, officers and managers of the corporations and other stakeholders. A company’s organizational chart is an example of a broad arrangement of corporate governance. More detailed responsibilities would be established within each branch of the organizational chart. The Sarbanes-Oxley Act of 2002 is directed toward reducing the apparent conflicts of interest that exist in many corporate structures. The Act has many provisions, but the major thrust of the act is to reduce the number of situations in which a conflict of interest can arise and to hold management more accountable for the financial and operating information they communicated to the public.
Image of page 8

Subscribe to view the full document.

Image of page 9
You've reached the end of this preview.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern