SL2 CFRM with Hashan Waduge www.onlineaccounting.

lk

Objectives of Stakeholders

K
.L
G
IN
T
N
U
The agency problem of an organization
O
Relationship between management and shareholders is sometimes referred to as an agency
relationship, in which managers act as agents for the shareholders, using delegated powers to run
C

the affairs of the company in the shareholders' best interests

The agency relationship arising from the separation of ownership from management is sometimes
C

characterized as the agency problem. For example, if managers hold none or very little of the equity
shares of the company they work for, what is to stop them from:
A

• Working inefficiently?
E

• Not bothering to look for profitable new investment opportunities?

• Giving themselves high salaries and perks?
N

Goal congruence
LI

Goal congruence may be better achieved, and the 'agency problem' better dealt with, by providing
managers with incentives that are related to profits or share price, such as,
N

• Performance-related pay either related to profit or a strategic performance measure

• Rewarding managers with share options (Share based payments)
O

These notes have been prepared as a summary from CA Study text. However Important things & Mind
maps done using white board should note down from your own.
SL2 CFRM with Hashan Waduge www.onlineaccounting.lk

Financial management decisions

K
.L
G
IN
Investment decisions - The financial manager will need to identify investment opportunities,
evaluate them and decide on the optimum allocation of scarce funds available between investments.

T
Investment decisions may be on the undertaking of new projects within the existing business, the
takeover of, or the merger with, another company or the selling off of a part of the business

N
Financing decisions – These include those for both the long term (capital structure) and the short
term (working capital management). The financial manager will need to determine the source, cost
U
and effect on risk of the possible sources of long-term finance. A balance between profitability and
liquidity must be considered when deciding on the optimal level of short-term finance
O

Dividend decisions – Paying back the return of the Business to it’s shareholders.
C
C
A
E
N
LI
N
O

These notes have been prepared as a summary from CA Study text. However Important things & Mind
maps done using white board should note down from your own.