CS Advanced Level
Finance for Decision Making cheat sheet
Every chapter's key points, formulas and definitions on one page, for the last week before the exam. Each heading links to the chapter that explains it.
Overview of finance
- Finance is the management of an organisation's funds: how they are raised (the financing decision), invested, and returned to providers of capital (the dividend decision).
- Managerial functions are the strategic decisions on financing, investment and dividends; routine functions are day-to-day work such as cash handling, record keeping and credit control.
- Wealth maximisation, the highest market value of shareholders' investment, is preferred to profit maximisation because it accounts for risk and the timing of returns that accounting profit ignores.
- Agency theory explains why managers, as agents, may not act in shareholders' best interests; corporate governance exists largely to keep financial decisions aligned with the firm's goals.
- Ethical issues in finance include manipulating financial statements, insider trading, conflicts of interest and aggressive tax positions.
Key terms
- Managerial functions
- The core strategic decisions: financing, investment or capital budgeting, and dividends, each with a chapter of its own.
- Routine functions
- Day-to-day activities: cash handling, record keeping, credit control, supervising working capital, covered in its own chapter.
- Other emerging functions
- Newer responsibilities such as sustainable/ESG finance, fintech adoption, and enterprise-wide risk management, increasingly part of the finance function's remit.
- Profit maximisation
- A financial objective focused on maximising accounting profit, criticised for ignoring risk, timing, and cash flow.
- Wealth (shareholder value) maximisation
- The generally preferred financial objective: maximising the market value of shareholders' investment, which accounts for risk and the timing of returns (the chapter on the time value of money) that profit alone ignores.
- Non-financial objectives
- Employee welfare, customer satisfaction, environmental and social responsibility (Corporate Governance and Ethics, under the ESG framework), and other stakeholder-facing goals.
- Overlaps and conflicts
- Financial and non-financial objectives often reinforce each other over the long term, but can conflict in the short term, for instance where responsible investment reduces near-term profit.
The rest of the sheet covers
- The financing decision
- Financial statement analysis and forecasting
- Budgeting and budgetary control
- The time value of money
- Basic valuation models
- Capital structure
- Capital budgeting under certainty
- Working capital management
- The dividend decision
- Worked examples
- Exam technique and revision
- Glossary