KASNEB CS23 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Agency problem

The conflict that arises when managers (agents) pursue their own interests rather than those of shareholders (principals), mitigated by independent directors, incentive pay, audit and disclosure.

Corporate governance

The system of rules, practices and processes by which a company is directed and controlled, allocating rights and responsibilities among the board, managers, shareholders and other stakeholders.

Independent non-executive director

A board member with no material financial or personal relationship with the company or its management, and therefore able to judge strategy, performance and appointments objectively.

Utilitarianism

An ethical theory that judges an action as right if its consequences produce the greatest good for the greatest number of people affected by it.

Stakeholder theory

The view that a company should be managed in the interests of every group affected by it, including employees, customers, suppliers and communities, not shareholders alone.

Audit committee

A board committee of independent non-executive directors that oversees financial reporting, internal control and the independence of the internal and external auditors.

Conflict of interest

A situation in which a director's personal, financial or family interest could improperly influence a decision the director takes on behalf of the company.

Special resolution

A resolution passed by at least 75% of votes cast by members entitled to vote at a general meeting, used for fundamental changes such as altering articles or changing the company name.

Ordinary resolution

A decision passed by a simple majority of more than 50% of the votes cast by members present and voting at a properly convened general meeting of the company.

Memorandum of association

The founding constitutional document of a company, stating its name, whether liability is limited, its share capital and the subscribers who form it.

Annual general meeting

A meeting of members that a public company must hold once in each calendar year, with no more than fifteen months between successive meetings, to receive accounts and appoint auditors.

Quorum

The minimum number of members or directors who must be present at a meeting before that meeting can validly transact business.

Ultra vires

A Latin phrase meaning beyond the powers; it describes an act done outside the authority granted to a company or agent by law or by its constitutive documents.

Span of control

The number of subordinates who report directly to one manager; a narrow span creates a tall hierarchy while a wide span produces a flat structure.

PESTLE analysis

A tool for scanning the external environment through political, economic, social, technological, legal and environmental factors that may affect the organisation.

Porter's Five Forces

A model of industry attractiveness based on rivalry among existing firms, bargaining power of buyers and suppliers, threat of new entrants and threat of substitutes.

Herzberg's two-factor theory

The proposition that hygiene factors such as pay and conditions only prevent dissatisfaction, while motivators such as achievement, recognition and growth create real satisfaction.

SWOT analysis

A structured appraisal matching an organisation's internal strengths and weaknesses against external opportunities and threats in order to inform strategic choice.

Ansoff matrix

A growth framework offering four options, namely market penetration, product development, market development and diversification, classified by whether product and market are new or existing.

Net present value

The present value of a project's expected future cash inflows minus the initial outlay; a positive NPV means the project adds value and should be accepted.

Weighted average cost of capital

The average return a firm must earn on its assets, found by weighting the after-tax cost of debt and the cost of equity by their proportions in the capital structure.

Capital asset pricing model

A method of estimating the cost of equity in which the required return equals the risk-free rate plus beta multiplied by the market risk premium.

Internal rate of return

The discount rate at which a project's net present value equals zero; a project is accepted when its IRR exceeds the cost of capital.

Economic order quantity

The order quantity that minimises total annual ordering and holding costs, calculated as the square root of twice annual demand times order cost divided by holding cost.

Payback period

The length of time required for cumulative cash inflows from a project to equal the initial investment, ignoring all cash flows arising after that point.

Time value of money

The principle that a sum of money received today is worth more than the same sum received later because it can be invested to earn a return.

Accrual basis

The accounting convention under which income is recognised when it is earned and expenses when they are incurred, regardless of when cash actually changes hands.

Going concern assumption

The presumption that a business will continue operating for the foreseeable future, so its assets are measured on a cost basis rather than at break-up values.

IAS 2 measurement rule

Inventories are measured at the lower of cost and net realisable value, with cost assigned by first-in-first-out or weighted average because LIFO is prohibited.

Double entry principle

The rule that every transaction has two equal and opposite effects, recorded as debits and credits, so that total debits always equal total credits.

Capital allowances

Tax deductions granted in place of depreciation, allowing a business to deduct prescribed percentages of the cost of qualifying plant, machinery and buildings from taxable profit.

Corporation tax rate

In Kenya resident companies are taxed at 30% of taxable profit, while branches of non-resident companies pay 37.5%, with tax settled through quarterly instalments.