CIMA BA1 Questions with complete solutions
Organisation definition Correct Answer-Group or institution arranged for efficient work.
Defined further by
i) Collective goals
ii) Social arrangements - structure to enable cooperation towards goals, division of responsibilities
iii) Controlled performance - systems and procedure in place to ensure goals are achieved
Profit-seeking organisations Correct Answer-Objective is to maximise the wealth of owners
Wealth maximisation broken down into
i) Survival
ii) Maintaining growth and development
iii) Making a profit
E.g. companies and partnerships
Not-for-profit organisations Correct Answer-Objective is to satisfy the needs of members or sectors of society that they have been set up to benefit
Financial objectives usually not the primary ones, financial matters often
constraints under which they operate rather than objectives E.g. government departments and agencies, schools, hospitals, charities, clubs
Mutual organisation Correct Answer-Voluntary not-for-profit associations formed for the purpose of providing common services to members, which are paid for via member subscriptions
E.g. some building societies, trade unions and social clubs
Co-operative Correct Answer-Organisations which are owned and democratically controlled by their members (people who buy their goods
or use services)
Objective solely to meet the needs of member-owners
Deal primarily in tangible goods and services, e.g. agricultural commodities or utilities
Short term performance measures - advantages and disadvantages Correct Answer-ROCE, RONA
Advantages:
Percentage makes it easy to compare companies
Disadvantages:
Do not take into account interest and tax
Do not correlate directly to maximisation of shareholder wealth EPS
Advantages:
Takes into account tax, interest and preference share dividends
Dividend yield:
Disadvantages:
Stock price changes often while dividends are not paid out that often - if stock price falls this leads to high dividend yield which is misleading
High dividends can mean less potential for growth as proceeds are not reinvested
Disadvantages
Does not take into account the price of shares
Does not correlate directly to maximisation of shareholder wealth
Capital employed Correct Answer-Assets - current liabilities = equity + non-current liabilities = fixed assets + working capital
Return on capital employed (ROCE) Correct Answer-ROCE = Profit before interest and tax / average capital employed
Indicates how well a business uses its capital (and assets purchased with capital) to generate profits
Organisation definition Correct Answer-Group or institution arranged for efficient work.
Defined further by
i) Collective goals
ii) Social arrangements - structure to enable cooperation towards goals, division of responsibilities
iii) Controlled performance - systems and procedure in place to ensure goals are achieved
Profit-seeking organisations Correct Answer-Objective is to maximise the wealth of owners
Wealth maximisation broken down into
i) Survival
ii) Maintaining growth and development
iii) Making a profit
E.g. companies and partnerships
Not-for-profit organisations Correct Answer-Objective is to satisfy the needs of members or sectors of society that they have been set up to benefit
Financial objectives usually not the primary ones, financial matters often
constraints under which they operate rather than objectives E.g. government departments and agencies, schools, hospitals, charities, clubs
Mutual organisation Correct Answer-Voluntary not-for-profit associations formed for the purpose of providing common services to members, which are paid for via member subscriptions
E.g. some building societies, trade unions and social clubs
Co-operative Correct Answer-Organisations which are owned and democratically controlled by their members (people who buy their goods
or use services)
Objective solely to meet the needs of member-owners
Deal primarily in tangible goods and services, e.g. agricultural commodities or utilities
Short term performance measures - advantages and disadvantages Correct Answer-ROCE, RONA
Advantages:
Percentage makes it easy to compare companies
Disadvantages:
Do not take into account interest and tax
Do not correlate directly to maximisation of shareholder wealth EPS
Advantages:
Takes into account tax, interest and preference share dividends
Dividend yield:
Disadvantages:
Stock price changes often while dividends are not paid out that often - if stock price falls this leads to high dividend yield which is misleading
High dividends can mean less potential for growth as proceeds are not reinvested
Disadvantages
Does not take into account the price of shares
Does not correlate directly to maximisation of shareholder wealth
Capital employed Correct Answer-Assets - current liabilities = equity + non-current liabilities = fixed assets + working capital
Return on capital employed (ROCE) Correct Answer-ROCE = Profit before interest and tax / average capital employed
Indicates how well a business uses its capital (and assets purchased with capital) to generate profits
