The financing cycle concerns obtaining and repaying capital through noncurrent debt and shareholders’ equity transactions.
A These types of transactions typically require approval by A majority of the employees.
B A majority of management members.
C The board of directors.
D The shareholders.
The correct answer and explanation is:
The correct answer is C. The board of directors.
The financing cycle involves activities related to obtaining and repaying capital through noncurrent debt and equity transactions. This typically includes issuing long-term debt (such as bonds or loans) and issuing or repurchasing shares of stock. These actions are significant for the financial health and strategic direction of the company, and as such, they usually require approval from the board of directors.
The board of directors is the governing body of a company, responsible for overseeing the company’s management and making key decisions that affect the company’s long-term strategy. This includes approval of financial decisions that impact capital structure, such as the issuance of new shares or the taking on of substantial debt. The board ensures that these decisions are in the best interest of the company and its shareholders.
In contrast, other groups like employees or management do not typically have the authority to approve these types of financial transactions. Employees may be impacted by these decisions, but they are not typically involved in the approval process. Management, while responsible for the day-to-day operations of the company, usually implements the decisions made by the board rather than making those decisions themselves. Similarly, shareholders may have a say in some major corporate actions, such as mergers or changes to the bylaws, but they do not directly approve routine financing transactions like debt issuance or equity changes.
The role of the board of directors in approving these types of transactions ensures that decisions align with the company’s overall strategy and financial goals, maintaining oversight and accountability in critical financial matters.