2. role of financial management

Question 1

What is a strategic role?

Answer 1

Refers to long-term, broad aims affecting all key business areas. The strategic role of each key business function involves the managers of each function contributing to the strategic plan/direction of the business.

Question 2

What is a strategic plan?

Answer 2

Part of a business’s financial management that ensures the business survives and grows in the competitive business world. It encompasses a long-term view of business direction, how to get there, and a monitoring process to track progress.

Question 3

What is financial management?

Answer 3

Make funds available to all key business functions, ensure operational and strategic view of business runs smoothly, and ensure optimal profitability.

Question 4

What is the strategic role of financial management?

Answer 4

Ensure that the business achieves its goals/objectives by managing its finances effectively. It includes a long-term view of business direction and monitoring the processes to keep track of progress.

Question 5

What does the strategic role of financial management include?

Answer 5

• Setting financial objectives and ensuring the business can achieve goals
• sourcing finance, preparing budgets
• forecasting future finances, preparing financial statements
  maintaining sufficient cash flow
• distributing funds to other parts of the business.

Question 6

what is a financial objective, and list them.

Answer 6

Objectives of financial management is to achieve both long and short temr objectives.

1. Profitability
2. Liquidity
3. Efficiency
4. Growth
5. Solvency

Question 7

What is profitability

Answer 7

• Earnings of a business after ALL expenses have been made.
• Maximising business’ profits
• Carefully monitoring revenue and expenses
• Profit = revenue - expenses

Question 8

What is a case study for profitability as a financial objective?

Question 9

What is liquidity?

Answer 9

• Measure of how quickly current asset can be converted into cash - position of positive liquidity
• Determines the business ability to pay short term debts (less than 12 mths)
• Have enoough current assets to meet their current liabilities

Question 10

What is a case study for liquidity as a financial objective?

Question 11

What is efficiency?

Answer 11

• The ability of a business to minimise its costs and manage its assets so that maximum profit is achieved with the using least amount of assets.
• Minimising costs whilst maximising profit by using the least amount of assets.

Question 12

How can a business ensure efficiency?

Answer 12

• Spend the least assets for maximum profitability
• Have control measures to monitor assets.
• Must monitor inventory levels, cash and collection of recievables.

Question 13

What is a case study for efficiency as a financial objective?

Question 14

What is growth?

Answer 14

• The size of the business compared to its competitors in the same market and past performance.
• Increase the size of the business by effectively using financial resources
  Internal and external growth = increased output = increased revenue = increased profit = growth

Question 15

What is internal vs external growth?

Answer 15

• Internal - Growing the business naturally
• External - Growing by acquiring another business.

Question 16

How can a business achieve growth?

Answer 16

• Differentiating prodcuts
• Increasing number of employees
• Increasing profit
• Larger premises

Question 17

What is a case study for growth as a financial objective?

Question 18

What is solvency?

Answer 18

• Ability of busines to pay long term liabilities
• Measure of whether a business is financially stable
• Shows ‘risk’ in the business - capacity of the business to repay long term debt

Question 19

What does solvency indicate and how can it be measured?

Answer 19

if business will be able to repay amounts borrowed for investments in capital

Question 20

What is gearing (solvency)?

Answer 20

• Measure of solvency
• measures the percentage of assets of business which are externally funded
• Measures reliance on outside finance
• What percentage of business is reliant on debt vs equity finance

Question 21

What is a case study for solvency as a financial objective?

Question 22

What two levels can objectives of the business’ financial plan be classified into?

Answer 22

1. Short term financial objectives
2. Long term financial objectives

Question 23

What are short-term financial objectives?

Answer 23

• Tactial (1-2 years)
• Operational (day to day)
• Regularly reviewed to see if targets beeing met and resources are being best used to achieve objectives.

Question 24

What are long-term financial objectives?

Answer 24

• Strategic plans of business
• Determines for set period of time
• 5+ years
• Broad goals
• E.g - increasing market share
• Require short term goals to achieve
• Annually review progress if changes needed

Question 25

Why could short-term and long-term financial objectives conflict?

Answer 25

- In order to achieve long-term profitability, businesses need to invest in human and physical resources - Resources cost money - take long time to pay off - minimising ability to meet short term obligations

Question 26

What are two examples of conflicts between short and long term financial objectives?

Answer 26

1. Long term objective of growth - expanding business size BUT result in lower short term profits. 2. Long term objective to invest in R&D - expensive, results take years to manifest = bad in short term.

Question 27

What is an example of a business which tries to manage both short and long term goals?

Answer 27

YAKULT - Keeping their wholesale prices constant - Ensure product is still accessible to retailers (e.g Coles will still purchase their goods) - Leading to continues customer satisfaction (Coles etc)

Question 28

What is interdependence?

Answer 28

Refers to the mutual dependence that the key functions have on one another. Functions work best when they overlap and support each other. Employees work towards common goals - optimal performance.

Question 29

How do other functions of the business rely on the finance function?

Answer 29

Finance department has to supply funds so they can perform effectively. Rely on financial managers to allocate adequate funds.

Question 30

What is the interdependence between finance and marketing?

Answer 30

Need finance allocated to do campaigns and market research. Generate profit through marketing.

Question 31

What is the interdependence between finance and human resources?

Answer 31

HR needs to hire best/efficient staff to reduce costs and maximize output and profit. Finance needs to budget for wages, training and development, maintenance and rewards.

Question 32

What is the interdependence between finance and operations?

Answer 32

Operations provides resources to maximize output and profits. Finance prepares budgets to source/supply best inputs for operations.