2.3 managing finance

Question 1

ways to improve profits

Answer 1

decrease costs
increase revenue
increase prices

Question 2

liquidity

Answer 2

measures the ability of a firm to find the cash to pay its bills

Question 3

current ratio

Answer 3

current liabilities

Question 4

what does the acid test ratio show

Answer 4

the tougher measure of liquidity

current liabilities

Question 5

ways to improve liquidity

Answer 5

selling underused assets
raising more share capital
increasing long term borrowings
postponing planned investments

Question 6

how can a business manage working capital

Answer 6

minimizing stock levels (jit)
keeping customer credit low
trying to get credit from suppliers
minimise spending on assets

Question 7

contingency finance

Answer 7

planning for the unexpected - keeping cash aside or overdrafts arranged

Question 8

working capital cycle

Answer 8

how long it takes for the process of buying supplies for a customer to make a purchase

Question 9

internal causes; business failure

Answer 9

• marketing failure
• poor cash flow management
• system failure

Question 10

external causes; business failure

Answer 10

• technology change
• competitor
• economic change

Question 11

financial causes of business failure

Answer 11

• running below break-even (loss)
• cash flow crisis
• overtrading (rapid growth)