3.4 Financial management strategies Flashcards
What are 4 main areas of financial management strategies?
- Cash flow statement
- Working capital statement
- Profitability management
- Global financial management
What is 3 cash flow management strategies and what it does?
- Distribution of payment: sketch out accounts payable by paying on last possible due date or prepay expenses to avoid big payment in futute
- Discount for early payment: Discount for account receivable to pay their bill before due date , speed up cash inflow
- Factoring : Hire companies that specialised in factoring and received immediate cash inflow .
What is working capital?
The current assets that can be converted quickly to money to use daily to running the business and pay current liabilities that are due, effective management will result in assets greater than liabilities, liquidity.
What are 3 main current assets of business that must be well manage and how to manage?
- Cash: can use cash flow strategies such as factoring or sell or lease non current assets to receive cash to speed up cash flow and have more capital.
- Receivables: can use factoring to quickly receive cash from account receivable, late payment fees or discount for early payment.
- Inventories: can use JIT inventory management method , computerised inventories to identified lost, damage or failure item.
What are 3 main current liabilities of business that must be well manage and how to manage?
- Payables: Sketch account payable and pay invoice on last day they are due to avoid borrow funds
- Loans: try to use appropriate loans type to match with objectives
- Overdraft: loans borrow from bank , can deposit account receivable in bank to reduce owning amount.
What is 2 working capital management strategies and its advantages?
- Sale and lease back : Sale assets of business and lease back from buyer, receive cash inflow.
- Lease: Not use all cash available, payment is spread monthly, no tax
What are 3 ways of control costs in profitability management?
- Fixed and variable costs
- Cost centres
- Expense minimisation
What is fixed and variable cost and strategies to reduce those costs?
- Fixed costs are costs that do not change when business produce goods or services. Example are rent , wages, salary. Business can outsource a non - core business function such as call centres to reduce costs for labour
- Variable costs are costs that change when business production of goods or service change. Examples are the more production, more inputs require and more money require to purchase materials. Business can use JIT inventory management, or negotiating discount with supplier on bulk purchase.
What is cost centres and how it help cost controls?
Cost centres is centres that account for expenses and costs incurred in each business function, provide budget help minimise waste and maximise use of resources
What is expense minimisation strategy and how business minimise expenses in cost controls?
- Business will try to minimise expenses that contribute to most of the product. Business can decrease cost of packing a product, use JIT to save money on storage, use machinery instead of labour.
What is revenue control and how to do it?
- Revenue control aim to maximise revenue and increase profit for business. This can be done through sales objective (increase market share), sales mix (4P, ), pricing policy (cost base peicing )
What are some global finnacial management that afffect business?
- Exchange rates
- Interest rates
- Methods of international payment
- Hedging
- Derivative
How do business prevent exhange rate?
- By using hedging
Why business borrow oversea?
- Cheaper interest rate
- Appreciation of currency make repayment cheaper
- No much restrictions
What is 4 methods of international payment and its characteristic?
- Payment in advance: Pay the goods before they are supply (Not favourable for importers as they risk goods never come)
- Letter of credit: Document from importer bank to exporter that promise to pay as goods is shipped and received.(Slightly not favor for exporter)
- Bill of exchange: Use international bank as a medium in transfer good, exporter and importer both agree on payment time, bank ensure importer receive goods and exporter get pay, when importer pay exporter, the importer then can be legally owner of the goods. (Fair in both side)
- Clean Payment: Pay only when goods is shipped and received (Not favour for exporter)
