3.5 Decision Making For Financial Performance

Question 1

What are some financial objectives?

Answer 1

• Minimise costs
• Improving cash flow
• revenue and profit objectives

Question 2

What is gearing and how do you work out it out?

Answer 2

How much of the businesses capital employed is made up of non current liabilities.

NCL/NCL + CE x 100

Question 3

What are payables and receivables?

Answer 3

Receivables are how long it takes for debtors to repay the business and ideally want it to be low to improve cash flow.
Receivables / Revenue x 365

Payables are the days taken to repay its creditors and ideally want it to be high to improve cash flow.
Payables / Cost of Sales x 365

Question 4

What is a bank loan and advantages & disadvantages?

Answer 4

A bank loan is an external source of finance that is long term from the bank that is also paid interest upon.

Advnatages
- no giving up shares of a business
- improves credit score allowing for more loans
- if interest rates decrease so does cost of returning

Disadvantages
- if unable to repay, assets will be taken away
- if unable to repay, credit score will be ruined
- increase gearing ratio of a business