AF - Accounting And Finance Objectives & Sources of Finance (Accounting And Finance) Flashcards
What is a financial objective for a new business?
- Survive
- Sufficient funds to stay in business and produce goods
What is vital in a business?
Ensuring it is sufficient Working Capital and enough cash to keep the business operating
What is the reason for having accounting and financial objectives?
Is a fundamental way of measuring the performance of business
The level of profit or loss is an obvious indicator of what?
Of the businesses success or failure
What do the reports from an income statement and balance sheet show?
- Allows the business to see where the main problems may be
- Business can prioritise it’s strategies to improve its situation
Who are the financial objectives used by?
Various stakeholders
Why do stakeholders use financial accounts?
- Measure the performance of the business
- Help judge the progress of the business in terms of meeting its targets in a given period of time.
What do the business objectives allow stakeholders to do?
Allows stakeholders to judge its performance when compared to others in the same market (Benchmarking)
Why is Benchmarking important for potential investors?
- Potential investors will wants to see how the business is performing prior to investing
- Potential Creditors will want to judge wether the business is performing sufficiently well in order to pay back any borrowing.
How does comparing financial results effect management?
Management may have to alter its financial strategy in order to put the business on a better course if it wasn’t already.
Problems with making financial comparisons?
- Could be prone to bias or misinterpretation
- Assets May be valued in a different manner
What is meant by Benchmarking?
Comparing yourself to the best in the industry.
What should you look for when look at a financial data case study?
External factors affecting the numbers
What is it important to remember when setting financial objectives?
- Legal statues and size of the business
- Other objectives of the business
- State of the Economy
- The Level of Competition within the market
- Government impacts
- Monetary Policy Committee and Interest Rates
What is a vital part of a business?
The financial informations and the financial objectives of that business.
What information can a stakeholder ascertain from the financial objectives and data?
- Members of the board of direction or managers will use this information to make decisions on the future of the business
- Potential Shareholders/Investors will looks at these accounts before deciding to invest in the business
- Banks will look at the accounts to see if the business can afford its repayments
- Potential our existing suppliers will use this data to assess wether it is safe to trade with the business
Why is it essential that financial information is accurate?
Because of the large amount of interest and uses the information has
What does setting clear financial objectives allow the business or stakeholders to do?
- Have Targets to aim for
- Assess the progress of the business in meeting there objectives
- Have access to Information showing the financial status of the firm
- Assess the business in terms of liquidity
Why is this financial data important for all business departments?
- so departments know the available funds, pay rises to employees and resources
Why may accounts be inaccurate?
- To present the business in a favourable light to stakeholders
- Encourage shareholders to hold or buy shares
- Suggest the business is able to borrow money is able to pay off loans
- Prevent employees being concerned about the security of employment
What is Short-term Finance?
The finance needed for the day-to-day running of the business (Working Capital)
What is Working Capital?
Short term finance required for the day to day running of the business.
Is short term finance the same as Working Capital?
Yeah
What do we classify as short term?
Up to 3 years
When may short term finance be used?
When cash flow is poor
What is good cash flow?
When there is a sufficient inflow of cash (Revenue) to meet cash outflows
What is Cashflow?
A business need sufficient inflows of cash to finance is day to day outgoing, if cash receipts are insufficient the business is said to have a cash flow problem.
Sources of short term finance?
Banks
What kind of bank account does a business need in order to create overdrafts?
A current account
What are the interest rates of current accounts?
Nothing or very little interest
What can a firm do if it has a current account?
Funds can be taken out whenever necessary
Do business and an unlimited overdraft?
No the bank permits a certain level of overdraft
Interest is only charge on the amount of money that is [………]
Overdrawn
An overdraft is a [……………] for a business
Safety net
What should and overdraft not be used to purchase?
Capital items
Where do Loans and Overdrafts come from ?
The bank
What are short term loads used for?
Used to buy specific pieces of equipment or buy certain raw materials in order to fulfil a contract
