BF-M3

Question 1

is an important aspect of the firm’s operations because it provides road maps for guiding, coordinating, and controlling the firm’s actions to achieve its objectives

Answer 1

Planning

Question 2

is about setting the goals of the organization and identifying ways on how to achieve them.

Answer 2

Management planning

Question 3

set the direction of the company.

Answer 3

Long term goals

Question 4

are the specific steps or actions that will ultimately reach the company’s long term goals.

Answer 4

Short term goals

Question 5

Persons Involved:
More participation from top management

Answer 5

LONG- TERM PLANNING

Question 6

Persons Involved:
Top management is still involved but there is more participation from lower-level managers (productions, marketing personnel, finance and plant facilities) because their inputs are crucial at this stage since they are ones who implement these plans.

Answer 6

SHORT TERM PLANNING

Question 7

Time Period:
2 to 10 years

Answer 7

LONG- TERM PLANNING

Question 8

Time Period:
1 year or less

Answer 8

SHORT TERM PLANNING

Question 9

Level of Detail:
Less

Answer 9

LONG- TERM PLANNING

Question 10

Level of Detail:
More

Answer 10

SHORT TERM PLANNING

Question 11

Focus:
Direction of the company

Answer 11

LONG- TERM PLANNING

Question 12

Focus:
Every functioning of the company

Answer 12

SHORT TERM PLANNING

Question 13

6 Steps in planning

Answer 13

1. Set goals or objectives.
2. Identify Resources.
3. Identify goal-related tasks.
4. Establish responsibility centers for accountability and timeline.
5. Establish the evaluation system for monitoring and controlling.
6. Determine contingency plans.

Question 14

Characteristics of an Effective Plan
(target a specific area for improvement)

Answer 14

specific

Question 15

Characteristics of an Effective Plan
(quantify or at least suggest an indicator of progress)

Answer 15

Measurable

Question 16

Characteristics of an Effective Plan
(specify who will do it)

Answer 16

Assignable

Question 17

Characteristics of an Effective Plan
(state what results can realistically be achieved, given available resources)

Answer 17

Realistic

Question 18

Characteristics of an Effective Plan
(specify when the result(s) can be achieved)

Answer 18

Time-related

Question 19

The most important account in the financial statement in making a forecast is sales since most of the expenses are correlated with sales.

Answer 19

Sales Budget

Question 20

external factors that should be considered in forecasting sales

Answer 20

-Inflation/ Economic Crisis
-Interest rate
-Income tax rates
-Competition

Question 21

internal factors that should be considered in forecasting sales

Answer 21

-Production capacity
-Manpower requirements’
-Management style of managers
-Financial Resources of the company

Question 22

provides information regarding the number of units that should be produced over a given accounting period based on expected sales and targeted level of ending inventories

Answer 22

Production Budget

Question 23

Production Budget formula

Answer 23

Required production in units = Expected Sales+ Target Ending Inventories- Beginning Inventories

Question 24

refers to the variable and fixed costs needed to run the operations of the company but are not directly attributable to the generation of sales.

Answer 24

Operations budget

Question 25

give 4 examples of Operations budget

Answer 25

=Rent payments =Tax Payments =Administrative Costs =Professional fees

Question 26

is a statement of the firm’s planned inflows and outflows of cash. It is used by the firm to estimate its short-term cash requirements, with particular attention being paid to planning for surplus cash and for cash shortages

Answer 26

Cash budget, or cash forecast

Question 27

3 working capital management (operating cycle)

Answer 27

cash-->inventory-->accounts receivable

Question 28

is the average number of days to sell its inventory.

Answer 28

Days of Inventory or inventory conversion period or average age of inventories

Question 29

Days of Inventory or inventory conversion period or average age of inventories FORMULAS

Answer 29

Days of inventory=365(or 360 days) / inventory turnover inventory turnover=cost of goods sold / beginning inventory + ending inventory/2 (formula without computing for inventory turnover) Days of inventory=average inventory / average COGS per day

Question 30

is the average time for the company to collect its receivables.

Answer 30

Days of Sales Outstanding (DSO) or Average Collection Period

Question 31

Days of Sales Outstanding (DSO) or Average Collection Period FORMULAS

Answer 31

Days of Sales Outstanding = 365(or 360 days) / receivable turnover Receivable turnover = net credit sales / beginning accounts receivable + ending accounts receivable/2

Question 32

also called the net operating cycle, is computed as the operating cycle less days of payable.

Answer 32

Cash Conversion Cycle

Question 33

Cash Conversion Cycle formula form:

Answer 33

Cash Conversion Cycle = Operating Cycle- Days of Payables Cash Conversion Cycle = (Days of Inventory + Days of Receivables) – Days of Payable

Question 34

is the average number of days for the company to pay its creditors.

Answer 34

Days of Payables Outstanding (DPO)

Question 35

The formula for DPO is:

Answer 35

Days of payable = 365(or 360)days / payable turnover Payables turnover = net credit purchases / beginning accounts payables + ending accounts payables/2

Question 36

is the administration and control of the company’s working capital. The primary objective is to achieve a balance between profitability and risk.

Answer 36

Working Capital Management

Question 37

Basically, there are three types of working capital financing policies the management can choose from:

Answer 37

* Maturity-matching working capital financing policy * Aggressive working capital financing policy * Conservative working capital financing policy

Question 38

is the minimum level of current assets required by a firm to carry-on its business operations given its production capacity or relevant sales range.

Answer 38

Permanent Working Capital

Question 39

is the excess of working capital over the permanent working capital given its production capacity or relevant sales range.

Answer 39

Temporary working capital

Question 40

In ______, all permanent working capital must be financed by long- term sources while temporary working capital requirements should be financed by short-term sources.

Answer 40

maturity-matching

Question 41

Based on the maturity-matching working capital financing policy, permanent working capital requirements should be financed by _____ while temporary working capital requirements should be financed by _____of financing.

Answer 41

1. long-term sources 2. short-term sources

Question 42

Long-term sources of financing include long-term debt and equity such as common stock and preferred stock. Short-term sources include short-term loans from a bank. These short-term loans from banks are called _____ which perfectly describe the reasons why these loans are incurred.

Answer 42

working capital loans

Question 43

Under the______, some of the permanent working capital requirements are financed by short-term sources of financing.

Answer 43

aggressive working capital financing policy

Question 44

Why do managers of some companies adopt aggressive working capital financing policy? It is because long- term sources of funds have _____as compared to short-term sources of financing. By financing some of the permanent working capital requirements with short-term sources of financing, financing cost is _____ which in turn, improves net income. But what is the trade-off? Since it is ______, the debt has to be paid soon and the company may not yet have enough cash by the time the debt matures. This refers to _____ and this risk increases with the aggressive working capital financing policy

Answer 44

1. higher cost 2. minimized 3. short-term 4. liquidity risk

Question 45

Based on the _____, even some of the temporary working capital requirements are financed by long-term sources of financing.

Answer 45

conservative working capital financing policy

Question 46

This policy minimizes liquidity risk, but it also reduces the company’s profitability because long-term sources of financing entail higher cost.

Answer 46

conservative working capital financing policy