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ACA Business, Tech, Finance > Business Finance > Flashcards

Business Finance Flashcards

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1
Q

What are the four main finance functions?

A

Recording transactions. Financial reporting. Management accounting. Treasury management.

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2
Q

What needs to be considered with the finance function?

A

Size, structure, business direction, objectives,

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3
Q

What is an issue of the finance function?

A

Is it worth it to pay to generate that information OR do you get less out of it than you put in.

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4
Q

What are business partners?

A

Those involved in the finance function coupled with other areas of the business to provide advice that will improve how they work within the finance function. In particular they may work with marketing, IT, procurement and ops.

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5
Q

What are a qualitative measures for performance measuring?

A

Subjective and judgemental and cannot be expressed in numerical terms.

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6
Q

What are quantitative measures for measuring performance?

A

Objectives that rely on reliable data to be determined. Can be split in to financial and non financial measures.

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7
Q

What are some common performance measures?

A

Profitability, activity, productivity, economy, effectiveness and efficiency

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8
Q

What are critical success factors?

A

Product features that are particularly valued by a group of customers. Means that the business has to work extra hard to be better at it than their competition.

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9
Q

What are key performance indicators?

A

Measures of the level of performance that have a target that must be met. Helps to outperform rivals and achieve a competitive advantage.

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10
Q

What is benchmarking?

A

Establishing targets and comparatives that can be used to measure relative performance.

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11
Q

What are the limits of KPI’s?

A

Historical information is used to predict future outcomes but this information isn’t always the best to use.
There isn’t a consideration of external factors.
Short term decision making is used and it then goes on to impact long term objectives.
Financial results are not indicative of the whole businesses performance yet they are used to assess as such with KPI’s.
Only tells us what we have done not what we can do

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12
Q

How can you achieve a balanced scorecard?

A

By combining the financial, customer, internal, innovation and learning perspectives.

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13
Q

How is sustainability measured?

A

There are three main types to consider including social, environmental and economic. Have to ask whether it can sustain the future economy.

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14
Q

Internal control processes are?

A

The processes designed to provide reasonable assurance over whether the objectives are being achieved.

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15
Q

What is the control environment?

A

Considers the culture the business operates in. This includes the segregation of duties, the business ethics, whether the business is control conscious.

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16
Q

What are control activities?

A

These are the specific controls that occur at all levels. They exist to make sure the management directive occurs. You need to make sure the things you aim to control are actually done right.

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17
Q

What are financial intermediaries?

A

Banks mainly. They bring together investors and lenders to borrowers and users of funds to allow for risk free lending.

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18
Q

What is making a market?

A

Putting lenders and borrowers together.

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19
Q

What is risk diversification?

A

One lender doesn’t lend all the money to one borrower.

20
Q

What is aggregation?

A

Pooling lots of deposits together for better returns.

21
Q

What is maturity transformation?

A

The maturing of deposits and loans at different times.

22
Q

What are primary banks?

A

Day to day banks - commercial, retail, clearing

23
Q

What are secondary banks?

A

They offer tailored advice in things like investment. They usually deal with large commercial clients for the raising of large sums

24
Q

What are the roles of the Bank of England?

A

Monetary policy and financial stability

25
Q

What is monetary policy?

A

The bank lends money to the banking sector at a base rate set by the monetary policy committee. The banks can then lend amongst themselves using the LIBOR rate

26
Q

What is financial stability?

A

The Bank of England works to ensure that any systemic risks in England are removed - controlled by financial policy committee.
The prudential reg authority is responsible for regulating and supervising the banks and all other monetary facilities

27
Q

What is the financial conduct authority?

A

Anything not supervised by the PRA is regulated by the FCA. It is responsible for promoting effective competition and ensuring the market functions well.

28
Q

What are money markets?

A

These are all the markets that buy and sell different forms of money and securities. Creates an opportunity for businesses to invest surplus cash

29
Q

What is the capital market?

A

It is a national and international market in which a business can obtain finance - short and long term. Is a source of funds for business - main difference this is for money out, money markets are for money in.

30
Q

What are primary markets in terms of businesses accessing finance?

A

They are the means of accessing new finance eg via new shares

31
Q

What are secondary markets in terms of businesses accessing finance?

A

This applies to finance already in existence e.g via shares that are already in issue.

32
Q

What are the three types of capital market instrument?

A

Equity - anyone who owns equity in the business owns the business and has control
Preference shares - dividends before ordinary shareholders at a fixed percentage
Loan stocks and debentures - receive a fixed rate of interest and secured on assets

33
Q

What is the difference between debt and equity holders?

A

Debt holders face low risk and low returns as this forms fixed contracts with guaranteed return. Equity holders face higher risk but with higher returns.

34
Q

What is the treasury trade off?

A

Liquidity and having cash now that means you can pay debts as they fall due versus profitability which minimises case and investing elsewhere.

35
Q

What influences cash balances?

A

The transaction motive - can current day obligations be met. Finance motives - to cover big payments. The precautionary motive - to protect from the unexpected. The investment motive - take advantage of cash making opportunities

36
Q

What is the rule of financing?

A

Short term needs should be financed with short term funds and long term assets should be financed with long term funds

37
Q

What is an aggressive approach to financing?

A

Uses a lot of short term finance instead of debt and equity - higher risk

38
Q

What is a defensive approach to financing?

A

It is risk averse. It will use a lot of long term finance for short term needs.

39
Q

What is the average position when it comes to financing?

A

Sit in the middle and strike a balance between the risk and the reward

40
Q

What are retained earnings?

A

They are an easy source of finance. They can be paid out or reinvested. Allow for growth or money to shareholders.

41
Q

What is a rights issue share?

A

Made based on existing shareholding with pre-emption rights.

42
Q

What are placings?

A

Most common way of issuing shares in the first instance. Have to price the shares correctly. The shares are sold to an issuing house who then place the shares with their clients. Is less expensive but limits the pool of people who invest

43
Q

What is the offer for sale when selling shares?

A

This is the same as placing and involves the shares being sold to an issuing house first.

44
Q

How can the price of shares be managed?

A

Underwrite the issue - a group agrees to buy all the shares that haven’t been purchased at a fixed fee.
Offer for sale by tender - investing public can tender for the shares for the amount that they are willing to pay. This must be at or above minimum. This is one way of ensuring all shares are sold

45
Q

What are the advantages of going public?

A

Lots of finance, shares are marketable, good for the profile of the company.

46
Q

What are the disadvantages of going public?

A

Can be very expensive, you lose some control, you have to answer to the investors, you will be more closely scrutinised, you could be taken over

47
Q

What is debt factoring?

A

Business receives loan finance and insurance

ACA Business, Tech, Finance (10 decks)

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