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SBL > Chapter 10 - Financial analysis > Flashcards

Chapter 10 - Financial analysis Flashcards

1
Q

What are the affects of technology on finance functions?

A
  • Big data - analyse large amounts
  • Cloud computing - reduce costs
  • Predictive analytics - assess future trends
  • Fintech - blockchain, secure payment
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2
Q

Define ‘business partner’ in context of the finance function

A

Finance professionals being fully embedded in the operations of the business

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3
Q

Define shared or global business services

A

An in house function which provides finance support to all functions within the business

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4
Q

Define leading and lagging

A

Raising cash by delaying payments to suppliers (lagging) and accelerating receipts from customers (leading)

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5
Q

How can sources of finance be evaluated?

A

SAF

  • Suitability - appropriate for use? e.g. long term asset long term finance
  • Accessibility - acceptable to shareholders? Risk attitude
  • Feasibility - can additional finance be raised
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6
Q

What are the advantages of using retained profits as a source of finance?

A
  • Simple

- No change in ownership

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7
Q

What are the disadvantages of using retained profits as a source of finance?

A
  • Restrict dividend payouts

- May not be sufficient for growth

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8
Q

What are the advantages of issuing shares as a source of finance?

A

Long-term capital

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9
Q

What are the disadvantages of issuing shares as a source of finance?

A

Dilute existing control

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10
Q

What are the advantages of using a bank loan as a source of finance?

A
  • Repayments are known so can be budgeted
  • Flexible
  • Quick
  • No dilution of control
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11
Q

What are the disadvantages of using a bank loan as a source of finance?

A
  • Increased gearing and risk
  • Interest to be paid
  • Covenants
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12
Q

What are the advantages of using an overdraft as a source of finance?

A
  • Flexible
  • Only pay interest on amount owing
  • Doesn’t count towards gearing
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13
Q

What are the disadvantages of using an overdraft as a source of finance?

A
  • Repayable on demand so less reliable

- More expensive

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14
Q

What are the advantages of using an initial coin offering as a source of finance?

A
  • Simple
  • No change in ownership
  • Enable start up to attract international investors
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15
Q

What are the disadvantages of using an initial coin offering as a source of finance?

A
  • Failure to raise amount required results in funds returned to investors
  • Unregulated and associated with fraud
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16
Q

Define initial coin offering

A

The creation of virtual ‘tokens’ which are sold to raise funds for business projects

17
Q

Define risk

A

Situations which may occur whose probability of occurrence can be calculated based on past experiences

18
Q

Define uncertainty

A

Situations whose outcome cannot be predicted with statistical confidence

19
Q

What are the disadvantages of EV?

A
  • Probabilities are estimates
  • Long-term averages - not useful for one off decisions
  • EV outcome may not be actual outcome
  • Do not consider attitudes of risk
20
Q

Define strategic cost management

A

Focusing on what is driving costs and whether they can be reduced

21
Q

What are the qualitative techniques for forecasting?

A
  • Delphi technique
  • Sales force opinions
  • Executive opinions
  • Market research
22
Q

Define the Delphi technique

A

Selecting a panel of experts who produce an independent forecast. The forecast is shared, and then each produces a revised forecast. Process continues until they are in agreement with one definitive forecast

23
Q

What are the quantitative techniques for forecasting?

A
  • Linear regression

- Time series analysis

24
Q

What does linear regression do?

A
  • Measures the relationship between two variables
  • Strength is measured by correlation coefficient
  • Coefficient of determination (r squared) explains proportion of variation in one variable explained by variation in other
25
Q

What does time series analysis do?

A

Separates seasonal and cyclical fluctuations from long-term underlying trends

26
Q

Define budgeting

A

A business plan for the short term

27
Q

What are the advantages of budgeting?

A
  • Promotes forward thinking - identifies problem early
  • Motivates performance
  • Yardstick for measuring performance
  • System of authorisation - managers spend up to limit
28
Q

What are the disadvantages of budgeting?

A
  • May be demotivated if budget unattainable
  • Slack may be built in to make it attainable
  • Short-term results rather than underlying causes
29
Q

Define standard costing

A

Predetermined estimates of costs, the collection of actual costs and the comparison of the two to identify variances

30
Q

What are the disadvantages of standard costing?

A
  • Standards become out of date
  • Variances for which manager is held accountable can be out of their control
  • Once standard met, no incentive to improve

SBL (15 decks)

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