Chapter 5 (Financial function) Flashcards
What is financial management
The way in which a company manages its money effectively to accomplish its objectives
What is the advantage of having a good financial strategy
It enables a company to raise capital, allocate funds, make a profit, grow their business and pay dividends to shareholders
List the responsibilities of financial managers
-They must make sure that a business has access to appropriate and needed capital resources and use these resources optimally
-They must ensure the best financial results
-They must ensure that the enterprise makes the best use of its financial resources
List the managerial functions of financial management
-Financial planning
-Financial organising
-Financial leading
-Financial controlling
List the activities included in financial planning
-Planning
-Developing
-Finalizing an appropriate accounting system
-Deciding on effective pricing
-Credit procedures
-Other financial processes
List the activities included in financial organizing
-The responsibility to arrange and organize needed financial activities, equipment and people in the most effective way
-Delegation of tasks
-Signing cheques, payments, drawing up quotations
List the activities included in financial leading
-The responsibility to lead and motivate the people in a unit/enterprise
-Keeps departments informed and ensures that work has been done
List the activities included in financial controlling
-Takes corrective measures
The better you plan, organize and activate, the better you will be able to control the activities of your department in the enterprise
What are the building blocks of financial management?
-Assets and Capital
List the different types of assets
-Fixed assets
-Current assets
-Other assets
Explain fixed assets
Assets owned and required by the enterprise for a period longer than 12 months
e.g: land, buildings, machinery
Explain current assets
Assets owned by the enterprise that will be used for manufacturing, sales or cash within a period of 12 months
e.g: raw materials, stock, cash, outstanding debtors
Explain other assets
Assets that aren’t directly involved in the normal operational activities of the business
-Shares and investments in other businesses
-Its not part of the normal business activities
List the different types of capital
-Owners Capital
-Outside Capital
List the characteristics of owners capital (shareholders capital/ equity)
-First source of capital available when starting a business
-Its part of the total capital that’s legally recognized as the total value of contributions made by legal owners of the business
-Its not easy to withdraw/Its seldom withdrawn
-There are a variety of sources
-Its permanent
List the characteristics of Outside capital
-It is made available to the enterprise on a short, medium or long-term basis
-It is to be repaid in the future
-Suppliers are paid remuneration fees for helping
-If the business is liquidated/sold, the suppliers usually have distinct and preferential claims
Characteristics of Long term finance
-A formally written document drawn up by an attorney and signed by all parties will spell out the details of the conditions of the agreement between the supplier and receiver of such goods
-Credit is available for 5-20 years
-Interest has to be paid out to the supplier
It will be made available to the enterprise only if it can directly be linked to fixed assets listed as collateral
-Business angels may be sources
List the characteristics of medium term finance
-A legally drafted and signed document is necessary for the transaction
-Interest must be paid by the business
-Repayments of initial capital are made in equal monthly payments for the whole period
-Renting/leasing an item is a form of financing
Explain medium term finance
-Consists of assets/monies supplied to the business for 1-7 years
Explain short term finance
Made available to the business enterprise for less than 12 months
What are the characteristics of short term finance
-Suppliers will charge the business interest
-Creditors/Suppliers won’t charge interest on outstanding balances but they’ll charge high-interest rates on accounts in arrears
-Not strict/disciplined in assessing the creditworthiness of their credit-purchasing customers
