Dictionary Finance

Question 1

Financial management

Answer 1

Is the planning and monitoring of a business’s financial resources to enable the business to achieve its financial objectives

Question 2

Profitability

Answer 2

Is the ability of a business to maximise profits

Question 3

Growth

Answer 3

Is the ability of the business to increase its size in the longer term

Question 4

Efficiency

Answer 4

Is the ability of a business to minimise its costs and manage its assets so that the maximum profit is achieved with the lowest possible levels of assets

Question 5

Liquidity

Answer 5

Is the extent to which a business can meet its financial objectives in the short term (less than 12 months)

Question 6

Solvency

Answer 6

Is the extent to which a business can meet its financial objectives in the longer term (more than 12 months)

Question 7

Gearing

Answer 7

Is the proportion of debt (external finance) and the proportion of equity (internal finance) that is used to finance the activities of a business. Gearing ratios determine the firm’s solvency

Question 8

Overdraft

Answer 8

The bank allows a business or individual to overdraw their account up to an agreed limit for a specified time, to help overcome a temporary cash shortfall

Question 9

Commercial bills

Answer 9

Are primarily short-term loans issued by financial institutions, for large amounts (usually over $100,000) for a period of generally between 30 to 180 days.

Question 10

Factoring

Answer 10

Is the selling of accounts receivable for a discounted price to a finance or factoring company

Question 11

Mortgage

Answer 11

Is a loan secured by the property of the borrower

Question 12

Debentures

Answer 12

Are issues by a company for a fixed rate interest and for a fixed period of time

Question 13

Unsecured note

Answer 13

is a loan from investors for a set period of time. Unsecured are not secured against business’s assets.

Question 14

Leasing

Answer 14

Is a long-term source of borrowing for a business. It involves the payment of money for the use of equipment that is owed by another party.

Question 15

Dividend

Answer 15

Is a distribution of a company’s profits (either yearly or half-yearly) to shareholders and is calculated as a number of cents per share.

Question 16

Superannuation

Answer 16

Is a scheme set up by the federal government, which requires all employers to make a financial contribution to a fund which will provide benefits to an employee when they retire

Question 17

Primary market

Answer 17

Deals with the new issue of debt instruments by the borrower of funds

Question 18

Secondary market

Answer 18

Deal with the purchase and sale of existing securities

Question 19

Global economic outlook

Answer 19

Refers specifically to the projected changes to the level of economic growth throughout the world

Question 20

Availability of funds

Answer 20

Refers to the ease with which a business can access funds (for borrowing) on the international financial markets

Question 21

Interest rates

Answer 21

Are the cost of borrowing money

Question 22

Debt finance

Answer 22

relates to the short-term and long-term borrowing from external sources by a business

Question 23

Equity finance

Answer 23

relates to the internal sources of finance in the business

Question 24

COGS

Answer 24

Is the value of stock that a business has sold to its customers

Question 25

Gross profit

Answer 25

Is the part of a business’s profit that represents operating income minus cost of goods sold

Question 26

Net profit

Answer 26

Is the difference between gross profit and expenses

Question 27

Assets

Answer 27

Are items of value owned by the business. Current assets can be turned into cash within 12 months, whereas non-current assets are not expected to by turned into cash within 12 months.

Question 28

Liabilities

Answer 28

Are claims by people other than owners against the assets (items of debt), and represent what is owed by the business. Current liabilities must be repaid within 12 months, whereas non-current liabilities must be met sometime after the next 12 months

Question 29

Owners’ equity

Answer 29

Is the funds contributed by the owner(s) and represents the net worth of the business

Question 30

Audit

Answer 30

Is an independent check of the accuracy of financial records and accounting procedures

Question 31

Current assets

Answer 31

are assets that a business can expect to convert into cash within 12 months. They usually include cash and accounts receivable.

Question 32

Working capital

Answer 32

The funds available for the short-term financial commitments of a business

Question 33

Current liabilities

Answer 33

Are liabilities that a business must repay within the short-term. They usually include overdraft and accounts payable

Question 34

Sale and lease-back

Answer 34

Is the selling of an owned asset to a lessor and leasing the asset back through fixed payment for a specific number of years

Question 35

Payment in advance

Answer 35

This method allows the exporter to receive payment and then arrange for the goods to be sent

Question 36

Letter of credit

Answer 36

Is a document that a buyer can request from their bank that guarantees the payment of goods will be transferred to the seller. The letter of credit is issued by the importer’s bank to the exporter promising to pay them a specified amount once certain conditions have been met

Question 37

Clean payment

Answer 37

Occurs when the exporter ships the goods directly to the importer before payment is received

Question 38

Hedging

Answer 38

Is the process of minimising the risk of currency fluctuations

Question 39

Derivatives

Answer 39

Are simple financial instruments that may be used to lesson the exporting risks associated with currency fluctuations