Finance #1

Question 1

What is financial management?

Answer 1

The planning and monitoring of a business’s financial resources to achieve financial objectives.

Question 2

the strategic plan is how long

Answer 2

Long-term

Question 3

What are the five finance objectives?

Answer 3

Profitability, Growth, Efficiency, Liquidity and Solvency

Question 4

efficiency

Answer 4

The ability to achieve maximum profit with the lowest possible level of assets through managing assets and minimising costs

Question 5

liquidity

Answer 5

The extent to which a business can meet its financial commitments in the short-term

Question 6

short-term

Answer 6

Less than 12 months

Question 7

solvency

Answer 7

The extent to which a business can meet its financial commitments in the long-term

Question 8

growth

Answer 8

The ability of a business to increase its size in the longer term.

Question 9

profitability

Answer 9

The excess of revenue or income over expenses or costs.

Question 10

how does finance have interdependence with the other business functions

Answer 10

marketing, operations and hr rely on the financial managers to allocate adequate funds. operations create funds for finance, marketing promotes the products that will create more funds, and hr manages the staff that works in these areas.

Question 11

how does finance have interdependence with the other business functions

Answer 11

marketing, operations and hr rely on the financial managers to allocate adequate funds. operations create funds for finance, marketing promotes the products that will create more funds, and hr manages the staff that works in these areas.

Question 12

internal finance

Answer 12

the funds that are generated from inside the business

Question 13

external finance

Answer 13

funds provided by sources outside the business

Question 14

debt finance

Answer 14

the borrowing from external sources to fund the business

Question 15

retained profits

what is the industry average

Answer 15

earnings or profits that aren’t distributed but kept in the business for future activities

Australia: 50% of profits on average are retained to be reinvested

Question 16

what are the short term borrowings within debt finance

Answer 16

overdraft, commercial bills, factoring

Question 17

overdraft

how does this help with liquidity

Answer 17

the bank allows someone to overdraw their account for an agreed limit to help overcome a temporary cash shortfall

it provides a short-term solution to any unconventional moments in business success, such as seasonal decreases in sales

Question 18

commercial bills

why is this low risk

Answer 18

short-term loans for larger amounts (over $100,000) for between 30-180 days

these loans are usually secured AGAINST THE BUSINESS’S ASSETS and are generally rolled over until the borrower has the funds to repay the loan in full

Question 19

factoring

within factoring companies, what is ‘without recourse’

                                                            'with recourse'

why does this have more risk

Answer 19

selling accounts receivable for a discounted price to specific firm

transfer complete responsibility for non-collection to the factoring company

the bad debts will still be a responsibility of the business

the likelihood of unpaid debts, relatively expensive for debts that remain unpaid because commission is paid on the debt

Question 20

what are the long term borrowings within debt finance

Answer 20

mortgage, debentures, unsecured note, leasing,

Question 21

mortgage

Answer 21

loan secured by the property of the borrower that can’t be sold or used as security for further borrowing until the loan has been repaid, with interest through regular payments over an agreed period of time

Question 21

debentures

Answer 21

a loan where investors lend money in exchange for a FIXED INTEREST FOR A SPECIFIC TIME,

in doing this they offer security to the lender and to get this loan the company must have a prospectus, stating all performance of the company

Question 22

unsecured notes

why does it attract a higher rate of interest than a secured note

Answer 22

a loan from investors for a set period that is not secured against the business’s assets used to generate funds such as share repurchases and acquisitions

Because they pose the most risk to investors as it isn’t secured against the business’s assets

Question 23

leasing

Answer 23

the payment of money for the use of equipment that is owned by another party

Question 24

what are the advantages of leasing

Answer 24

assists cash flow of a business - as a result of the leasing payments being spread out over several years, saving the burden of a one-time cash payment
costs of establishing leases may be lower
long-term financing without reducing control of ownership
businesses may be in a better place to borrow funds
act as a tax deduction

Question 25

what is a disadvantage of leasing

Answer 25

the interest charges may be higher than for other forms of borrowing

Question 26

equity finance

Answer 26

an external source of funds raised by the company through inviting new owners

Question 27

what are the forms of equity finance

Answer 27

ordinary shares, private equity

Question 28

characteristics of ordinary shares

Answer 28

most commonly traded shares
publicly listed company
individuals get payments in the form of dividends

Question 29

unit trust

Answer 29

funds from a large number of small investors that is invested into an array of financial assets.

Question 30

what does ASIC administer and enforce

Answer 30

the corporations act 2001

Question 31

what is the tax rate for small businesses with a turnover less than $10 million

Answer 31

27.5%

Question 32

what is the tax rate for all other companies that are not small business entities

Answer 32

30%

Question 33

global economic outlook

Answer 33

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

Question 34

what are some results of there being a positive global economic outlook

Answer 34

increasing demand for products and services
decrease in the interest rates on funds borrowed internationally