Finance Flashcards

1
Q

Role of financial management SOI

A

• strategic role of financial management
• objectives of financial management - PLEGS
– profitability, growth, efficiency, liquidity, solvency
– short-term and long-term
• interdependence with other key business functions

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2
Q

Influences of financial management - SOF, FI, IOG, GMI

A

• internal sources of finance – retained profits
• external sources of finance
– debt – short-term borrowing (overdraft, commercial bills, factoring), long-term borrowing (mortgage, debentures, unsecured notes, leasing)
– equity – ordinary shares (new issues, rights issues, placements, share purchase plans), private equity
• financial institutions – banks, investment banks, finance companies, superannuation funds, life insurance companies, unit trusts and the Australian Securities Exchange
• influence of government – Australian Securities and Investments Commission, company taxation
• global market influences – economic outlook, availability of funds, interest rates

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3
Q

Processes of financial management - P(BRFFF)MFLE

A

• planning and implementing – financial needs, budgets, record systems, financial risks, financial controls
– debt and equity financing – advantages and disadvantages of each
– matching the terms and source of finance to business purpose
• monitoring and controlling – cash flow statement, income statement, balance sheet
• financial ratios
– liquidity – current ratio (current assets ÷ current liabilities)
– gearing – debt to equity ratio (total liabilities ÷ total equity)
– profitability – gross profit ratio (gross profit ÷ sales); net profit ratio (net profit ÷ sales); return on equity ratio (net profit ÷ total equity)
– efficiency – expense ratio (total expenses ÷ sales), accounts receivable turnover ratio (sales ÷ accounts receivable)
– comparative ratio analysis – over different time periods, against standards, with similar businesses
• limitations of financial reports – normalised earnings, capitalising expenses, valuing assets, timing issues, debt repayments, notes to the financial statements
• ethical issues related to financial reports

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4
Q

Strategies of financial management - CFM, WCM, PM, GFM

A

• cash flow management
– cash flow statements
– distribution of payments, discounts for early payment, factoring
• working capital management
– control of current assets – cash, receivables, inventories
– control of current liabilities – payables, loans, overdrafts
– strategies – leasing, sale and lease back
• profitability management
– cost controls – fixed and variable, cost centres, expense minimisation
– revenue controls – marketing objectives
• global financial management
– exchange rates
– interest rates
– methods of international payment – payment in advance, letter of credit, clean payment, bill of exchange
– hedging
– derivatives

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