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Finance Flashcards

Finance

1
Q

Profitability

A

The ability of a business to generate and maximise profits

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2
Q

Liquidity

A

The ability of the business to meet its short-term . financial commitments

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3
Q

Efficiency

A

The ability of the business to make the most of its resources

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4
Q

Growth

A

The ability of the business to expand in the long-term

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5
Q

Solvency

A

The ability of a business to meet its long-term financial commitments

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6
Q

INTERNAL FINANCE (2)

A

Retained profits, owners equity

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7
Q

(Int. Finance) Retained profits

A

profits not paid out as dividends to shareholders

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8
Q

(Int. Finance) Owner’s equity

A

money contributed by the owners (including shareholders)

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9
Q

SHORT-TERM DEBT FINANCE (3)

A

Bank overdrafts, commercial bills, factoring

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10
Q

LONG-TERM DEBT FINANCE (4)

A

Mortgages, Debentures, unsecured notes, leasing

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11
Q

(Short Debt Fin.) Bank overdrafts (3)

A

Withdraw more money from account than it contains, cost in the form of interest, good for short-tern liquidity problems

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12
Q

(Short Debt Fin.) Commercial Bills (2)

A

A bill of exchange used for large amounts of money (over 100K) issued by non bank institutions, cost in interest and principal amount

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13
Q

(Short Debt Fin.) Factoring (4)

A

Short-term borrowing involving selling accounts receivable, usually receives about 90% within 48 hours, charges fee, greater risk/higher costs

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14
Q

(Long Debt Fin.) Mortgages (2)

A

Loan secured by property of borrower, regular repayments

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15
Q

(Long Debt Fin.) Debentures (2)

A

Fixed rate of interest, assets as collateral

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16
Q

(Long Debt Fin.) Unsecured notes (2)

A

Loan from investors, high interest

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17
Q

(Long Debt Fin.) Leasing (2)

A

Operating- short-term

Financial- purchasing

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18
Q

EQUITY FINANCE (2)

A

Ordinary shares, private equity

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19
Q

(Eq. Fin.) Ordinary shares

A

Purchased on ASX

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20
Q

(Eq. Fin.) Private Equity (2)

A

Purchase of shares in a private company OR investments made by the owner of unincorporated businesses

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21
Q

FINANCIAL INSTITUTIONS (7)

A

BUF SAIL:

Banks, Unit trusts, finance companies, superannuation funds, ASX, Investment banks, life insurance companies

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22
Q

(Fin. Inst.) Banks (4)

A

Provide working capital, investment portfolio management, overseas management, advice

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23
Q

(Fin. Inst.) Finance companies (3)

A

Lease finance, debentures, added security

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24
Q

(Fin. Inst.) Life insurance companies

A

Funds received via premiums

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25
Q

(Fin. Inst.) Superannuation funds (2)

A

Retirement dosh, able to invest in long-term securities

26
Q

(Fin. Inst.) Unit trusts

A

Money from lots of small investors

27
Q

(Fin. Inst.) ASX

A

Oversees all transactions in public companies

28
Q

INFLUENCE OF GOVERNMENT (2)

A

ASIC, Company Tax

29
Q

(Gov.) ASIC

A

Ensures that companies adhere to investment laws, Corporations Act since 1998

30
Q

(Gov.) Company Tax (2)

A

Flat tax rate of 30%, systematically reduced to attract foreign investment

31
Q

GLOBAL MARKET INFLUENCES (3)

A

Global economic outlook, availability of funds, interest rates

32
Q

(Global Market Inf.) Global economic outlook (2)

A

Positive- increased export demand, cheaper overseas finance

Negative- decreased export demand, more expensive overseas finance

33
Q

(Global Market Inf.) Availability of funds (4)

A

Risk, demand/supply, economic conditions in source country

e.g. GFC

34
Q

(Global Market Inf.) Interest rates

A

Higher in Australia

35
Q

PLANNING AND IMPLEMENTING (5)

A

Financial needs, budgets, record systems, financial risk, financial controls

36
Q

(Plan & Imp.) Financial needs

A

Determined by:

Size, phase in business life cycle, future plans

37
Q

(Plan & Imp.) Budgets

A

Signal strengths/weaknesses

38
Q

(Plan & Imp.) Record systems

A

Double entry system

39
Q

(Plan & Imp.) Financial risk

A

Unable to cover financial obligations e.g. debt

40
Q

(Plan & Imp.) Financial controls

A

Theft, fraud, damage, errors, etc

41
Q

Debt financing advantages (3)

A

Readily available, tax deduction for interest payments, cheaper in the long-term

42
Q

Debt financing disadvantages (3)

A

Interest, collateral, expensive in short-term

43
Q

Equity financing advantages (4)

A

No repayment, no interest, low gearing, less risk

44
Q

Equity financing disadvantages (2)

A

Financer is entitled to profits, expensive long-term

45
Q

FINANCIAL STATEMENTS (3)

A

Income, cash flow, balance

46
Q

FINANCIAL RATIOS (7)

A

Current, gearing, gross, net, return on equity, expense, accounts receivable turnover

47
Q

(Ratio) Current

A

Liquidity, 2:1, HIGHER is better

48
Q

(Ratio) Gearing

A

Solvency, 0.5-0.7:1, LOWER is better

49
Q

(Ratio) Gross profit

A

Profitability, 50%, HIGHER is better

50
Q

(Ratio) Net profit

A

Profitability, 10-18%+, HIGHER is better

51
Q

(Ratio) Return on equity ratio

A

Profitability, 12-17%+, HIGHER is better

52
Q

(Ratio) Expense

A

Efficiency, LOWER is better

53
Q

(Ratio) Accounts receivable turnover

A

Efficiency, 30 or less, HIGHER is better

54
Q

LIMITATIONS OF FINANCIAL REPORTS (5)

A

Normalised earnings, capitalised expenses, valuing assets, timing issues, debt repayments

55
Q

(Lim.) Normalised earnings

A

Removal of a one-off purchase

56
Q

(Lim.) Capitalised expenses

A

Financing a non-current asset

57
Q

(Lim.) Valuing assets

A

Original/historical cost, depreciated/appreciated cost

58
Q

(Lim.) Timing issues

A

Seasonal issues, recording revenues before their due

59
Q

(Lim.) Debt repayments

60
Q

Ethical Issues

A

Legislation, ASX requirements

Business Finance (6 decks)

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