Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

HSC BUSINESS > Finance > Flashcards

Finance Flashcards

1
Q

Strategic role

A

long-term financial management

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Business objectives

A

break the business operations into achievable and

manageable outcomes that can be measured and evaluated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Financial management

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Financial resources

A

business resources with a monetary or money value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Objectives of financial management

A

profitability, growth, efficiency, liquidity, solvency

short-term and long-term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Profitability

A

refers to the profit a business receives in return for its productive effort and investment

increase sale revenue or decrease expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Growth

A

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

direct expansion
merging
acquisition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Efficiency

A

the ability of a business to use its resources effectively in ensuring financial stability and profitability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Liquidity

A

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

too much = miss opportunities
increase sale revenue or decrease expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Solvency

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Short-term financial objectives

A

tactical (1-2 years) and operational (day to day)
They are reviewed regularly to see if targets are being met and if resources are being used to the best advantage to achieve financial objectives.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Long-term financial objectives

A

strategic (3+ years)
They tend to be broad goals and each will require a set of short-term goals to assist in achievement
The business should review their progress annually to determine if changes need to be implemented

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

HR + Finance

A

funds- wages, training
aim- efficiency
ex. qantas fund 275m on training

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Operations + Finance

A

funds- inputs
aim- efficiency, decrease costs, liquidity
ex. qantas fund 2b on new planes (2013-2014)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Marketing + Finance

A

funds- promo, research
aim- growth, increase market share
ex. qantas budget plans (jetstar) and marketing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Internal finance

A

funds provided by the owners of the business (ex.

owners equity) or from the outcomes of the business activities (retained profits)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Owner’s equity

A

funds contributed by owners or partners to establish and build the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Retained profits

A

all profits that are not redistributed, but are kept in the business as cheap and accessible sources of finance for future activities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

External sources of finance

A

debt :
short term borrowing (cof- commercial bills, overdraft, factoring)
long term borrowing (muld- mortgage, unsecured notes, leasing, debentures)

equity:
ordinary shares (prns- placements, rights issues, new issues, share purchase plan)
private equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

External finance

A

funds provided by sources outside the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Debt

A

funds obtained from a source outside the business

long term + short term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Overdraft

A

an account with a bank allowing a business to overdraw on their account up to an agreed figure

–> costs are minimal/ interest rates are low –> assists in short term liquidity problems

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Commercial bills

A

bills of exchange issued by an institution and in large amounts (more than 50k) over a period of 90-180 days

–> borrower receives the sum immediately + promises to repay with interest at a future date, secured against business assets –> cash to help meet financial obligations
funds repaid within a year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Factoring

A

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

–> raise funds immediately –> meet financial obligations –> not received full amount of accounts receivable

Without recourse - business transfers responsibility for bad debts to factoring company

With recourse -bad debts are still business’ responsibility

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Mortgage

A

a loan secured by the property of the borrower or business ex. property

asset mortgaged can’t be sold or used as security for more borrowings until mortgage is repaid
–> fund real estate, land, building purchases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Debentures

A

issued by a company (large business) for a fixed rate of interest and for a fixed amount of time (usually 3-20 years)

fixed interest rate - not impacted by business profits
security offered over the company’s assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Unsecured notes

A

a loan from investors for a set period of time

not secured against business assets
high interest rate due to increased risk to investor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Leasing

A

involves the payment of money for the use of equipment owned by another party

operating leases - assets leased for time + interest and eventually own asset
financial lease - assets leased for time + interest, never owns asset

advantages:
payments are tax deductions
without reducing control of ownership
keep up to date with technology

disadvantages:
interest charges may be higher than other forms of borrowing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Advantages and disadvantages of debt

A 
advantages:
payments are tax deductions
without reducing control of ownership
easily available
different types
increase possible profit
disadvantages:
more financial obligations
may cost more over time
can require security
too much can scare off investors
increased risk
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Advantages and disadvantages of equity

A

advantages:
cheaper than debt (dividends not legally required)
doesn’t add to debt
fewer risks

disadvantages:
long process
ownership is diluted
not as many options

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Dividends

A

distribution of a company’s profits to shareholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Sale and leaseback

A

a financial transaction where one sells an asset and

leases it back long term, continuing to use the asset but no longer owning it

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

New issues

A

a security that has been issued and sold for the first time on a public market

offered during an initial public offering (IPO)
requires prospectus
rime consuming

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Rights issue

A

privilege granted to shareholders to buy new shares in the same company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Rights issue

A

privilege granted to shareholders to buy new shares in the same company

no obligation to buy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Placement

A

additional shares offered at a discount to certain investors

faster
pay extra fees to make up shortfalls

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Share purchase plan

A

offer to existing shareholders to purchase more shares without brokerage fees

does not require a prospectus
faster

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Private equity

A

money invested in a private company (not listed on the ASX)

aim is to raise capital to finance future expansion/investment
shares offered privately to potential investors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Financial institutions

A 
Banks
Unit trusts
Finance companies
Superannuation funds
Investment banks
Life insurance companies
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Banks

A

main provider of finance to business and consumers
can only provide loans that have an acceptable level of risk
ex. commonwealth, westpac

offers: deposit accounts (transaction, cheque, savings, fixed term), overdrafts, credit cards, short + long term loans, leases, services (advice)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Investment banks

A

specialise in investment banking for medium to large cooperations
ex. macquarie bank, ABN AMRO

offers: commercial bills, loans (secured/ unsecured) , investment funds (managed funds, hedged funds), financial market trading (debt securities, fx)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Finance companies

A

loans to business and consumers
usually higher interest rates w less strict criteria
raise funds by issuing debentures to public
ex. GB finance, Esanda

offers: loans, credit cards, leasing, factoring

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Superannuation funds

A

financial contributions that individuals and their employers make to fund for retirement
ex. AGEST, CBUS

offers: equity capital, debt securities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Insurance companies

A

cover various risks that people and businesses face, such as life insurance (compensation in event of death/ injury)
ex. GIO, NRMA

offers: premiums, equity capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Unit trusts

A

managed by a trustee (usually a company), raise funds from investors and invest those funds in various investments
can earn higher return from pooled funds than if acted independently (avoids tax)
ex. investment funds of australia….unit trust

offers: mortgage funds, cash management trusts, share market funds (equity growth funds), property trusts
types:
property trusts
mortgage trusts
equity trusts
fixed interest trusts
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Australian Securities Exchange (ASX)

A

primary stock exchange group in Australia provides a forum for businesses and individuals to buy and sell shares

Primary market- enables a company to raise new capital through the issue of shares

Secondary market- pre owned securities such as shares are traded between investors

Integrated Trading System (ITS) providing a system for transfer of ownership
CHESS- keeps record of share ownership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Influence of government

A

ASIC

Company taxation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Australian Securities and Investment Commission (ASIC)

A

regulates financial companies, financial markets, financial services organisations and professionals

aim: protect consumers by reducing fraud + unfair practices in financial markets
By:
ensures companies follow the law - can investigate + determine appropriate remedies (e.g. prison)
collects info about companies + makes it available to the public

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Company taxation

A

all companies must pay tax
27% of net profit
Aus. government aims to reform the federal tax system to make Australia a more attractive place to invest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Global market influence

A

Availability of funds
Interest rates
Economic outlook

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

Economic outlook

A

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

Positive:
increased demand for products and services → increased production trade + output
decrease interest rates for funds borrowed internationally from financial markets (due to decreased risk of repayments)

Negative:
decreased product demand + increased interest rates

52
Q

Availability of funds

A

the ease in which a business can access funds for borrowing on international financial markets

Based on:
Risk
Demand + supply
Domestic economic conditions

GFC → increased interest rates due to high risk levels in lending (due to decreased availability of funds)

53
Q

Interest rates

A

cost of borrowing money

more risk = more interest

Aus has higher interest rates than most countries
→ businesses borrowing from overseas sources due to lower interest rates
***increased risks of currency fluctuations = low interest rates might cost more

54
Q

Process of financial management

A 
planning + implementing 
monitoring + controlling
financial ratios
limitations of financial reports
ethical issues related to financial reports
55
Q

Planning and implementing

A 
record systems
budgets
financial controls
financial needs
financial risks
56
Q

Financial needs

A

must know needs in order to determine business direction
financial information must be collected
financial position determined by balance sheets, income + cash flow statements

financial needs of a business are determined by:
Business size
Current phase of BLC
Future plans of growth + development

57
Q

Budget

A

provide information in quantitative terms (facts and figures) regarding the requirements to achieve a particular purpose

show:
cash required for planned outlays for a particular period the cost of capital expenditure and associated expenses against earning capacity
estimated use and cost of raw materials or inventory number and cost of labor hours required for production

58
Q

Types of budgets

A

Operating
Project
Financial

59
Q

Project budgets

A

relate to capital expenditure, + research + development

include information about the purpose of asset purpose, lifespan of an asset + revenue the asset would generate

60
Q

Operating budgets

A

relate to the main activities of a business

can include budgets relating to sales, production, expenses + COGS

61
Q

Financial budgets

A

financial data of a business

62
Q

Record systems

A

mechanisms employed by a business to ensure that data are recorded and the information provided by record systems is accurate, reliable, efficient and accessible

management bases decisions on this information when needed
minimise errors- double entry system ensures errors are found quickly

63
Q

Financial risks

A

the risks to a business of being unable to cover its financial obligations

bad debts can reduce profitability
highly geared –>inability to meet financial obligations → bankruptcy
liquid in order to meet short-term commitment
exchange rate risks (hedging can help)

64
Q

Financial controls

A 
policies + procedures ensuring that business plans will be achieved efficiently
common causes of financial problems: 
theft
fraud
loss of assets 
errors in record systems

**budgets are form of financial control

65
Q

Factors that must be considered when preparing a budget

A

review of past figures + trends
proposed expansion
proposals to alter price + quality of products
external environment considerations

66
Q

Terms and purpose

A

must be suitable to the structure and purpose of the funds

Ex short-term finance should be used to match short-term purposes such as managing a temporary cash shortfall

67
Q

Sources

A

a business will need to consider the costs, benefits and risks associated with debt and equity finance and choose that which is most appropriate

68
Q

Matching principle

A

current liabilities fund current assets/ non current liabilities fund non current assets

69
Q

Monitoring and controlling

A

cash flow statement
income statement
balance sheet

70
Q

Financial ratios

A 
liquidity: high
current ratios (2:1)

gearing: low
debt to equity ratio (1:2 small, 100% for large companies)

profitability: high
gross profit ratio
net profit ratio
return on equity (over 20%)

efficiency:
expense ratio low
accounts receivable turnover ratio high (14-30)

comparative ratio analysis:
over different time periods
against common standards
with similar businesses

71
Q

Limitations of financial reports

A 
normalised earnings
capitalising expenses
valuing assets
timing issues
debt repayment
notes to financial statements
72
Q

Normalised earnings

A

unusual or one off events that affect profit or financial stability are removed, as they are not consider a normal aspect of the business revenue

73
Q

Capitalising expenses

A

accounting method where expenses are recorded as an asset on the balance sheet instead of an expense on the income statement

understates expenses + overstates profits and assets
ex. R&D

74
Q

Valuing assets

A

the process of estimating the value of assets when recording them on a balance sheet, because value can depreciate/appreciate or hard to value

75
Q

Type of finance for stock/ inventory

A

overdraft/ commericial bill

76
Q

Type of finance for manufacturing equipment

A

debentures (5 year)

77
Q

Type of finance for factory building

A

mortgages

78
Q

Type of finance for company cars

A

leasing

79
Q

Type of finance for company cars

A

leasing

80
Q

Timing issues

A

do not include income/ expenses hat occur outside time period
matching principle → accurate representation of financial position

81
Q

Debt repayments

A

the money owed to the business or owed by the business

recording of debt repayments can distort the ‘reality’ of the business’s status

82
Q

Notes to the financial statement

A

additional information provided (on how reports were prepared which affects figures)

83
Q

Ethical issues

A

businesses have an ethical + legal responsibility to provide accurate financial records
business laws regulate management conduct + the requirement to disclose accurate information
important for shareholders - investment decisions based on this information

84
Q

Audit

A

an independent check of the accuracy of financial records + accounting procedures

internal Audit: Conducted to review the business’s strategic plan + determine if changes need to be made

external audits: Requirement of the Corporations Act 2001 (Cwlth)
Financial reports are investigated by an independent audit accountant to guarantee authenticity
Auditor publishes a statement indicating the accuracy of the financial records + reports

85
Q

Fictitious revenue

A

revenues that do not exist included

86
Q

Hidden liabilities and expenses

A

not included in balance sheet or income statments

87
Q

fradulent asset valuations

A

variation of historical value

reckless valuing of intangibles ex goodwill

88
Q

Financial strategies

A

cash flow management
working capital management
profitability management
global finance management

89
Q

Cash flow

A

movement of cash into and out of a business over a period of time
Problems if too much is going out or not enough is going in
Inflows - sales, accounts receivable
Outflows - payments to suppliers, loan interest, operating expenses + loan repayments

90
Q

Cash flow statements

A

used to plan for periods where business expect a shortage of cash - avoid liquidity issues
ex. apple outsourced debt finance in 2015 –> decrease in outflows by 53%

91
Q

Cash flow strategies

A

distribution of payments
discounts for early payment
factoring

92
Q

Distribution of payments

A

distribute payments throughout the month, year or other period - ensures large expenses don’t occur at the same time + prevents cash shortages
pay when due unless incentives are provided for paying early
equal cash outflow each month

93
Q

Discounts for early payment

A

Effective when targeted at creditors with large amounts owing to the business
Positively impacts business’ cash flow

94
Q

Factoring

A

selling accounts receivable to factoring firms at a discounted price
instant cash injection into business - immediate cash inflow
business saves on costs involved in following up on debt collection

95
Q

Working capital strategies

A

sale
leasing
sale and lease back

96
Q

Balance sheet

A

shows financial stabillitiy

short term compare current assets to current libailities using liquidity ratio

long term determine gearing

97
Q

Revenue/income/ profit and loss statement

A

profitabiltity - gross profit ratio, net profit ratio

efficiency- expense ratio, accounts turnover ratio

98
Q

Common current assets (3)

A

cash
inventories
accounts receivable

99
Q

Common current liabilities (3)

A

accounts payable
loans
overdrafts

100
Q

Leasing

A

is the hiring of an asset from another person or company who has purchased the asset and retains ownership of it

frees up cash that can be used elsewhere in the business = the level of working capital is improved
an expense = tax deductible

operating leases - assets leased for time + interest and eventually own asset
financial lease - assets leased for time + interest, never owns asset

101
Q

Sale and lease back

A

is the selling of an owned asset to a lessor and leasing the asset back through fixed payments for a specified number of years
increases liquidity - cash is obtained from the sale → cash being used as working capital

102
Q

Profitability strategies

A

cost controls:
fixed and variable
cost centres
expense minimisation

revenue controls:
marketing objectives

103
Q

Fixed costs

A

not dependent on the level of operating activity

ex. salaries, depreciation, insurance, lease

104
Q

Variable costs

A

change proportionately according to the level of business activity
ex. materials and labor used in the production of a particular item

105
Q

Cost centres

A

particular areas/departments/sections of a business to which costs can be directly attributed

Direct costs: are those that can be allocated to a particular product
ex. depreciation of equipment used solely in the production of one good

Indirect costs: shared by more than one product ex. the depreciation of equipment used to make several products would have indirect costs allocated on some equitable basis

106
Q

Expense minimization

A

eliminate waste and unnecessary spending

107
Q

Marketing objectives

A

aim to increase sales → increased revenue
sale objectives must aim for a level of sales which covers fixed + variable costs → profit

cost-volume-profit analysis
sales mix (product)
pricing policy (price)
108
Q

Cost-volume-profit analysis

A

determine revenue levels needed to cover costs + to break even

109
Q

Sales mix (product)

A

clear focus on the important customer base on which most of the revenue depends on by diversifying or extending product ranges, or ceasing production on particular lines
research should be carried out to identify the potential effects of sales mix changes before decisions are made

110
Q

Pricing policy (price)

A

overpricing may fail to attract buyers
under-pricing may → higher sales but cash shortages + low profits

factors influencing pricing:
costs of producing the good/ service
prices charged by competitors - consumers are price conscious today
short + long-term goals
image + quality expectation of customers
government policies

ex. apple decreased selling price in 2015 which resulted in increased profit (cheaper suppliers)

111
Q

Global financial management

A 
hedging
methods of int. payment
derivatives
interest rates
exchange rates
112
Q

Exchange rate

A

value of a country’s currency in terms of another

effects:
fluctuations → risk for global businesses
appreciation → international market exports more expensive but imports cheaper
depreciation → foreign currency units buying more AUD$ → cheaper exports + more expensive imports = more competitive

ex. apple in appreciation of = lower sales revenue and demand (2016)

113
Q

Interest Rates

A

global businesses can borrow funds from interest financial markets to increase competitiveness

high risk - exchange rate movements - long-term: ‘cheap’ rates may cost more

effects:
high interest = increase borrowing costs and discourage expansion
low interest = reduce borrowing costs and encourage expansion

114
Q

Methods of international payment

A

payment in advance
clean payment- open account
letters of credit
bills of exchange

115
Q

Clean payment- open account

A

export goods first

more secure for importer = more risks for exporter

116
Q

payment in advance

A

import pay first

more risks for importer = more secure for exporter

117
Q

Bills of exchange

A

A document drawn up by the exporter demanding payment from the importer at a specified time

less secure for exporter but can comunicate directly to banks to reduce risk

Document (bill) against payment:
importer collects goods after payment

Document (bill) against acceptance:
importer may collect goods before payment

118
Q

Letters of credit

A

a document the buyer can request from their bank that guarantees payment of goods will be transferred to the seller

more risk for importer if terms are not met = more secure for exporter as bank takes on risk

commitment can’t be withdrawn by bank

119
Q

Hedging

A

the process of minimising the risk of currency fluctuations

natural hedging strategies:
establishing offshore subsidiaries
arranging for import payments + export receipts in the same foreign currency
implementing marketing strategies that attempt to reduce price sensitivity in exported products
insisting that both import + export contracts are denominated in Australian dollars

120
Q

Derivatives

A

financial instruments used to lessen the exporting risks associated with currency fluctuations

forward exchange contract
options contract
currency swap

121
Q

Spot exchange rate

A

the value of one currency in another currency on certain day

122
Q

Forward exchange contract

A

contract to exchange one currency for another at an agreed exchange rate on a future date

123
Q

Options contract

A

option to buy and sell foreign currency at some time in the future

124
Q

Currency swap

A

agreement to exchange currency in the sport market with an agreement to reverse the transaction in the future

125
Q

Gross profit formula

A

sales - cogs

126
Q

Net profit formula

A

gross profit - expenses

127
Q

Assets

A

liabilities + equity

HSC BUSINESS (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions