Finance [Role]

Question 1

What is the strategic role of financial management?

Answer 1

• Setting financial objectives and ensuring the business is able to achieve
  these goals.
• Sourcing finance
• Preparing budgets and forecast future finances.
• Preparing financial statements including cash flow statements, income
  statements and balance sheets.
• Maintaining sufficient cash flow
• Distributing funds to other parts of the business.

Question 2

Is financial management a long or short term factor?

Answer 2

Long Term, as it plans for both the short and long term.

Question 3

What are the choices of financial objectives based off?

Answer 3

Financial objectives are based off the businesses:

• key focus
• business life cycle
• business cycle

Question 4

What is the acronym for financial objects?

Answer 4

PLEGS

Question 5

What does PLEGS stand for?

Answer 5

P - profit
L - liability
E - equity
G - growth
S - Solvency

Question 6

What does profitability mean?

Answer 6

Maximising profits through increased sales and decreased costs.

Question 7

What does “capital” mean?

Answer 7

Capital is the money it has available to pay for its day-to-day operations and to fund its future growth.

Question 8

What are the four types of Capital?

Answer 8

• Working capital
• Debt
• Equity
• Trading capital

Question 9

What is Gross Profit?

Answer 9

The revenue remaining after paying the cost of goods sold; the expenses of purchasing the goods wholesale (wholesale cost) and transporting them to the business ready for sale (freight inwards).

Question 10

What is Net Profit?

Answer 10

The final amount of revenue remaining after all expenses have been paid.

Question 11

What is Growth?

Answer 11

Increase in profitability in the long term.

More output = more sales. Thus increasing revenue, therefore profit too.

Question 12

How can growth be achieved?

Answer 12

Growth can be achieved by

• Increasing market share
• Increasing sales and profit
• Merging with another business in the same industry
• Expanding range of products

Question 13

What is efficiency in finance?

Answer 13

Achieving the same level of profit from a smaller amount of inputs, or the business’s ability to collect accounts receivable is efficiency.

Question 14

What is liquidity?

Answer 14

A measure of how quickly a business can convert assets into cash, and therefore pay short-term debts as they are due.

Question 15

What is solvency?

Answer 15

The businesses ability to pay both short-term and long-term liabilities when they are due.

Question 16

…

Question 17

Overall short-term financial objectives

Answer 17

Increased operating efficiency and profitability. This may conflict with goals such as being environmentally aware, as there is no option to avoid the expensiveness.

Question 18

Overall long-term financial objectives

Answer 18

Increase the wealth of the owners of the business. Decisions may relate to expansion or takeover of another business.

Question 19

How is finance interdependent on the other KBFs?

Answer 19

Finance is interdependent with the other key business functions as without the communication and function of the other key business functions there would be no revenue to profit from and use to fund those operations, or funding the payment of the staff hired and their training, who belong to each of the different KBF departments.