Finance: Role of Financial Management

Question 1

what are the strategic roles of financial management

Answer 1

-having financial objectives
-preparing budgets
-forecasting finance/cash flow
-sourcing finance efficiently (loans, banks, equity)
-distributing funds efficiently
-record keeping and analysis

Question 2

what does the mismanagement of funds lead to

Answer 2

-insufficient funds to pay debts
-inadequate capital for expansion
-non-productive assets

Question 3

is the strategic role of financial management long term or short term

Answer 3

long term

Question 4

what are the five objectives of financial management

GELPS

Answer 4

growth

efficiency

liquidity

profitability

solvency

Question 5

what is growth

Answer 5

increase in size and value of business

Question 6

what does growth allow a business to do

Answer 6

expand
produce a wider product mix
access to innovations

Question 7

what is internal growth caused by

Answer 7

increase in demand for product
improved productivity
new market technologies

Question 8

what is external growth caused by

Answer 8

purchasing other businesses
mergers
acquisitions

Question 9

define merger

Answer 9

combining two companies into one

Question 10

define acquistions

Answer 10

attaining an asset

Question 11

what is the purpose of growth

Answer 11

increasing capital and return on profits

Question 12

what does too much or too little growth cause

Answer 12

cash flow problems

Question 13

define profitability

Answer 13

the degree to which a business or activity yields profit or financial gain.

Question 14

why do business owners expect profitability over a long period of time

Answer 14

to ensure the business’ long term viability

Question 15

why do investors/shareholders expect the business to be profitable

Answer 15

so that they can make financial gains, and if it isnt profitable theyll likely withdraw from investing

Question 16

define efficiency

Answer 16

generating maximum return for minimum costs

Question 17

how do you increase efficiency

Answer 17

increasing amount of output with same number of inputs
OR
have the same amount of output with decreased input

Question 18

define liquidity

Answer 18

Liquidity is a measure companies use to examine their ability to cover short-term financial obligations

Question 19

define working capital

Answer 19

amount of funds required by a business to meet its short term debt

Question 20

define cash flow

Answer 20

availability of short term funds to meet short term debts

Question 21

define solvency

Answer 21

how much a business’ current assets exceed their current liabilities

Question 22

if a businesses current assets exceed its current liabilities, may it be described as solvent?

Answer 22

yes

Question 23

does solvency also refer to the businesses ability to pay off its debts at they become payable

often 30 days

Answer 23

yes

Question 24

what are short term financial objectives primarily concerned with

Answer 24

managing cash flow

Question 25

what are long term financial objectives primarily concerned with

Answer 25

growing the business

Question 26

what are the two primary ways to fund growth of a business

Answer 26

1. debt
2. equity

Question 27

how does finance interdepend with the other key functions of a business

Answer 27

marketing=provides budgets
HR=wages
operations=budgets