Finance Syllabus

Question 1

Recall the finance syllabus

Answer 1

role of financial management

influences on financial management

processes of financial management

financial management strategies

Question 2

Recall the dot points in “role of financial management”

Answer 2

strategic role of financial management

objectives of financial management
- profitability, growth, efficiency, liquidity, solvency
- short-term and long-term

interdependence with other key business functions

Question 3

Recall the dot points in “influences on financial management”

Answer 3

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

Question 4

Recall the dot points in “processes of financial management”

Answer 4

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

Question 5

Recall the dot points in “financial management strategies”

Answer 5

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