Finance syllabus B

Question 1

influences on financial management (5)

Answer 1

• 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 1

financial management strategies (4)

Answer 1

• 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

Question 3

processes of financial management (5)

Answer 3

• 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 4

role of financial management (3)

Answer 4

• 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