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Business > Financial Function > Flashcards

Financial Function Flashcards

1
Q

What is the finance function

A

Involves the Acquiring and utilisation of funds necessary for efficient operations. It is the lifeblood of a business without it things wouldn’t run smoothly.

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2
Q

What is the source to run any business

A

The financial function as it provides money and it acquires money

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3
Q

What are the two types of start up capital

A

Own capital and borrowed capital

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4
Q

What is the difference between own capital and borrowed capital

A

Own capital Is investments made by the owner of the business eg sole traders, partners, shareholders etc

Borrowed capital is money borrowed from a bank or external institution and it has to be paid back with interest

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5
Q

What is another word for borrowed capital

A

Foreign capital

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6
Q

I’m what ratio should the two types of start up capital capitals generally be In

A

Own capital: borrowed capital

2:1

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7
Q

What is the name for long term capital

A

Fixed capital

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8
Q

What is the name for short term capital

A

Working capital

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9
Q

Wha are the characteristics of long term capital

A
  • it is tied up In the land, buildings, vehicles and equipment
  • fixed assists remain in the business to earn income
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10
Q

What are the characteristics of short term capital

A
  • Used to purchase stock or finance debtors

- covers the day to day running of the business and pays for expenses

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11
Q

What are the factors influencing the demand for long and short term capital

A
  • size of the workforce
  • do you offer credit to your customers
  • do your suppliers offer credit to you
  • operational requirements
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12
Q

Why should a debtors payment period be shorter than a creditors payment period

A

This is so that the business can pay back it’s creditors on time.

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13
Q

What does the financial manager do

A
  • draw up cash budgets and capital budgets
  • helps the general manager interpret financial statements
  • ensures that departments stay in their budget
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14
Q

What is gross profit

A

Sales - cost of sales

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15
Q

What is net profit

A

Gross profit - expenses

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15
Q

What is net profit

A

Gross profit - expenses

16
Q

What is profitability

A

Net profit/ capital * 100

17
Q

I’m what ratio should current assets and current liabilities be

A

2:1

18
Q

In what ratio should (current assets - inventory) as to current liabilities he

A

1:1

19
Q

What are the benefits of budgeting

A
  • Helps you organise your income versus your expenses
  • it is a financial plan
  • Establishes a Healthy financial position
20
Q

What does it mean when we say something is super liquid

A

It can easily and quickly turn in to cash

21
Q

Why is it important to have a ratio of 1:1 whit current assets-trading stock versus current liabilities

A

This is to ensure that you are always able to pay back your debts. The reason why we remove trading stock from the equation is because trading stock does not always sell quickly so we Need to remove it in order to check if we are in a position to be able to pay back our creditors

22
Q

What is the difference between cash and profit

A

Cash is utilised through the purchase of a fixed asset and it is generated through the sale of inventory, increase in capital and borrowed funds. Profit is the difference esteem income and expenditure

23
Q

What are the sources of long term capital

A
  • sell debentures
  • long term loans with a mortgage bond as security
  • reserve funds
  • issue shares
24
Q

What is the difference between a debenture and a loan

A

I’m a debenture you approach a wealthy entrepreneur instead of a bank and you sell your idea. If the like it they create a contract with you (3-5 years). You would earn interest on debentures (it has nothing to do with ownership

25
Q

What are examples of working capital

A
  • Trade credit
  • short-term laws
  • factoring of debtors
  • lease accounts
  • overdraft facilities
  • bills of exchange
  • loans on security off warehouse receipts
26
Q

What is the national credit act in terms of granting credit

A
  • establishing creditworthiness By having -a clear policy-ensure there is a debt collection policy
  • have strategies to encourage payment
27
Q

What is the national credit act in terms of requesting credit

A
  • the NCA encourages the debtor to work to gather with the creditor to establish payment plans
28
Q

National credit act in terms of cash vs credit

A
  • Request discounts for cash purchases
  • no interest on cash purchases
  • interest increases the repayment value
  • ensure you use your capital optimally by making the correct choice for your business

Business (16 decks)

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