Financial Management Flashcards
1
Q
Own capital
A
This investment is made by the owner of the business
Sole trader, partners, shareholders
2
Q
Borrowed capital
A
Foreign capital. Money that is borrowed from a bank or external institution
(Has to be paid back with interest)
3
Q
Fixed capital
A
- Long term
- tied up in the land and buildings, vehicles and equipment
- fixed assets remain in the business to earn an income
4
Q
Working capital
A
- short term
- used to purchase stock or finance debtors
- covers the day-to-day running of the business and pays for expenses
5
Q
Factors influences 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
6
Q
Tasks of a financial manager
A
- Draw up cash budgets and capital budgets
- Helps the general manager interpret financial statements
- Ensures that departments stay in their budgets
7
Q
- Gross profit
- Net profit
- Profitability
A
- Sales - cost of sales
- Gross profit - expenses
- Net profit/capital X 100/1
8
Q
Current capital ratio
A
Current assets : current liabilities
Should be 2:1
9
Q
Acid test ratio
A
(Current assets - inventory) : current liabilities
Should be 1:1
10
Q
Gearing ratio
A
Own capital : borrowed capital
Should be 2:1
11
Q
Budgeting
A
- helps you organise your income vs expenses
- it is a financial plan
- establishes a healthy financial position
12
Q
Cash
A
- generated through sale of inventory, increase in capital or borrowed funds
- utilised through the purchase of fixed assets
13
Q
Profit
A
The difference between income and expenditure
14
Q
Sources of long term capital
A
Fixed capital:
- Sell debentures
- Long term loans with mortgage bond as security
- Reserve funds
- Issue shares
15
Q
Working capital
A
- trade credit
- short term loans
- factoring of debtors
- lease accounts
- overdraft facilities
- bills of exchange
- loans on security of warehouse receipts
