Financial Management Strategies Flashcards
What are the 4 Dot Points under Financial Management Stratergies?
- Cash Flow Management
- Working Capital Management
- Profitability Management
- Global Financial Management
What is Cash Flow?
The movement of cash in and out of the business
What are 3 Cash Flow Management Strategies?
- Distribution of Payments
- Discounts for Early Payment
- Factoring
What is Working Capital?
Funds that are availabile for short term financial comittments
What is the Net Working Capital formula?
Current Assets - Current Liabilities
What are the 3 Working Capital Strategies?
- Control of Current Assets
- Control of Current Liabilities
- Strategies on Leasing and Sale and and Lease-Back
What points are under Control of Current Assets?
- Cash
- Accounts Receivable
- Inventories
What points are under Control of Current Liabilities?
- Accounts Payables
- Loans
- Overdrafts
What is Leasing?
The payment of money to another party for the use of their equipment
What are benefits of Leasing?
- Free up cash to use elsewhere
- Depreciation won’t affect the business
- Repayments are tax deductible
- Less/Consistent cash outlflow
What are Methods of International Payment?
- Payment in Advance
- Letter of Credit
- Bills of Exchange
- Clean Payment
How is Cash controlled?
Use reserves and make sure it is being invested. Excess is not good. Shortage will require overdraft.
How can AR be controlled?
- Charge late fees
- Consider discounts for early payment
- Construct aged debtors report
- Remind customers
What must management do in regards to Inventory?
They must make sure they have enough inventory and not too less. All about balance. They must also check their rate of inventory turnover.
What are the cost controls?
Fixed+Variable costs, cost centres and expense minimisation
What are Cost Centres?
Departments of a business that managers can directly attribute costs to. They have direct and indirect costs
How can Expense Minimisation be achieved?
- Guidelines and policies established to encourage staff to minimise expenses
- Expense budgets to make patterns visible within a business
What is the Foreign Exchange Market? (FX)
Global market where currencies are traded
What is Spot Exchange?
The value of the currency in terms of another currency on a particular day. They DO NOT last
What are Exchange Rates?
The ratio of one currency to another
What is Payment in Advance?
Exporter receives the payment THEN arranges for the product to be sent to the importer
What is a Letter of Credit and when is it usually required?
A commitment by the importer’s bank to pay exporter once they can gurantee shipment and specific conditions have been met. It is required when exporters want to decrease the risk of non-payment
What is a Bill of Exchange?
Document drawn up by exporter’s bank demanding payment at a specific time.
What is a Clean Payment?
Exporter ships the product directly to the importer before the payment is received. Need high levels of trust.
