Financial Management Strategies

Question 1

Cash Flow

Answer 1

Movement of cash in & out of a business over a period of time

Question 2

Distribution of Payments

Answer 2

A type of strategy to improve cash flow:

Involves spending expense payments throughout the year to ensure cash shortfalls do not occur

• Delaying the payments of Acc. Payable
• Leasing

Question 3

Discounts for Early Payment

Answer 3

Offering creditors a discount for making payments before the due date

Question 4

Advantages & Disadvantages of Early Payment

Answer 4

Advantage:
- Improve cash flow
- Improve relationship

Disadvantage:
- The business does not receive the full revenue of the sale

Question 5

Factoring

Answer 5

Selling of Acc. Receivable at a discounted price to receive cash immediately

Question 6

Advantages & Disadvantages of Factoring

Answer 6

Adv:
- immediate access to payment, improving cash flow

Disadv:
- the business does not receive the full amount

Question 7

Working Capital

Answer 7

The funds available for the day-to-day financial commitments of a business

Working Capital = Current Assets / Current Liabilities
(same as current ratio)

Question 8

Cash

Answer 8

Allows a business to repay its debt, loans, and acc. payable in the short term

allows the pursuit of investments

Question 9

Receivables

Answer 9

Sums of money due to a business from paying its customers
-> quicker received the better cash position the business sits

Question 10

Floor Stock Finance

Answer 10

An agreement where a business can receive goods for a period of time before payment is due

Question 11

Consignment

Answer 11

Goods are supplied and are not paid for until sold -> returned if not sold

Question 12

Payables

Answer 12

Sums of money owed by the business to other business

Strategies include:
- Holding on acc. payable until due date
- taking advantage of early payments

Question 13

Overdraft

Answer 13

Allows a business’s account to be overdrawn to a certain amount

Question 14

Sale & Lease Back

Answer 14

A business sells its own asset to another business and leases it back for fixed payments

Question 15

Profitability Management

Answer 15

The monitoring of a business’s profitability & implementing strategies to increase profit

Question 16

Fixed Costs:

Answer 16

Cost of Production that stays the same in the short-run regardless of the level of output

Examples:
- Rent
- Salaries
- Insurance

Question 17

Variable Costs:

Answer 17

Cost of production that changes depending on the level of output

Example:
- Utility Bills
- Labour
- Transport

Question 18

Cost Centres

Answer 18

Departments of a business to which costs can be directly attributed to

Strategies include:
- Clear Budgets
- Review Spending

Question 19

Expense Minimisation

Answer 19

The process of reducing costs in an effort to increase profitability

Question 20

Hedging

Answer 20

The process of minimising the risks associated with currency exchange

Question 21

Derivatives (Financial hedging)

Answer 21

Type of hedging instrument used between global businesses to reduce the financial risks associated with currency fluctuations