Introduction

Question 1

What are the key roles of a FM

Answer 1

• Raise finance from investors
• Reward investors via dividends
• Select projects to invest in
• How much cash there is a available to invest
• manage day to day financial activities

Question 2

What are the 3 reports in Financial reporting

Answer 2

1. Statement of financial position
   - how the firm is financed and assets it’s invested in
2. Income statement
   - Payments to providers of finance (dividends and interest) and internally generated funds (retained profit)
3. Cash flow statement
   - cash generated from the company
   - cash invested in assets
   - cash raised or returned

Question 3

What are the categories of ratios

Answer 3

Profitability 
Liquidity
Efficiency 
Gearing and risk
Investment

Question 4

What are the liquidity ratios

Answer 4

Current ratio = Current assets / Current liabilities
Should have a ratio of 2.0

Liquid ratio = current assets - inventories / current liabilities
Should be at least 1.0

Question 5

What are the efficiency ratios

Answer 5

Inventory days = average inventory /cost of sales * 365 days

Receivable days = average trade receivables / sales revenue (credit) * 365days

Payable days = average trade payables / purchases (credit) * 365days

Question 6

What are trade receivables

Answer 6

When a business makes sales or provides services on credit

Question 7

What are trade payables

Answer 7

The amount of money the company owes to suppliers for goods delivers to or services consumed by the company

Question 8

What are the gearing ratios

Answer 8

Gearing ratio = non current debt ( repayment over a year) / share capital + reserves + debt * 100%

Interest cover = operating profit / interest payables(in finance costs)

Question 9

What are the investment ratios

Answer 9

Dividend per share = proposed dividends / number of shares issued

Dividend yield = DPS(pence) / market value per share (pence) *100%

Dividend payout = annual dividend / profit available for dividend * 100%

Dividend cover = profit available for dividend / annual dividend

Earnings per share = Profit for ordinary share holders / no. Of ordinary shares issued

PER = market value per share (pence) / earnings per share (pence)

Question 10

What is an income statement

Answer 10

Shows a company’s revenues and expenses during a particular period