M2- topic 4 financial management strategies Flashcards
list the types of finance strategies (4)
Global financial management
Working capital managemnet
Profitability menagment
Cash flow Managment
what are three strategies to manage cash flow (3)
distribution of payments
discount for early payments
factoring
what is distribution of payments
spreading out payments through out a month or year to prevent periods of short fall
what are discounts for early payment
used as an incentive to get debtors to pay accounts quicker
what is factoring
selling account receivable for for discounted price in order to get cash immediatly
what things must be considered when managing working capital (3)
Stock levels
accounts receivable
cash
what is wrong with having to much stock
it means the business has lower liquidity
what is wrong with having to little stock
business can miss out on potential sales
what is wrong with having excessive account receivables
limits what the business can do until the get paid
what happens if a business has limited cash
can struggle to pay off day to day expenses or any unexpected costs
how to manage working capital (2)
leasing
sale and lease back
what is leasing
the hire of an asset
what is sale and lease back
selling an asset for a cash boost, and then hiring the asset
how to manage profitability (2)
Cost controls (fixed and variable costs,cost centres management)
Revenue controls (Use of Marketing strategies)
what are fixed costs
costs that are constant regardless of the level of business activity
what are variable costs
costs that change proportional to the level of business activity
How are fixed and variable cost used to manage profitability
Compare cost with previous periods + standards = minimise costs
what are cost centres
sections in the business where costs are directly associated
how can cost centres be used to mange profitability
help management identify where most of the funds are going and create better financial decisions
how can promotion and pricing strategies be used to mange profitability
increases revenue (eg penetration pricing)
Diffentiate product = increase sales
why is exchange rates management important for businesses
when business conduct international transactions currencies must be exchanged
where are currencies exchanges
foreign exchange market (forex)
what type of currency is the Australian dollar
a floating currency
what is a floating currency
a currency that fluctuates against other currencies
when does it mean when the aus dollar rises (4)
- it means the Aus dollar appreciated
- costs foreign buyers more to purchase Australian goods
- Aus business are less internationally competitive
- Importers benefit (cheaper to buy product overseas)
when does it mean when the aus dollar falls (3)
it means the aus dollar depreciated’
exporters benefit (Aus dollar cheaper for international buyers)
Australian goods more internationally competitive
name methods of international pay (4)
payment in advance
clean payment
letter of credit
bill of exchange
what is payment in advance
when the importer pays for the goods before the goods are shipped
what is a clean payment
when the exporter ships the goods with an invoice to requesting payment on a due date
what is a letter of credit
a letter giving to the exporter from the importers banks promising that the funds are ready to be release once the goods are being sent.
what is a bill of exchange
a legal contract between the importer and exporter , where both parties must have proof that the funds and goods are ready to be sent, i order to exchange
who’s risk does the letter of credit reduce
the exporters risk
who’s credit doe the bill of exchange reduce
both parties
what is the spot exchange rate
the value of the currency at a certain point
what does hedging aim to do
minimise the level of risk associated with currency fluctuations
ways of hedging exchange rates (4)
Insist import/export contracts be done in $AUS
Implement marketing strategies to reduce price sensitivity of the exported product
Establish offshore subsidiaries( no currency exchange) Derrivatives
types of derivatives (3)
forward exchange contracts
options contract
swap contracts
what are forward exchange contracts
an agreement to exchange one currency for another at a agreed exchange rate on a future date
what are option contracts
an agreement where a spot exchange rate is chosen and if the market moves the price can revert to the spot exchange rate
what are swap contracts
an agreement for two businesses swap there currencies
