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Business HSC > Processes of Financial Management > Flashcards

Processes of Financial Management Flashcards

1
Q

What is the third sub-heading of the finance syllabus?

A

Processes of Financial Management

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2
Q

Why is financial planning important?

A

It determines how a businesses goals will be achieved

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3
Q

What are the five types of planning and implementing?

A

Financial needs, financial controls, financial risks, budgets and record systems

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4
Q

What are the three types of budgets?

A

Operating, Financial and project

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5
Q

What are two advantages of debt finance?

A

Interest payments are tax-deductible business expense
Scheduled and regular payments of interest

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6
Q

What are two disadvantages of debt finance?

A

Repayments begin immediately regardless of cash flow
You may require a good credit history for borrowing money

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7
Q

What are two advantages of equity finance?

A

It does not have to be paid back
There is less risk for the business

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8
Q

What are two disadvantages of equity finance?

A

You are exchanging ownership of your business
It does not provide a tax deduction for the business

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9
Q

What is the matching principle?

A

A current asset needs to be matched with short-term finance
A non-current asset needs to be matched with long-term finance

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10
Q

What are the three financial statements?

A

Balance sheet, revenue statement, cash-flow statement

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11
Q

The financial statement that indicates the movement of cash receipts and cash payments is..

A

A cash-flow statement

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12
Q

The financial statement that indicates the profit/loss and financial performance of a business is…

A

A revenue statement

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13
Q

The financial statement that indicated a business’s financial position through assets, liabilities and net worth is…

A

A balance sheet

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14
Q

The balance sheets formula to show that it’s equal is

A

A = L + OE

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15
Q

What is the formula for finding gross profit?

A

GP = Sales - COGS

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16
Q

What is the formula for finding net profit?

A

NP = GP - expenses

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17
Q

What are the four types of financial ratios?

A

Liquidity, gearing, profitability and efficiency

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18
Q

What is the liquidity ratio?

A

Current ratio

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19
Q

What is the current ratio formula?

A

Current assets/Current liabilities

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20
Q

How is the current ratio expressed?

A

As a ratio

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21
Q

What is the gearing ratio?

A

Debt to equity ratio

22
Q

What is the debt to equity ratio formula?

A

Total liabilities/Total equity

23
Q

How is the debt to equity ratio expressed?

A

As a ratio

24
Q

What are the profitability ratios?

A

Gross profit ratio, net profit ratio and return on equity ratio

25
Q

What is the gross profit ratio formula?

A

GP/Sales x100 = x

26
Q

What is the net profit ration formula?

A

NP/Sales = x

27
Q

What are the efficiency ratios?

A

Expense ratio and accounts receivable turnover ratio

28
Q

What is the expense ratio formula?

A

Total expenses/Sales

29
Q

What is the accounts receivable turnover ratio?

A

Sales/Accounts receivable = ART
365/ART = collected per how many days

30
Q

What is the current ratio showing?

A

For every $x in current assets there is $1 in current liabilities

31
Q

What is the debt to equity ratio showing?

A

For every $x this business has in borrowed funds, they have $1 in owners equity

32
Q

What is the GP ratio showing?

A

For every $1 in sales revenue, $x become gross profit

33
Q

What is the NP ratio showing?

A

For every $1 in sales revenue, $x became net profit

34
Q

What is the return of equity ratio showing?

A

For every $1 of owner’s equity the business owners make a %x return

35
Q

What is the expense ratio showing?

A

For every $1 of sales revenue,$x was absorbed by operating expenses

36
Q

What is the accounts receivable turnover ratio showing?

A

The number of days without a business collecting accounts receivable

37
Q

What is the best possible ratio for the current ratio?

A

2:1
A business should aim to be nor higher or lower

38
Q

What is the best possible ratio for the debt to equity ratio?

A

0.5:1
Equity should be kept <1:1
<0.5 is good

39
Q

What is the best possible percentage for the return equity ratio?

A

<10% is bad
20%> is excellent

40
Q

Should the expense ratio be higher or lower?

A

The lower the ratio the greater the efficiency

41
Q

What is the best possible amount of days for the ART ratio?

A

Anywhere between 30-60 days

42
Q

What are the three types of ratio analysis?

A

Time periods, standards/benchmarking and comparison to other businesses

43
Q

What is it called when a financial manager compares their results with other businesses and establishes those same standards?

A

Benchmarking

44
Q

What are some strategies a business can implement if the current ratio is too low?

A

Keep cash at minimum spending levels
Sale & lease back of non-current assets

45
Q

What are some strategies a business can implement if the current ratio is too high?

A

Invest cash in non-current assets (NCA)

46
Q

What are some strategies a business can implement if the debt to equity ratio is too low?

A

Increase debt financing

47
Q

What are some strategies a business can implement if the debt to equity ratio is too high?

A

Lower debt by sales & leaseback
Lower debt by using the cash raised to reduce liabilities

48
Q

What are some strategies a business can implement to improve the gross profit ratio?

A

Raising prices of stock
Obtaining stock at lower prices by finding cheaper supplies

49
Q

What are some strategies a business can implement to improve the net profit ratio?

A

Any measures to reduce expenses
Same strategies as GPR

50
Q

What are some strategies a business can implement to improve the return on equity ratio?

A

Reducing expenses
Adjusting prices

51
Q

What are some strategies a business can implement to improve the expense ratio?

A

Carefully monitoring cost centres
Being aware of indiscriminate cost cutting and the damage to business quality and reputation

52
Q

What are some strategies a business can implement to avoid accounts receivable problems?

A

Monitoring their account and who they give credit to
Provide discounts for early payments & penalty for late payments

Business HSC (4 decks)

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