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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
What is the gross profit ratio formula?
GP/Sales x100 = x
26
What is the net profit ration formula?
NP/Sales = x
27
What are the efficiency ratios?
Expense ratio and accounts receivable turnover ratio
28
What is the expense ratio formula?
Total expenses/Sales
29
What is the accounts receivable turnover ratio?
Sales/Accounts receivable = ART 365/ART = collected per how many days
30
What is the current ratio showing?
For every $x in current assets there is $1 in current liabilities
31
What is the debt to equity ratio showing?
For every $x this business has in borrowed funds, they have $1 in owners equity
32
What is the GP ratio showing?
For every $1 in sales revenue, $x become gross profit
33
What is the NP ratio showing?
For every $1 in sales revenue, $x became net profit
34
What is the return of equity ratio showing?
For every $1 of owner's equity the business owners make a %x return
35
What is the expense ratio showing?
For every $1 of sales revenue,$x was absorbed by operating expenses
36
What is the accounts receivable turnover ratio showing?
The number of days without a business collecting accounts receivable
37
What is the best possible ratio for the current ratio?
2:1 A business should aim to be nor higher or lower
38
What is the best possible ratio for the debt to equity ratio?
0.5:1 Equity should be kept <1:1 <0.5 is good
39
What is the best possible percentage for the return equity ratio?
<10% is bad 20%> is excellent
40
Should the expense ratio be higher or lower?
The lower the ratio the greater the efficiency
41
What is the best possible amount of days for the ART ratio?
Anywhere between 30-60 days
42
What are the three types of ratio analysis?
Time periods, standards/benchmarking and comparison to other businesses
43
What is it called when a financial manager compares their results with other businesses and establishes those same standards?
Benchmarking
44
What are some strategies a business can implement if the current ratio is too low?
Keep cash at minimum spending levels Sale & lease back of non-current assets
45
What are some strategies a business can implement if the current ratio is too high?
Invest cash in non-current assets (NCA)
46
What are some strategies a business can implement if the debt to equity ratio is too low?
Increase debt financing
47
What are some strategies a business can implement if the debt to equity ratio is too high?
Lower debt by sales & leaseback Lower debt by using the cash raised to reduce liabilities
48
What are some strategies a business can implement to improve the gross profit ratio?
Raising prices of stock Obtaining stock at lower prices by finding cheaper supplies
49
What are some strategies a business can implement to improve the net profit ratio?
Any measures to reduce expenses Same strategies as GPR
50
What are some strategies a business can implement to improve the return on equity ratio?
Reducing expenses Adjusting prices
51
What are some strategies a business can implement to improve the expense ratio?
Carefully monitoring cost centres Being aware of indiscriminate cost cutting and the damage to business quality and reputation
52
What are some strategies a business can implement to avoid accounts receivable problems?
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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