Role of Finance

Question 1

What are the objectives of financial management?

Answer 1

PLEGS:
Profitability
Liquidity
Efficiency
Growth
Solvency

Question 2

In finance, what is profitability?

Answer 2

The proportion of sales revenue that is left over after deducting costs

Question 3

In finance, what is growth?

Answer 3

Increasing the sales and production capacity of the business

Question 4

In finance, what is efficiency?

Answer 4

Minimising costs in order to increase profitability

Question 5

In finance, what is liquidity?

Answer 5

The ability to meet short-term financial commitments (e.g. wages, bills, short-term debts)

Question 6

In finance, what is solvency?

Answer 6

The ability to pay debts in the long-term

Question 7

What are 3 conflicts between short-term and long-term financial objectives?

Answer 7

Trying to achieve growth in the long-term will be expensive, worsening profit in the short-term

Borrowing funds for growth and profitability in the short-term might worsen solvency in the long-term

Trying to reduce costs to improve efficiency in the short-term might reduce growth in the long-term