Role of Financial Management

Question 1

Strategic Role of Financial Management

Answer 1

Long term planning and monitoring of a business’s resources to achieve the financial objective of profit maximisation

Question 2

What SRFM can include

Answer 2

• Setting financial objectives
• Sourcing funds
• Budgeting and forecasting
• Financial statements
• Maintaining cash flow
• Distribute funds to business

Question 3

PLEGS

Answer 3

• Profitability
• Liquidity
• Efficiency
• Growth
• Solvency

Question 4

Profitability

Answer 4

The earnings of the business after paying expenses
- Key terms: gross and net profit

Question 5

Liquidity

Answer 5

The ability to pay off bills as they fall due (short term)
- Key terms: cash flow, debt, current ratio

Question 6

Efficiency

Answer 6

Ability to use resources to generate profit, while minimising costs
- How well is a business using asset to generate income
- Key terms: assets, profit maximisation

Question 7

Growth

Answer 7

Ability to increase size long term
Key terms: expansion, mergers, diversification, takeover

Question 8

Solvency

Answer 8

Ability to meet financial commitments over 12 months, stability
Key terms: Total assets, liabilities, long term, stability, risk, gearing

Question 9

Short and Long Term

Answer 9

Short Term (tactical and operational) = < 12 Months
Long Term (Strategic) > 12 Months