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Yr12 Business Studies > Role of Financial Management > Flashcards

Role of Financial Management Flashcards

1
Q

What is financial management

A

The planning and monitoring of a business’s financial resources in order to allow the business to achieve its financial goals.

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2
Q

What does strategic role of financial management involve

A
  • Setting financial objectives and ensuring business meets them
  • Determining mix of debt and equity financing
  • Preparing budgets and forecasting future finances
  • Maintaining sufficient cash flow
  • Distributing funds
  • Managing tax
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3
Q

What are the objectives of financial management

A
  1. Profitbaility
  2. Growth
  3. Efficiency
  4. Liquidity
  5. Solvency
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4
Q

Define profitability

A

The ability to make a financial return from business activities

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5
Q

Define business growth

A

The ability of a business to increase its size and value in the longer term

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6
Q

What are two types of growth

A

Internal and External

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7
Q

What is internal growth

A

Growth within the business and comes as a result of increased demand, increased productivity and increased market opportunities

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8
Q

What is external growth

A

Growth achived through the purcahsing of another business i.e. merger or acquisition

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9
Q

What can too much growth too fast lead to

A

Cash flow problems

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10
Q

Define efficiency

A

Ability of a business to minimise its costs and manage its assets so that maximum profit is achived with lowest level of assets

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11
Q

Which business function does efficiency relate to

A

Operations function

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12
Q

What does improved efficiency lead to

A

Higher profits

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13
Q

What is liquidity

A

The extent to which a business can meet its financial commitments in the short-term (less than 12 months

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14
Q

What is word for short-term debt on balance sheet

A

Current liabilities

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15
Q

What is short-term assets on balance sheet

A

Current assets

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16
Q

What are current assets

A

Assets that can be converted to cash within a year

17
Q

Example of current assets

A
  • Cash
  • Stock
  • Accounts receivable
18
Q

Example of current liabilities

A
  • Bank overdrafts
  • Accounts payable
19
Q

what is working capital

A

amount of funds required by a business to meet its short-term debts

20
Q

What is working capital

A

Current assets - Current liabilities

21
Q

What is solvency

A

The extent to which the business can meet its financial commitments in the longer term (i.e. Period greater than 12 months)

22
Q

What does solvency indicate

A

Solvency indicates whether a business will be able to repay amounts that have been borrowed for investments in capital

23
Q

What are short-term financial objectives

A

The tactical (one or two years) and operational (day-to-day) plans of a business

24
Q

What are long-term financial objectives

A

The strategic plans of a business and are determined for a set period of time, generally more than 5 years. Usually centred on growing the business

25
Q

Example of how long-term and short-term goals connect

A

Long-term objective of profitability and solvency and short-term objective of managing cash-flow and repaying debts

26
Q

Why does conflcit arise between long-term and short-term goals arise

A

Conflciting Interests of stakeholders

27
Q

Example of conflcit between short- and long-term objectives

A

Long term objective of growth (increases costs and gearing which may lead to lower overall profits in the short term).

28
Q

Role of financial department in relation to other business functions

A

Financial managers must allocate other departments funds

29
Q

How are marketing and finance related

A

Marketing requires funds to undertake promotion

30
Q

How are operations and finance related

A

Operations requires funds to purcahse inputs and carry out transformation process

31
Q

How are HR and finance related

A

HR requires funds in order to pay staff

32
Q

Why is liquidity an objective of financial management

A
  • Liquidity is ability for a business to meet its short term financial committments
  • Important for financial mangagers as liquidity relates to a businesses cash flow and ability to pay its accounts payable

Yr12 Business Studies (17 decks)

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