Roles Flashcards
What is finance needed for in a business?
To start a business, keep it operating, and help it expand.
Why is finance considered one of the most important business functions?
It supplies necessary funds to each business function to carry out activities effectively.
What can lead to business failures?
Poor financial planning.
How can proper financial management impact a business?
It can ensure objectives and goals are achieved and facilitate business growth.
What does a strategic plan in financial management encompass?
A long-term view of business direction, how to get there, and a monitoring process.
What is the long-term role of financial management?
To ensure that a business achieves its goals and objectives through effective finance management.
List key components of the strategic role of financial management.
- Setting financial objectives
- Sourcing finance
- Preparing budgets and forecasting
- Preparing financial statements
- Maintaining sufficient cash flow
- Distributing funds
What is the first objective of financial management in the PLEGS acronym?
Profitability.
Define profitability in the context of financial management.
When sales exceed expenses, resulting in profit.
What does growth refer to in a business context?
The ability to expand activities into new areas or increase product range.
What is meant by efficiency in financial management?
Using all resources to their best ability to avoid waste.
What is liquidity?
The flow of money through the organization to meet short-term commitments.
Why is liquidity important for a business?
It ensures the business can pay suppliers on time.
What does solvency refer to?
The ability to meet longer-term financial commitments.
What can happen if a business cannot meet its solvency obligations?
It may have to sell important assets or face legal action from creditors.
True or False: The balance sheet shows a company’s financial position at a specific point in time.
True
Fill in the blank: The __________ summarizes a company’s revenues and expenses over a period.
income statement
What is liquidity?
The ability of a company to meet its short-term financial obligations.
What does ROI stand for?
Return on Investment.
Multiple Choice: Which of the following is a long-term financing option? A) Bank overdraft B) Bonds C) Trade credit
B) Bonds
What is the purpose of a cash flow statement?
To provide information about the cash inflows and outflows over a period.
True or False: Equity financing involves borrowing funds that must be repaid.
False
What is a budget?
A financial plan that estimates revenue and expenses over a specified period.
Fill in the blank: __________ is the cost of using someone else’s money.
Interest
What is the difference between fixed and variable costs?
Fixed costs do not change with production levels, while variable costs do.
Multiple Choice: Which of the following is a current asset? A) Equipment B) Inventory C) Land
B) Inventory
What is financial leverage?
The use of borrowed funds to increase the potential return on investment.
True or False: Depreciation is a method of allocating the cost of a tangible asset over its useful life.
True
What does the term ‘working capital’ refer to?
The difference between current assets and current liabilities.
Fill in the blank: The __________ ratio measures a company’s ability to pay short-term obligations.
current
What is a financial ratio?
A quantitative relationship between two financial statement figures.
Multiple Choice: Which financial statement shows a company’s profitability? A) Balance Sheet B) Income Statement C) Cash Flow Statement
B) Income Statement
What is the purpose of ratio analysis?
To assess a company’s financial performance and stability.
True or False: A higher debt-to-equity ratio indicates greater financial risk.
True
What does ‘capital structure’ refer to?
The mix of debt and equity used to finance a company.
Fill in the blank: __________ is the process of evaluating investment opportunities.
Capital budgeting
What is the time value of money?
The concept that money available now is worth more than the same amount in the future.
Multiple Choice: Which of the following is NOT a source of internal financing? A) Retained earnings B) Depreciation C) Loans
C) Loans
What is a dividend?
A payment made by a corporation to its shareholders from its profits.
True or False: A higher current ratio indicates better liquidity.
True
What is the formula for calculating net profit margin?
Net Profit Margin = Net Income / Revenue.
Fill in the blank: __________ analysis is used to evaluate the profitability of a project.
Break-even
What is the purpose of financial forecasting?
To predict future financial outcomes based on historical data and trends.
Multiple Choice: Which of the following is considered a non-current liability? A) Accounts Payable B) Long-term Debt C) Accrued Expenses
B) Long-term Debt
What is an investment appraisal?
The evaluation of the profitability or desirability of an investment.
True or False: The quick ratio is a more stringent measure of liquidity than the current ratio.
True
What does the term ‘accounts receivable’ refer to?
Money owed to a company by its customers for goods or services delivered.
Fill in the blank: __________ is the return that investors expect to earn from an investment.
Required rate of return
What is a financial market?
A marketplace where buyers and sellers trade financial securities.
Multiple Choice: Which type of market is characterized by rising prices? A) Bear Market B) Bull Market C) Stagnant Market
B) Bull Market
What is asset management?
The systematic process of developing, operating, maintaining, and selling assets.
True or False: A cash flow deficit occurs when cash outflows exceed cash inflows.
True
What is the purpose of a financial audit?
To evaluate the accuracy and completeness of a company’s financial statements.
Fill in the blank: __________ is the process of managing a company’s investments and financial resources.
Financial management
What is the difference between primary and secondary markets?
Primary markets deal with the issuance of new securities, while secondary markets involve trading existing securities.
Multiple Choice: Which of the following is a characteristic of common stock? A) Fixed dividend B) Voting rights C) Priority in liquidation
B) Voting rights
What is a financial derivative?
A financial instrument whose value is derived from the value of an underlying asset.
True or False: Risk and return are directly related in finance.
True
What is the purpose of diversification in an investment portfolio?
To reduce risk by spreading investments across various assets.
Fill in the blank: __________ is the practice of buying and holding securities for a long period.
Buy and hold strategy
What is the capital asset pricing model (CAPM)?
A model that describes the relationship between systematic risk and expected return.
Multiple Choice: Which of the following is a type of financial risk? A) Market risk B) Operational risk C) Credit risk
A) Market risk
What is a financial crisis?
A situation in which the value of financial institutions or assets drops rapidly.
True or False: Inflation decreases the purchasing power of money.
True
What does the term ‘capital gains’ refer to?
The profit from the sale of an asset or investment.
Fill in the blank: __________ is the rate at which an investment grows over time.
Growth rate
What is a liquidity crisis?
A situation in which a company cannot meet its short-term financial obligations.
Multiple Choice: Which of the following is a type of bond? A) Treasury Bond B) Common Stock C) Mutual Fund
A) Treasury Bond
What is the role of a financial advisor?
To provide guidance on investments, tax strategies, and financial planning.
