Syllabus - Finance

Question 1

Role of Financial Management

Answer 1

• strategic role of financial management
• objectives of financial management
  – profitability, growth, efficiency, liquidity, solvency
  – short-term and long-term
• interdependence with other key business functions

Strategic role, objectives, interdependence

Question 2

Influences on Financial Management

Answer 2

• internal sources of finance – retained profits
• external sources of finance
  – debt – short-term borrowing (overdraft, commercial bills, factoring), long-term
  borrowing (mortgage, debentures, unsecured notes, leasing)
  – equity – ordinary shares (new issues, rights issues, placements, share purchase plans),
  private equity
• financial institutions – banks, investment banks, finance companies, superannuation funds, life insurance companies, unit trusts and the Australian Securities Exchange
• influence of government – Australian Securities and Investments Commission, company taxation
• global market influences – economic outlook, availability of funds, interest rates

Internal & External Sources, F Insitutions, Gov & Global influences

Question 3

Processes of Financial Management

Answer 3

• planning and implementing – financial needs, budgets, record systems, financial risks, financial controls
• debt and equity financing – advantages and disadvantages of each
• matching the terms and source of finance to business purpose
• monitoring and controlling – cash flow statement, income statement, balance sheet
• financial ratios
  – liquidity – current ratio (current assets ÷ current liabilities)
  – gearing – debt to equity ratio (total liabilities ÷ total equity)
  – profitability – gross profit ratio (gross profit ÷ sales); net profit ratio
  (net profit ÷ sales); return on equity ratio (net profit ÷ total equity)
  – efficiency – expense ratio (total expenses ÷ sales), accounts receivable turnover ratio
  (sales ÷ accounts receivable)
  – comparative ratio analysis – over different time periods, against standards, with
  similar businesses
• limitations of financial reports – normalised earnings, capitalising expenses, valuing assets, timing issues, debt repayments, notes to the financial statements
• ethical issues related to financial reports

Limits of Reports, Ethical issues, ratios, monitoring & controlling etc.

Question 4

Financial Management Strategies

Answer 4

• cash flow management
  – cash flow statements
  – distribution of payments, discounts for early payment, factoring
• working capital management
  – control of current assets – cash, receivables, inventories
  – control of current liabilities – payables, loans, overdrafts
  – strategies – leasing, sale and lease back
• profitability management
  – cost controls – fixed and variable, cost centres, expense minimisation
  – revenue controls – marketing objectives
• global financial management
  – exchange rates
  – interest rates
  – methods of international payment – payment in advance, letter of credit, clean payment, bill of exchange
  – hedging
  – derivatives

C/F Management, W/C Management, Profitability Management, Global F Mngmt