Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

business studies > Topic 3- Finance > Flashcards

Topic 3- Finance Flashcards

1
Q

What is financial management?

A

Controlling, organising and planning of monetary assets to achieve short and long term goals.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the objectives of financial management? (PLEGS)

A
  • Profitability
  • Liquidity
  • Efficiency
  • Growth
  • Solvency
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define liquidity

A

The short-term cash flow (availability of cash)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Define solvency

A

The long-term cash flow (availability of cash)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Name and define the term used to determine solvency

A

Gearing. It is the proportion of debt to equity that is used in a businesses activities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What’s one example of potential conflicts between short and long-term objectives

A

Decision to expand would increase value of business. However, increased costs and gearing will lead to lower overall profits in short term. This can create conflict with business owners, shareholders or investors.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

List the key business functions

A
  • Operations
  • Marketing
  • Finance
  • Human resources
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Name one example of how each operations, marketing and human resources rely on finance?

A

Operations- purchase inputs and carry out transformation process

Marketing- requires funds to undertake various forms of promotion

Human resource- pay staff

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Name one example of how finance relies on operations, marketing and human resources

A

Operations- produce products
Marketing- promote products
Human resources- manage staff

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Name and define one source of internal finance

A

Retained profits. Refers to cash kept in the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Name the two external sources of finance

A
  • Debt

- Equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Name the two aspects of debt finance

A
  • Short-term borrowing

- Long-term borrowing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Name and define the three examples of short-term borrowing (FOC)

A
  • Factoring- selling of accounts receivable for a discounted price
  • Overdraft- bank allowing one to overdraw their account
  • Commercial bills- loans issued by financial institutions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Name and define the four examples of long-term borrowing (MULD)

A
  • Mortgage- borrowed money, which is repaid with interest
  • Unsecured notes- borrowing money from investors, not secured against assets so higher interest
  • Leasing- payment of money for use of equipment owned by someone else
  • Debenture- fixed rate of interest, for a fixed period of time
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Define equity

A

The finance raised by a company through inviting new owners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Name the two aspects of Equity finance

A
  • Ordinary shares

- Private equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What does ordinary shares refer to?

A

Individual becoming part-owners of a publicly listed company. They receive payments called dividends

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Name and define the four examples of ordinary shares (NRPS)

A
  • New issues- security issued and sold for the first time on a public market
  • Rights issues- privilege to shareholders to buy new shares in the same company
  • Placement- offered to new, specific investor at a discounted rate per share
  • Share purchase plans- offered at a discounted rate or without fees to existing shareholders
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What does private equity refer to?

A

The money invested in a private company not listed on the ASX. Aim to raise capital finance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Name and define the seven financial institutions (BUF SAIL)

A
  • Banks- receive savings and make investments and loans to borrowers
  • Unit trusts- pools investors’ money into a single fund, which is managed by a fund manager
  • Finance companies- concerned primarily with providing money
  • Superannuation funds- employers make financial contributions to a fund accessible by each employee when they retire
  • Australian Securities Exchange- a platform which facilitates the public selling and purchasing of shares
  • Investment banks- a bank that purchases lots of newly issued shares and resells them to investors
  • Life insurance companies- non-bank’s who provide cover and lump sum payment in the event of a death
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the ASX?

A

The Australian Securities Exchange is the primary stock exchange group, where shares are sold and bought.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Name the two influences government has on financial measures for businesses?

A
  • ASIC (Australian Securities and Investments Commission)

- Company taxation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the aim of ASIC?

A

Reducing fraud and unfair practices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Name the three global market influences (GAI)

A
  • Global economic outlook
  • Availability of funds
  • Interest rates
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Name one implication for businesses in relation to the influence of the government

A
  • Legislation policies
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Name the five stages of planning and implementing (NCRRB)

A
  • Financial needs
  • Financial risks
  • Financial controls
  • Budgets
  • Record systems
27
Q

What are the three methods in which companies can control and manage?

A
  • Cash flow statement
  • Balance sheet
  • Income statement
28
Q

List two advantages of Debt financing

A
  • Funds are readily available

- Flexible payment periods are available

29
Q

List two dis-advantages of Debt financing

A
  • Debt can be expensive due to further debt

- Regular payments must be made

30
Q

List two advantages of Equity financing

A
  • Doesn’t have to be repaid unless owners leave business

- Cheaper due to no interest repayments

31
Q

List two dis-advantages of Equity financing

A
  • Expectation is RIO (return on investment)

- Long and expensive process to obtain funds

32
Q

What is the COGS formula?

A

Opening stock + purchases - closing stock

33
Q

What is the Gross profit formula?

A

Sales - COGS

34
Q

What is the Net profit formula?

A

Gross profit - Expenses

35
Q

What is the Assets formula?

A

Liabilities + Owner’s Equity

36
Q

What are the four financial ratio categories? (THESE FORMULAS ARE PROVIDED IN EXAM)

A
  • Liquidity
  • Solvency
  • Profitability
  • Efficiency
37
Q

What is the name of the liquidity formula, how do you calculate and how do you evaluate the results?

A
  • Current ratio
  • Current assets over current liabilities
  • Higher ratio suggests favourable liquidity, should be 2:1; double the amount of assets to liabilities
38
Q

What is the name of the solvency formula, how do you calculate and how do you evaluate the results?

A
  • Debt to Equity ratio (Gearing)
  • Total liabilities over total equity
  • High ratio indicates high gearing and therefore higher risk- should be less than 100%
39
Q

What is the name of the first profitability formula, how do you calculate and how do you evaluate the results?

A
  • Gross Profit ratio
  • Gross profit over sales
  • Higher ratio is The higher the ratio, the better- need to compare with industry standards and internal benchmarks
40
Q

What is the name of the second profitability formula, how do you calculate and how do you evaluate the results?

A
  • Net profit ratio
  • Net profit over sales
  • Higher ratio is The higher the ratio, the better- need to compare with industry standards and internal benchmarks
41
Q

What is the name of the third profitability formula, how do you calculate and how do you evaluate the results?

A
  • Return on Owner’s Equity
  • Net profit over owners equity
  • Higher ratio is The higher the ratio, the better- need to compare with industry standards and internal benchmarks
42
Q

What is the name of the first efficiency formula, how do you calculate and how do you evaluate the results?

A
  • Total Expense ratio
  • Total expenses over sales
  • High ratio may indicate poor control over expenses - should compare with industry standards
43
Q

What is the name of the second efficiency formula, how do you calculate and how do you evaluate the results?

A
  • Accounts Receivable ratio
  • 365 divided by Sales over accounts receivable
  • High turnover ratios indicate efficient debt collection - should compare with industry standards
44
Q

What is comparative Ratio Analysis?

A

Comparisons to understand the businesses progress

45
Q

What are three ways in which comparisons can be made?

A
  • With results from previous years
  • With similar businesses
  • Industry standards
46
Q

Name the six limitations to financial reports

A
  • Normalised earnings
  • Capitalising expenses
  • Valuing assets
  • Timing issues
  • Debt repayments
  • Notes to the financial statement
47
Q

Name one unethical practice, and two financial management practices related to financial reports

A

Unethical;
- Budget preparation

Management;

  • Audited accounts- independent check of accuracy
  • Record keeping- cash received being recorded
48
Q

What are the three types of audits?

A
  • Internal audits
  • Management audits
  • External audits
49
Q

What are the four ways a business can increase their cash flow?

A
  • Cash flow statement
  • Distribution of payments
  • Discounts for early payment
  • Factoring
50
Q

How does a business manage their working capital?

A
  • Control of current assets
  • Control of current liabilities
  • Implementing strategies
51
Q

Name three types of current assets

A
  • Cash
  • Accounts receivable
  • Inventories
52
Q

Name three types of current liabilities

A
  • Accounts payable
  • Loans
  • Overdrafts
53
Q

What is the strategy of leasing?

A

Payment of money to use equipment owned by another party

54
Q

What is the strategy of Sale and lease back?

A

Process of selling an owned asset to a lessor and leasing the asset back through fixed payments for a specified period of time

55
Q

Name three cost controls

A
  • Fixed and variable costs
  • Cost centres
  • Expense minimisation
57
Q

What are the five factors of global financial management?

A
  • Exchange rates
  • Interest rates
  • Methods of international payment
  • Hedging
  • Derivatives
57
Q

Name the strategies used to achieve profitability management

A
  • Cost controls

- Revenue controls

58
Q

What are cost centres?

A

Particular areas, departments or sections of a business which costs can be directly attributed

58
Q

Name and define the revenue control

A

Marketing objectives, refers to strategies and objectives that should lead to an increase in sales.

60
Q

What are derivatives?

A

a contract that derives its value from the performance of interest rates

61
Q

Name and differentiate between the four methods of international payment

A
  • Payment in advance- exporter receives payment before sending goods
  • Letter of credit- document from bank which guarantees payment of goods
  • Clean payment- exporting of goods before receiving of payment
  • Bill of exchange- document from exporter shipped with goods, demanding payment by a specified time
62
Q

What is hedging?

A

Hedging is a form of insurance, it is a way to offset the financial risks of any adverse price movements

63
Q

Name and define the three types of contracts associated with derivatives

A
  • Forward exchange contract- exchange one currency for another at an agreed exchange rate
  • Options contract- gives the buyer the right but not the obligation to sell or buy foreign currency
  • Swap contract- exchange currency in market with an agreement to reserve the transaction in the future

business studies (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions