WEEK 1 - Introduction to Financial Management

Question 1

What is Financial management?

Answer 1

Financial management is the process of planning, organising, controlling and monitoring financial resources to achieve company goals and objectives.
AIM: to maximise shareholder value through appropriate resource utilisation and decision-making

Question 2

What is Accounting:

Answer 2

Accounting is how you understand and run a successful business.

Accounting provides insights into business health such as:
* Profitability
* Cash flow
* Short and long term sustainability
* Business value and debt
* Returns on business investiment (ROI)
* Financial security and integrity
* Many others … Long-term

Accounting powers every business decision:
Long term (strategic):
- Long term growth e.g. capital expenditure
Short term (operational)
- Access business activities in order to improve performance e.g payroll
Commercial:
- Evaluate business deals, so you can decide on terms that improve their business value.

Question 3

What is Finance:

Answer 3

Finance helps you value a business and make good investment decisions using accounting information.
Aim: To maximise shareholder value, also helpig organisation what to spend, where to spend and when to spend.
Function: Examines how companies (and other entities) source funding and informs how that money is invested.

Question 4

What is tax:

Answer 4

Tax is the regulatory guidebook that ensure financial responsibility and compliance for a successful business.
- Involves laws and regulations to determining how much and individual or business contributes to the government.

Why is tax law important to understand:
-> Minimizes tax liabilities by offsetting profits.
-> Ensure compliance with regulations (Taxation Administration Act 1953).
-> Take advantage/leverage available deductions which allows greater investment.
-> Contribute ethically to government revenue which improves the social security of society.

Question 5

Internal stakeholders:

Answer 5

Managers & directors
Employees

Question 6

External stakeholders:

Answer 6

Customers
Banks
Shareholders
Tax Office
Suppliers
Government
Community and interest groups

Question 7

Types of revenues:

Answer 7

Sale revenue:
- Generated by selling foods or services in the ordinary course of business

Other revenue:
- Interest income from bank accounts or investments
- Dividends from investments in other companies are customary and not obligated

Question 8

Expenses:

Answer 8

Represents a decreases in company wealth:
- They must be incurred in order to generate revenue

I.e paying employees or purchasing ingredients

NOTE:
Expenses do NOT include payments of returns to owners (i.e., withdrawals by sole traders or partners, or dividends to shareholders). These are “distributions” of net profit to owners and are NOT necessary for a business to earn revenue, so they are NOT expenses.

Question 9

Cash accounting:

Answer 9

Records revenue when the cash at the time is received or paid.
Used for small scale business (i.e tradies) and is reasonably precise.

Question 10

Accrual Accounting:

Answer 10

Most common system of accounting.

Accrual accounting involves recording revenues and expenses at the time they occur, not when cash is received or paid.

Revenue recognition is whether the goods and services have been rendered (when good/service has been received not when the cash has been).

NOTE: Receipt of cash is NOT required for revenue to be recognised.

Question 11

Cash Profit vs Accrual Profit:

Answer 11

Cash profit: Revenues minus expenses when both are calculated

Accrual profit: Revenues (when they are earned) minus expenses (when they incurred).