1 - Role of Finance

Question 1

5 main financial objectives

Answer 1

Profitability, Growth, Efficiency, Liquidity, Solvency (PEGELS)

Question 2

What is liquidity?

Answer 2

Ability to meet short-term financial obligations

Question 3

Interdependence from Finance to other Functions

Answer 3

Operations - Provides funds for production, inventory

Marketing - Provides budget for campaigns

HR - Pays staff, funds recruitment/training

Question 4

What does Solvency mean?

Answer 4

Ability to meet long-term financial commitments

Question 5

What is profitability?

Answer 5

the ability to maximise returns for owners

Question 6

What is growth?

Answer 6

The ability to expand the busienss over the long-term (e.g. revenue, market share, assets)

Question 7

What is efficiency?

Answer 7

Using assets to maximise output while minimising costs.

Question 8

Difference between short-term and long-term financial objectives?

Answer 8

Short-term = day-to-say liquidity and expenses (1-2 years)
Long-term = strategic goals like growth, solvency, profitabilty (3-5 years)

Question 9

Common conflict between short and long-term objectives?

Answer 9

Growth may increase debt and expenses short-term, reducing profits.