Chapter 5 ii

Question 1

What is financial management?

Answer 1

It is the responsibility of getting financial resources in best way possible, and using them in the best way possible in an organization.

Question 2

why is financial management important to any manager?

Answer 2

It assists in acquiring and managing funds.

Question 3

how does financial management relate to the other functional activities in any enterprise?

Answer 3

The financial function does not work in isolation.
The financial function must collaborate and work together.

Question 4

What are the managerial functions of financial management?

Answer 4

Financial Planning- budgeting and bookkeeping.
Financial Organising- delegation and drawing up quotations
Financial Leading- communicating and motivating.
Financial Control- Checking and Auditing.

Question 5

What are the monomers of Financial Management?

Answer 5

Capital & Assets

Question 6

What are assets?

Answer 6

Assets are anything that has current or future economic value to a business.

Question 7

What are the types of assets out there?

Answer 7

Current, Fixed and Other assets.

Question 8

What are fixed assets?

Answer 8

Assets that are required and owned by a business for over 12 months.
Examples are land, vehicles, and equipment.

Question 9

What are Non-current Assets?

Answer 9

Assets that are used up within 12 months.
Examples are raw materials and cash.

Question 10

What are other assets?

Answer 10

Assets not part of normal business activities.
Examples are shares in other businesses and investments.

Question 11

What is Capital?

Answer 11

Own capital and outside Capital( Liabilities).

Question 12

What is Own Capital?

Answer 12

the owner’s equity.

Question 13

What are Liabilities?

Answer 13

Foreign or borrowed money.

Question 14

What are the types of outside capital?

Answer 14

Short-term, Long-term, Medium-term, and permanent outside capital.

Question 15

What is medium-term outside capital?

Answer 15

Liabilities that have a 1-7 year finance plan. They charge interest and finance charges. They have a higher purchase agreement.
An example of medium-term outside capital is a car.

Question 16

What is short-term outside capital?

Answer 16

Liabilities shorter than 1 year. They have no interest or are short-term loans.
An example is a Membership card.

Question 17

What are permanent outside capitals?

Answer 17

the number of assets,
funds, money
required by
business AT ALL
TIMES.

Question 18

What is long-term outside capital?

Answer 18

Liabilities over 5 years. Have high-interest rates.
An example of long-term outside capital is a house bond/mortgage.

Question 19

What are some factors to consider when choosing sources of capital? name 4…

Answer 19

Tax considerations.
Building Long-term relationships.
Considering Profitability and Liquidity
Independence vs Dependence and Control.

Question 20

What are some typical problems in obtaining finance?

Answer 20

Own capital is too small. Outside capital should be used for growth, not development.
Lack of Financial Management.
Lack of Financial Expertise.
Lack of Planning

Question 21

What are creditors?

Answer 21

a person or organization that provides credit.

Question 22

What are debtors?

Answer 22

a company or individual who owes money.

Question 23

What are the forms of credit?

Answer 23

Installment credit, Revolving credit, Open account & other forms of credit.

Question 24

What are the advantages of granting credit?

Answer 24

It retains customers by building long-term relationships.
It increases market share.
It increases sales.
It increases profit in the long term.

Question 25

What are the disadvantages of granting credit?

Answer 25

There is a slower cash inflow.
Bad debts. People who don’t pay their debts.
Late payments by debtors.
Increased need for capital.

Question 26

Creditworthiness, what are the 7 C’s?

Answer 26

A
Credit History - using credit bureaus to identify black-listed individuals.
Capital - credit limits.
Conditions- negotiate interest rates etc.
Capacity- proof of regular income.
Character-customer worthy?
Collateral-
Common Sense

Question 27

What is a financial structure?

Answer 27

It is the composition of assets and capital.

Question 28

What is profitability?

Answer 28

Return on Investment, Return on Equity, and Equity.

Question 29

What is Liquidity?

Answer 29

It is the ability of the business to pay its short-term financial commitments on time.

Question 30

What is Liquidity?

Answer 30

It is the ability of the business to pay its short-term financial commitments on time.