Week 3: Financial Management Flashcards
What are the 3 main forms of businesses in NZ?
(1) Sole traders, (2) Partnerships and joint ventures, and (3) Companies (Itd.’s).
What is the typical structure of a company?
Shareholders (owners of the company), board of directors, advisory board, top management (CEO, COO, CFO), Staff
What do Cash Flow Diagrams allow you to do?
Multiple parties to a financial problem eg. a borrower and lender, a buyer and seller, or an investor and an investment.
What are the limitations of the payback method?
1) PROFIT MARGINS and (2) the TIME VALUE OF MONEY are not taken into account.
Under prisoners dilemma, what is the pareto optimal state?
A state where there is no alternative state where improvements can be made to at least 1 participants well-being without reducing any other participants well-being.
Under prisoners dilemma, what is the nash equilibrium state?
A state in which each players’ strategy is optimal when considering the decisions of other players.
2 most important financial statements?
(1) Income statement (for Profit & Loss account) and (2) Balance sheet (for statement of financial position).
What is the purpose of a balance sheet?
Shows a company’s financial position at a point in time.
What is the purpose of the income statement?
To show whether or not a company’s business is profitable.
What are the 3 major items in a balance sheet?
(1) Assets, (2) Liabilities, and (3) Equity.
How can working capital be increased?
(1) By making a profit, (2) by selling equipment/other assets, (3) switch from short to long term loans (this option increases long term liabilities).
What is underbilling (Current Assets)?
Estimated work done that’s not been billed yet.
What do Liquidity Ratios indicate?
The company’s ability to pay its obligations as they come due.
What is the Break Even Point (B.E.P)?
When the income from sales = total expenses.
How can BEP be lowered?
Raise prices, cut fixed costs, cut variable costs hence increasing the margin, etc.
