Chapter 5 (Financial function)

Question 1

What is financial management

Answer 1

The way in which a company manages its money effectively to accomplish its objectives

Question 2

What is the advantage of having a good financial strategy

Answer 2

It enables a company to raise capital, allocate funds, make a profit, grow their business and pay dividends to shareholders

Question 3

List the responsibilities of financial managers

Answer 3

-They must make sure that a business has access to appropriate and needed capital resources and use these resources optimally

-They must ensure the best financial results

-They must ensure that the enterprise makes the best use of its financial resources

Question 4

List the managerial functions of financial management

Answer 4

-Financial planning
-Financial organising
-Financial leading
-Financial controlling

Question 5

List the activities included in financial planning

Answer 5

-Planning
-Developing
-Finalizing an appropriate accounting system
-Deciding on effective pricing
-Credit procedures
-Other financial processes

Question 6

List the activities included in financial organizing

Answer 6

-The responsibility to arrange and organize needed financial activities, equipment and people in the most effective way

-Delegation of tasks

-Signing cheques, payments, drawing up quotations

Question 7

List the activities included in financial leading

Answer 7

-The responsibility to lead and motivate the people in a unit/enterprise

-Keeps departments informed and ensures that work has been done

Question 8

List the activities included in financial controlling

Answer 8

-Takes corrective measures
The better you plan, organize and activate, the better you will be able to control the activities of your department in the enterprise

Question 9

What are the building blocks of financial management?

Answer 9

-Assets and Capital

Question 10

List the different types of assets

Answer 10

-Fixed assets
-Current assets
-Other assets

Question 11

Explain fixed assets

Answer 11

Assets owned and required by the enterprise for a period longer than 12 months

e.g: land, buildings, machinery

Question 12

Explain current assets

Answer 12

Assets owned by the enterprise that will be used for manufacturing, sales or cash within a period of 12 months

e.g: raw materials, stock, cash, outstanding debtors

Question 13

Explain other assets

Answer 13

Assets that aren’t directly involved in the normal operational activities of the business

-Shares and investments in other businesses

-Its not part of the normal business activities

Question 14

List the different types of capital

Answer 14

-Owners Capital
-Outside Capital

Question 15

List the characteristics of owners capital (shareholders capital/ equity)

Answer 15

-First source of capital available when starting a business

-Its part of the total capital that’s legally recognized as the total value of contributions made by legal owners of the business

-Its not easy to withdraw/Its seldom withdrawn

-There are a variety of sources

-Its permanent

Question 16

List the characteristics of Outside capital

Answer 16

-It is made available to the enterprise on a short, medium or long-term basis

-It is to be repaid in the future

-Suppliers are paid remuneration fees for helping

-If the business is liquidated/sold, the suppliers usually have distinct and preferential claims

Question 17

Characteristics of Long term finance

Answer 17

-A formally written document drawn up by an attorney and signed by all parties will spell out the details of the conditions of the agreement between the supplier and receiver of such goods

-Credit is available for 5-20 years

-Interest has to be paid out to the supplier

It will be made available to the enterprise only if it can directly be linked to fixed assets listed as collateral

-Business angels may be sources

Question 18

List the characteristics of medium term finance

Answer 18

-A legally drafted and signed document is necessary for the transaction

-Interest must be paid by the business

-Repayments of initial capital are made in equal monthly payments for the whole period

-Renting/leasing an item is a form of financing

Question 19

Explain medium term finance

Answer 19

-Consists of assets/monies supplied to the business for 1-7 years

Question 19

Explain short term finance

Answer 19

Made available to the business enterprise for less than 12 months

Question 20

What are the characteristics of short term finance

Answer 20

-Suppliers will charge the business interest

-Creditors/Suppliers won’t charge interest on outstanding balances but they’ll charge high-interest rates on accounts in arrears

-Not strict/disciplined in assessing the creditworthiness of their credit-purchasing customers