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HSC Business Studies my > Finance > Flashcards

Finance Flashcards

1
Q

D Goal

A

A measurable and observable long-term aim.
It identifies the business’s direction and focus for the future.
(Goals may involve several objectives.)

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2
Q

d Objective

A

A series of short- term steps or targets needed to achieve the final goal.

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3
Q

d Dividend

A

The income earned from owning shares in a company.

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4
Q

d Drawings

A

Money taken out of a business by a sole trader or partner for their personal use.

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5
Q

5 Financial objectives…

A
  1. Liquidity
  2. Growth
  3. Efficiency
  4. Profit
  5. Solvency
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6
Q

d Profitability…2

A

The earnings of the business after expenses have been paid. (Ability to make financial return)

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7
Q

d Efficiency…

A

How much of total revenue is spent on expenses.

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8
Q

d Growth…

A

Increase in value and size of business over time.

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9
Q

d Liquidity

A

The ability of business to pay short term liabilities using its current assets.

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10
Q

d Solvency

A

The ability of the business to pay both short/long term liabilities as they fall due. Indicates long term stability.

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11
Q

d Debtors..

A

People who owe money to the business. Accounts receivable/

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12
Q

d Current assets…

A

Assets expected to be used, sold or converted to cash within 12 months.

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13
Q

d Creditors…

A

Businesses/Institutions that a business OWES money too. Accounts payable.

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14
Q

Problem of too little liquidity…

A

Can’t pay water/phone/electricity bills - cut off.

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15
Q

Interdependence eg F and HR

A

Finance must fund renumeration and HR strategies. Qantas spends $275m annually on staff training.

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16
Q

Interdependence eg F and M

A

Finance depends on marketing to generate funds. + Also, Marketing strategies (like new Qantas lounges) need to be funded by finance.

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17
Q

Interdependence eg F and O

A

Set budget for O. Fund new equiptment eg planes at Qantas.

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18
Q

Internal sources of finance 3

A
  1. Selling unproductive assets
  2. Owners equity/capital
  3. Retained Profits
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19
Q

Short term debt options 3

A
  1. Overdraft
  2. Commercial bills
  3. Factoring
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20
Q

Long term debt options

A
  1. Mortgages
  2. Debentures
  3. Leasing
  4. Unsecured notes
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21
Q

Types of equity finance

A

private/public

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22
Q

Types of public share issues 4

A
  1. New share issue (IPO)
  2. Rights issues
  3. Placements
  4. Share purchase plans
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23
Q

Rights issue meaning

A

Company offers existing shareholders option to purchase more shares. option can be rejected, sold, transfered.

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24
Q

Placements issue meaning

A

Firms offers specific investors large amount of shares. Used for quick cash for takeovers.

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25
Q

Share purchase plans meaning

A

Offer shares to existing shareholders at discounted price.

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26
Q

Qantas shareholder example

A

raised $500m in 2009

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27
Q

2 other random sources of finance

A

Govt grants. Venture capital.

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28
Q

7 Financial institutions

A
  1. banks
  2. investement banks
  3. finance companies
  4. life insurance
  5. super funds
  6. Unit trusts
  7. ASX
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29
Q

Global market influences 3

A
  1. Economic outook
  2. Avaliability of funds.
  3. Interest rates.
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30
Q

Influence of Govt dot point 2

A

ASIC and company taxation.

31
Q

How Govt can influence finance 3

A

Fiscal
Monetary
Legislation

32
Q

How ASIC influences

A

Regulates corporations, markets, provision of financial services. Ensures fair and honest dealings.

33
Q

Law ASIC governs under…

A

Corporations Act 2001 (Cth)

34
Q

5 points under Planning and Implementing

A
  1. Determine Financial Needs.
  2. Set budgets
  3. instigate record systems
  4. determine financial risks
  5. develop financial controls
35
Q

Determining financial needs means…

A

Analysing current position > set goals > determine f n > source finance > implement

36
Q

Budget meaning

A

A budget is a place for achieving set outcomes and is based on forecasted figures and expectations of future activities.” A budget sets goals

37
Q

Record systems meaning

A

MYOB etc

Used to create financial statements. Records must be kept by law.

38
Q

Financial risks dot point examples

A

IR hikes, theft, nonpayment

39
Q

Financial controls meaning

A

Controls will establish whether the business is achieving its objectives. Also ensure no employee theft or improper use of funds eg credit cards. `

40
Q

Source of finance influenced by 5

A
  1. Legal Structure
  2. Profitability
  3. Share price
  4. IR
  5. Credit rating
41
Q

Liquidity or working capital ratio or current ratio. AND GOAL

A

= CA / CL

Goal is slightly over 1.

42
Q

Gearing or Leverage

AND GOAL

A

= TL / TE

4:6 or 40%

43
Q

GPR

shows what?

A

= GP / Sales

Shows markup/profit margin of stock. Shows money made from core business activity.

44
Q

NPR

A

= NP / S

45
Q

ROE + good if high..

A

NP / TE

easier to gain funds.

46
Q

Efficency ratio names ?

A

Expense ratio and Ac rec turn ratio

47
Q

Expense ratio

A

= Total Expenses / Sales

48
Q

Acc rec turn o

A

= Sales / Accounts recievable

49
Q

Comparative ratio analysis comparables…3

A
  1. Different times to track progress
  2. Against standards KPIs
  3. Other in industry
50
Q

Goal ROE

A

greater than current IR

51
Q

Limitations to financial reports..6

A
  1. Normalised earnings
  2. Capitalising expenses
  3. Valuing assets
  4. timing issues
  5. debt repayments
  6. notes
52
Q

Normalised earnings info

A

The earnings adjusted to take into account cyclical upswings or downswings in the economy to remove one-time influences. (eg Sale of land)
Gives more accurate sense of real earnings.

53
Q

Capitalising expenses info

A

The costs incurred when financing a non-current asset added to the cost of the asset.
Makes assets look more valuable

54
Q

Valuing assets limitiations

A

Value changes over time.

Hard to value intangibles. Like goodwill and patents

55
Q

Timing Issues info

A

Revenue flows can be delayed or sped up. This makes the business seem more/less profitable. Financial periods vary country to country

56
Q

Debt repayements info

A

Reports dont show true future debt. Eg warranties, staff oncosts.

57
Q

Notes to financial reports info

A

Provide details. Might include methods of recording transations.

58
Q

Ethical issues to financial repots.

A

Accountants cannot be creative. (CPA and CA teach this)
Bad practices can lose thousands of jobs.
Audits must be undertaken

59
Q

Eg of financial misconduct 3

A

Calling R and D investment not expense.
Innapproriate asset valuations.
Using business credit cards for personal use.

60
Q

Financial misconduct prohibited under…

A

Corporations Act 2001

61
Q

Financial Management strategies 4

A

Cash flow mng
Working capital mng
Profitability mng
Global Financial Mng

62
Q

2 Dot points under cash flow ng

A
  • cash flow statements

- distribution of payments, discounts for early payment, factoring

63
Q

Working capital mng 3 dot points

A
  • control of CA - cash, recievables, inventories
  • control of CL - payables, loans, overdrafts
  • strategies - leasing, sale and lease back.
64
Q

Net working capital

A

= CA - CL

65
Q

Ways to improve accounts turnover ratio 3

A
  • Factoring
  • introduce late payment fee
  • reduce credit time
    etc
66
Q

Problem with investories

A

$ on security, perishing, ties up cash

67
Q

Strategies with payables…2

A
  • Pay on last day possible

- Ask for discount for early payment

68
Q

dot points under profitability management 2

A
  • Cost controls - fixed and variable costs, cost centres, expense minimisation
  • revenue controls - marketing objectives
69
Q

Easier types of costs to reduce,

A

variable

70
Q

Ways to reduce variable costs…3

A
  • Negotiate discounts from suppliers
  • replace permanent with part time (no oncosts)(qantas)
  • outsource non core BF
71
Q

Cost centres

A

centres that account for expenses/costs incurred by each KBF in providing a product to customers. Cost centres are used to identify which expenses contribute most to the product. This shows which area expense minimisation would have the greatest effect

72
Q

expense minimisation ideas…3

A
  • multoskill workforce to increase efficiency
  • substitue capital/labour
  • use JIT
73
Q

Revenue controls

A

marketing strategies aim to maximise revenue

HSC Business Studies my (5 decks)

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