Chapter 14

Question 1

what is the role of finance?

Answer 1

Finance ensures a strategy is affordable, financially feasible and delivers adequate returns

Question 2

capital investment appraisal?

Answer 2

A Set document that is used to assess if an investment is financially worthwhile

Question 3

payback period?

Answer 3

time taken to recover initial investment

Question 4

Average rate of return?

Answer 4

(Average profit/Initial investment)*100

Question 5

Discounted cash flow/ NPV?

Answer 5

adjust the future cash flow for time value of money

Question 6

Gearing ratio?

Answer 6

debt / (debt * equity) *100

Question 7

why is cash flow important?

Answer 7

a business may appear to be profitable based on it appraisal but if it doesn’t have cash then it may fail

Question 8

working capital?

Answer 8

current assets - current liabilities

Question 9

Variance analysis?

Answer 9

a budget helps to monitor costs and set targets, variance analysis shows if a strategy is on track

Question 10

what are some of the strategic financial objectives?

Answer 10

-revenue growth
-profitability
-Shareholder value
-Return on capital employed