Finance

Question 1

Role of Financial Management

Answer 1

Strategic role of financial management

Objectives of financial management

Interdependence with other key business functions

Question 2

Objectives of financial management
(Role of Financial Management)

Answer 2

Profitability, growth, efficiency, liquidity, solvency

Short-term and long-term

Question 3

Influences on financial management

Answer 3

Internal sources of finance - retained profits

External sources of finance

Financial Institutions

Influence of government

Global market influences

Question 4

External sources of finance
(Influences on financial management)

Answer 4

Debt:
Short term borrowing (overdraft, commercial bills, factoring)

Long term borrowing (mortgage, debentures, unsecured notes, leasing)

Equity:
Ordinary shares (new issues, rights issues, placements, share purchase plans), private equity

Question 5

Financial Institutions
(Influences on financial management)

Answer 5

Banks
Investment banks
Finance companies
Superannuation funds
Life insurance companies
Unit trusts
Australian Securities Exchange.

Question 6

Influence of government
(Influences on financial management)

Answer 6

Australian Securities and Investment Commission (ASIC)

Company taxation

Question 7

Global Market Influences
(Influences on financial management)

Answer 7

Economic outlook
Availability of funds
Interest rates

Question 8

Processes of Financial Management

Answer 8

Planning and implementing

Monitoring and controlling

Financial ratios

Limitations of financial reports

Ethical issues related to financial reports

Question 9

Planning and Implementing
(Processes of Financial Management)

Answer 9

Financial needs, budgets, record systems, financial risks, financial controls

• debt and equity
  financing (advantages
  and disadvantages of
  each
• matching the terms
  and source of finance
  to business purpose

Question 10

Monitoring and Controlling
(Processes of Financial Management)

Answer 10

Cash flow statement
Income statement
Balance sheet

Question 11

Financial Ratios

Answer 11

Liquidity - current ratio: (current assets / current liabilities)

Gearing - debt to equity ratio:
(total liabilities / total equity)

Profitability - gross profit ratio:
(gross profit / sales)
net profit ratio:
(net profit / sales)
return on equity ratio:
(net profit / total equity)

Efficiency - expense ratio:
(total expenses / sales)
accounts receivable turnover ratio:
(sales / accounts receivable)

Comparative ratio analysis: over different time periods, against standards, with similar businesses

Question 12

Limitations of financial reports
(Processes of Financial Management)

Answer 12

Normalised earnings

Capitalising expenses

Valuing assets

Timing issues

Debt repayments

Note to the financial statements

Question 13

Financial Management Strategies

Answer 13

Cash flow management

Working capital management

Profitability management

Global financial management

Question 14

Cash Flow Management
(Financial Management Strategies)

Answer 14

Cash flow statements

Distribution payments, discounts for early payments, factoring

Question 15

Working Capital Management
(Financial Management Strategies)

Answer 15

Control of current assets (cash, receivables, inventories)

Control of current liabilities (payables, loans, overdrafts)

Strategies (leasing, sale and lease back)

Question 16

Profitability management
(Financial Management Strategies)

Answer 16

Cost controls (fixed and variable, cost centres, expense minimisation)

Revenue controls (marketing objectives)

Question 17

Global Financial Management

Answer 17

Exchange rates

Interest rates

Methods of international payment (payment in advance, letter of credit, clean payment, bill of exchange)

Hedging

Derivatives