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HSC Business Studies my > Finance > Flashcards

Finance Flashcards

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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
Share purchase plans meaning
Offer shares to existing shareholders at discounted price.
26
Qantas shareholder example
raised $500m in 2009
27
2 other random sources of finance
Govt grants. Venture capital.
28
7 Financial institutions
1. banks 2. investement banks 3. finance companies 4. life insurance 5. super funds 6. Unit trusts 7. ASX
29
Global market influences 3
1. Economic outook 2. Avaliability of funds. 3. Interest rates.
30
Influence of Govt dot point 2
ASIC and company taxation.
31
How Govt can influence finance 3
Fiscal Monetary Legislation
32
How ASIC influences
Regulates corporations, markets, provision of financial services. Ensures fair and honest dealings.
33
Law ASIC governs under...
Corporations Act 2001 (Cth)
34
5 points under Planning and Implementing
1. Determine Financial Needs. 2. Set budgets 3. instigate record systems 4. determine financial risks 5. develop financial controls
35
Determining financial needs means...
Analysing current position > set goals > determine f n > source finance > implement
36
Budget meaning
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
Record systems meaning
MYOB etc | Used to create financial statements. Records must be kept by law.
38
Financial risks dot point examples
IR hikes, theft, nonpayment
39
Financial controls meaning
Controls will establish whether the business is achieving its objectives. Also ensure no employee theft or improper use of funds eg credit cards. `
40
Source of finance influenced by 5
1. Legal Structure 2. Profitability 3. Share price 4. IR 5. Credit rating
41
Liquidity or working capital ratio or current ratio. AND GOAL
= CA / CL | Goal is slightly over 1.
42
Gearing or Leverage | AND GOAL
= TL / TE | 4:6 or 40%
43
GPR | shows what?
= GP / Sales | Shows markup/profit margin of stock. Shows money made from core business activity.
44
NPR
= NP / S
45
ROE + good if high..
NP / TE | easier to gain funds.
46
Efficency ratio names ?
Expense ratio and Ac rec turn ratio
47
Expense ratio
= Total Expenses / Sales
48
Acc rec turn o
= Sales / Accounts recievable
49
Comparative ratio analysis comparables...3
1. Different times to track progress 2. Against standards KPIs 3. Other in industry
50
Goal ROE
greater than current IR
51
Limitations to financial reports..6
1. Normalised earnings 2. Capitalising expenses 3. Valuing assets 4. timing issues 5. debt repayments 6. notes
52
Normalised earnings info
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
Capitalising expenses info
The costs incurred when financing a non-current asset added to the cost of the asset. Makes assets look more valuable
54
Valuing assets limitiations
Value changes over time. | Hard to value intangibles. Like goodwill and patents
55
Timing Issues info
Revenue flows can be delayed or sped up. This makes the business seem more/less profitable. Financial periods vary country to country
56
Debt repayements info
Reports dont show true future debt. Eg warranties, staff oncosts.
57
Notes to financial reports info
Provide details. Might include methods of recording transations.
58
Ethical issues to financial repots.
Accountants cannot be creative. (CPA and CA teach this) Bad practices can lose thousands of jobs. Audits must be undertaken
59
Eg of financial misconduct 3
Calling R and D investment not expense. Innapproriate asset valuations. Using business credit cards for personal use.
60
Financial misconduct prohibited under...
Corporations Act 2001
61
Financial Management strategies 4
Cash flow mng Working capital mng Profitability mng Global Financial Mng
62
2 Dot points under cash flow ng
- cash flow statements | - distribution of payments, discounts for early payment, factoring
63
Working capital mng 3 dot points
- control of CA - cash, recievables, inventories - control of CL - payables, loans, overdrafts - strategies - leasing, sale and lease back.
64
Net working capital
= CA - CL
65
Ways to improve accounts turnover ratio 3
- Factoring - introduce late payment fee - reduce credit time etc
66
Problem with investories
$ on security, perishing, ties up cash
67
Strategies with payables...2
- Pay on last day possible | - Ask for discount for early payment
68
dot points under profitability management 2
- Cost controls - fixed and variable costs, cost centres, expense minimisation - revenue controls - marketing objectives
69
Easier types of costs to reduce,
variable
70
Ways to reduce variable costs...3
- Negotiate discounts from suppliers - replace permanent with part time (no oncosts)(qantas) - outsource non core BF
71
Cost centres
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
expense minimisation ideas...3
- multoskill workforce to increase efficiency - substitue capital/labour - use JIT
73
Revenue controls
marketing strategies aim to maximise revenue

HSC Business Studies my (5 decks)

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