finance role/influence

Question 1

What are financial resources?

Answer 1

Resources that have monetary value.

Question 2

Define financial management.

Answer 2

Refers to the planning and monitoring of a business’s financial resources to enable the business to achieve its financial objectives.

Question 3

What is the strategic role of financial management?

Answer 3

Long term view of where a business is going, how it will get there and a monitoring process to keep track of progress.

Question 4

List the objectives of financial management (PLEGS).

Answer 4

• Profitability
• Liquidity
• Efficiency
• Growth
• Solvency

Question 5

What does profitability aim to maximize?

Answer 5

A business’s profits by carefully monitoring revenue and expenses.

Question 6

What is liquidity in financial management?

Answer 6

Business’s ability to meet short term financial obligations (less than 12 months).

Question 7

What does efficiency refer to in financial management?

Answer 7

Minimising costs whilst maximising profit by using the least amount of assets.

Question 8

What is growth in the context of financial management?

Answer 8

Increase the size of the business by effectively using financial resources in the long term.

Question 9

Define solvency.

Answer 9

Business ability to meet long term financial obligations (more than 12 months).

Question 10

What is gearing?

Answer 10

The proportion of debt (external finance) and equity (internal finance) that is used to finance the activities of a business.

Question 11

What are short term financial objectives characterized by?

Answer 11

Tactical (1-2 years) and operational (day to day) plans.

Question 12

What are long term financial objectives characterized by?

Answer 12

Strategic goals (over 5-10 years) supported by short term goals.

Question 13

True or False: Most long and short term goals complement each other.

Answer 13

True.

Question 14

How does finance relate to marketing?

Answer 14

Finance relies on marketing to promote products and generate sales.

Question 15

What is the most common source of internal finance?

Answer 15

Retained profits that are not distributed.

Question 16

What is debt finance?

Answer 16

Funds obtained from creditors.

Question 17

What are the costs associated with external sources of finance?

Answer 17

• Cost of debt: interest
• Cost of equity: ownership of the company.

Question 18

What is an overdraft?

Answer 18

A bank allows a business to overdraw their account up to a certain limit.

Question 19

What are commercial bills?

Answer 19

Short term loans usually for larger amounts, repayable within 30-180 days.

Question 20

Define factoring.

Answer 20

Raising funds by selling accounts receivable to a collection firm at a discount.

Question 21

What is a mortgage?

Answer 21

Loans secured by property of the business.

Question 22

What are debentures?

Answer 22

Borrowing from investors instead of banks, repaid with fixed interest.

Question 23

What does leasing involve?

Answer 23

Payment of money for use of equipment owned by another party.

Question 24

What are ordinary shares?

Answer 24

Shares that make you part owner in a publicly listed company with voting rights.

Question 25

What is the role of banks in financial markets?

Answer 25

Main source of funds for businesses, receiving deposits and making loans.

Question 26

What is the role of investment banks?

Answer 26

Provide borrowing and lending services to the business sector.

Question 27

What is the function of life insurance companies?

Answer 27

Provide cover and a lump sum payment in the event of death.

Question 28

Define superannuation funds.

Answer 28

A scheme requiring employers to contribute to a fund for employee benefits upon retirement.

Question 29

What is the Australian Securities Exchange (ASX)?

Answer 29

The primary stock exchange group in Australia where shares are bought and sold.

Question 30

What does the Australian Securities and Investments Commission (ASIC) do?

Answer 30

Enforces the Corporations Act and protects consumers and investors.

Question 31

What is the flat tax rate for private and public companies in Australia?

Answer 31

30%.

Question 32

What is the impact of a positive economic outlook?

Answer 32

Increased demand for products and services, leading to higher profitability.

Question 33

What factors can affect the global economy?

Answer 33

* Increase in manufacturing and trade * Increased consumer confidence * Uncertainty surrounding economic policies

Question 34

Fill in the blank: Higher risk = _______.

Answer 34

Higher interest rate.

Question 35

What can influence the availability of funds?

Answer 35

Domestic economic conditions and international market risks.

Question 36

What are ordinary shares?

Answer 36

Makes you part owner in a publicly listed company, gives you voting rights and dividend payments, becomes a source of finance (equity) for the company.

Question 37

What is a new issue?

Answer 37

A security that has been issued and sold for the first time on the ASX.

Question 38

What is an IPO?

Answer 38

When a company issues shares for the first time.

Question 39

What must a company release during an IPO?

Answer 39

A prospectus.

Question 40

What is a rights issue?

Answer 40

A privilege granted to existing shareholders to buy new shares in the same company in proportion to how many shares they already own.

Question 41

Do shareholders have to use their rights to purchase new shares in a rights issue?

Answer 41

No, they do not have to use their rights if they don't want to.

Question 42

What are placements in the context of shares?

Answer 42

A special allotment of shares made directly from the company to investors at a discount to their market price.

Question 43

What is the purpose of placements?

Answer 43

Usually used to entice specific high profile investors to invest.

Question 44

What is a share purchase plan?

Answer 44

Offered to existing shareholders to purchase without incurring any brokerage fees, usually at a discounted price.

Question 45

What is private equity?

Answer 45

Money invested in a private company (not on ASX) to finance future expansion/growth plans.