Financial Function Flashcards
What is the finance function
Involves the Acquiring and utilisation of funds necessary for efficient operations. It is the lifeblood of a business without it things wouldn’t run smoothly.
What is the source to run any business
The financial function as it provides money and it acquires money
What are the two types of start up capital
Own capital and borrowed capital
What is the difference between own capital and borrowed capital
Own capital Is investments made by the owner of the business eg sole traders, partners, shareholders etc
Borrowed capital is money borrowed from a bank or external institution and it has to be paid back with interest
What is another word for borrowed capital
Foreign capital
I’m what ratio should the two types of start up capital capitals generally be In
Own capital: borrowed capital
2:1
What is the name for long term capital
Fixed capital
What is the name for short term capital
Working capital
Wha are the characteristics of long term capital
- it is tied up In the land, buildings, vehicles and equipment
- fixed assists remain in the business to earn income
What are the characteristics of short term capital
- Used to purchase stock or finance debtors
- covers the day to day running of the business and pays for expenses
What are the factors influencing the demand for long and short term capital
- size of the workforce
- do you offer credit to your customers
- do your suppliers offer credit to you
- operational requirements
Why should a debtors payment period be shorter than a creditors payment period
This is so that the business can pay back it’s creditors on time.
What does the financial manager do
- draw up cash budgets and capital budgets
- helps the general manager interpret financial statements
- ensures that departments stay in their budget
What is gross profit
Sales - cost of sales
What is net profit
Gross profit - expenses
What is net profit
Gross profit - expenses
What is profitability
Net profit/ capital * 100
I’m what ratio should current assets and current liabilities be
2:1
In what ratio should (current assets - inventory) as to current liabilities he
1:1
What are the benefits of budgeting
- Helps you organise your income versus your expenses
- it is a financial plan
- Establishes a Healthy financial position
What does it mean when we say something is super liquid
It can easily and quickly turn in to cash
Why is it important to have a ratio of 1:1 whit current assets-trading stock versus current liabilities
This is to ensure that you are always able to pay back your debts. The reason why we remove trading stock from the equation is because trading stock does not always sell quickly so we Need to remove it in order to check if we are in a position to be able to pay back our creditors
What is the difference between cash and profit
Cash is utilised through the purchase of a fixed asset and it is generated through the sale of inventory, increase in capital and borrowed funds. Profit is the difference esteem income and expenditure
What are the sources of long term capital
- sell debentures
- long term loans with a mortgage bond as security
- reserve funds
- issue shares
