Financial Management

Question 0

What are the specific roles within the business of financial management?

Answer 0

Assessing and communicating information about the financial position of the business to stakeholders (i.e preparing financial statements)
Determining financial needs and sourcing required funds (i.e obtaining finance)
Managing the financial resources to preserve and increase value and prevent losses.

Question 1

Define financial management

Answer 1

The activities within a business to determine and provide for the financial needs of the business. It involves planning, organising and controlling the financial assets of the business in order to achieve business goals.

Question 2

A business with ineffective financial management will have:

Answer 2

Insufficient capital for expansion
Cash flow problems and difficulties in paying debts when they fall due.
Cost overruns.
Poor gearing leaving the business vulnerable to interest rate changes.
Poor mix of assets and finance.

Question 3

What are the objectives of financial management?

Answer 3

Liquidity
Solvency
Efficiency
Profitability
Growth

Question 4

What is liquidity?

Answer 4

Having sufficient cash and current assets that give the business the ability to pay debts on time

Question 5

What is solvency?

Answer 5

Maintaining financial stability in the longer term through an appropriate financial structure that does not expose the business to unnecessary risk.

Question 6

What is profitability?

Answer 6

To increase the amount of money earned by the business through higher sales and lower expenses resulting in higher returns on investment in the business.

Question 7

What is efficiency?

Answer 7

Gaining the maximum output from financial resources in order to minimise wastage and costs.

Question 8

What is growth?

Answer 8

To increase the financial assets and size of the business.

Question 9

Define interdependence

Answer 9

The concept where two things rely on and impact each other

Question 10

How is finance interdependent with the other functions?

Answer 10

The other functions rely on it to proved them with money.

The thee functions can impact finance through the projects they run and the funds they require.

Question 11

What can a business use when collecting financial information?

Answer 11

Balance sheets, income statements, cash flow statements, budgets, bank statements, weekly sales reports or break even analysis

Question 12

What are record systems?

Answer 12

The structures and systems used by a business to ensure that all data is recorded in an accurate and reliable manner

Question 13

What are some common financial controls?

Answer 13

Clear authorisation and responsibility for tasks, control of use of cash registers, payments made by cheque not cash, regular audits of assets

Question 14

What are the advantages of debt finance?

Answer 14

Funds are readily available, increased funds should lead to increased earnings and profits, tax deductions for interest payments

Question 15

What are the disadvantages of debt finance?

Answer 15

Increased risk because of interest and added fees, security may be required, regular repayments have to be made, lenders have first claim on any money if the business ends in bankruptcy

Question 16

What are the advantages of equity financing?

Answer 16

Does not have to be repaid unless owner leaves business, cheaper with no interest, owners who contributed retain control over how it is used, low gearing and less risk

Question 17

What are the disadvantages of equity financing?

Answer 17

Lower profits and lower returns for the owner and owners may have a high expectation of return that they will earn on the investment

Question 18

What needs to be considered when matching the terms and sources of finance to business purpose?

Answer 18

The terms of finance (short or long term), the cost of each source of funding, structure if the business (small businesses have few opportunities for equity capital) and availability (how quickly and easily can the business access finance

Question 19

What are examples of internal sources of finance?

Answer 19

Capital and retained profits

Question 20

What are examples of external sources if finance?

Answer 20

Short term loan, long term loan and new equity

Question 21

How do financial institutions impact on business financial performance?

Answer 21

Influence the availability and cost of funds; provide opportunities for businesses to increase financial returns

Question 22

What are seven types of financial institutions?

Answer 22

Banks, investment banks, finance companies, insurance companies, superannuation funds, unit trusts and ASX

Question 23

How can he government influence financial management?

Answer 23

ASIC and company tax

Question 24

What is the aim of ASIC?

Answer 24

Enforce the Corporations Law as it aims to reduce fraud and unfair practices in markets

Question 25

What is the present company tax rate?

Answer 25

30% reduced from 34%

Question 26

What are global influences?

Answer 26

Global economic outlook, availability of funds and interest rates