Financial Management

Question 1

5 examples cash inflows

Answer 1

rent revenue, service revenue, interest revenue, sales revenue, capital

Question 2

5 examples of cash outflows

Answer 2

wages, accounts payable, purchase of stock, dividend payments, loan repayments

Question 3

Consequences of poor management of cash

Answer 3

bankruptcy, unable to pay staff wages, no liquidity, increased interest and bank charges

Question 4

4 reasons why a business may fail

Answer 4

lack of fore planning, unpayable debts, no profit, poor risk management

Question 5

how can cash flow be improved

Answer 5

increase inflow through increase in revenue streams, limit outflow by controlling expenses

Question 6

over-capitalisation

Answer 6

where an owner may invest too much capital into a business, that the funds lay idle and are not used to their full potential to achieve the highest possible return.

Question 7

under-capitalisation

Answer 7

not enough capital invested into the business the it cannot run efficiently on a day-to-day basis

Question 8

Purpose of a cash-flow statement

Answer 8

are needed in order to keep an accurate record on the cash flowing in and out of the business which helps determine the amount of cash needed to maintain liquidity within the business.

Question 9

Name an inflow and outflow for operating activities

Answer 9

receipts from sales, cash payments to suppliers

Question 10

Name an inflow and outflow for investing activities

Answer 10

long term assets (shares), purchases of assets (e.g furniture)

Question 11

Name an inflow and outflow for financing activities

Answer 11

adjustments to equity, adjustments to borrowings

Question 12

Gross Profit Ratio

Answer 12

measures percentage of sales which is retained as Gross profit

Question 13

Net Profit Ratio

Answer 13

measures percentage of sales which is retained as Net profit

Question 14

Rate of Return on Owner’s Equity

Answer 14

measures the return on the owners investment into the business

Question 15

Rate of Return on Total Assets

Answer 15

measures the ability of the assets in a business to generate net profit. Why the owner thought that the assets would generate money…

Question 16

Equity Ratio

Answer 16

measures the extent to which the owner has financed the business by equity sources as opposed to debt sources. (external sources of finance)

Question 17

Debt Ratio

Answer 17

measures the extent to which the owner has financed/funded the business by debt sources (loans).

Question 18

Current Working Capital Ratio

Answer 18

measures the ability of the business to meet short term financial obligations using its current (within 12 months) assets

Question 19

Quick Sufficient Working Capital Ratio

Answer 19

measures the ability of the business to meet short term financial obligations using only its immediate accessible cash. Thus not relying on the inventory or sale of inventories.

Question 20

Equity

Answer 20

is using funds internally within the business

Question 21

Debt and examples of external sources…

Answer 21

borrowing funds from an external source (banks, finance companies, loan sharks etc.)

Question 22

Short Term Debt Borrowing

Answer 22

help to finance the purchase of resources and inputs in business operations

Question 23

Overdraft

Answer 23

facility where banks allow a business to overdraw account by a certain limit. It is essentially giving a business access to more cash than it would usually have.

Question 24

Long Term Debt Borrowing

Answer 24

Are appropriate for the acquisition of long term assets like land and buildings, motor vehicles, plant and equipment etc.

Question 25

3 Examples of Long Term Debt Borrowings

Answer 25

mortgage loans, debentures (bonds), hire purchase

Question 26

Consequences of poor management of cash

Answer 26

bankruptcy, unable to pay staff wages, no liquidity, increased interest and bank charges

Question 27

4 reasons why a business may fail

Answer 27

lack of fore planning, unpayable debts, no profit, poor risk management

Question 28

how can cash flow be improved

Answer 28

increase inflow through increase in revenue streams, limit outflow by controlling expenses

Question 29

over-capitalisation

Answer 29

where an owner may invest too much capital into a business, that the funds lay idle and are not used to their full potential to achieve the highest possible return.

Question 30

under-capitalisation

Answer 30

not enough capital invested into the business the it cannot run efficiently on a day-to-day basis

Question 31

Purpose of a cash-flow statement

Answer 31

are needed in order to keep an accurate record on the cash flowing in and out of the business which helps determine the amount of cash needed to maintain liquidity within the business.

Question 32

Name an inflow and outflow for operating activities

Answer 32

receipts from sales, cash payments to suppliers

Question 33

Name an inflow and outflow for investing activities

Answer 33

long term assets (shares), purchases of assets (e.g furniture)

Question 34

Name an inflow and outflow for financing activities

Answer 34

adjustments to equity, adjustments to borrowings

Question 35

Gross Profit Ratio

Answer 35

measures percentage of sales which is retained as Gross profit

Question 36

Net Profit Ratio

Answer 36

measures percentage of sales which is retained as Net profit

Question 37

Rate of Return on Owner's Equity

Answer 37

measures the return on the owners investment into the business

Question 38

Rate of Return on Total Assets

Answer 38

measures the ability of the assets in a business to generate net profit. Why the owner thought that the assets would generate money...

Question 39

Equity Ratio

Answer 39

measures the extent to which the owner has financed the business by equity sources as opposed to debt sources. (external sources of finance)

Question 40

Debt Ratio

Answer 40

measures the extent to which the owner has financed/funded the business by debt sources (loans).

Question 41

Current Working Capital Ratio

Answer 41

measures the ability of the business to meet short term financial obligations using its current (within 12 months) assets

Question 42

Quick Sufficient Working Capital Ratio

Answer 42

measures the ability of the business to meet short term financial obligations using only its immediate accessible cash. Thus not relying on the inventory or sale of inventories.

Question 43

Equity

Answer 43

is using funds internally within the business

Question 44

Debt and examples of external sources...

Answer 44

borrowing funds from an external source (banks, finance companies, loan sharks etc.)

Question 45

Short Term Debt Borrowing

Answer 45

help to finance the purchase of resources and inputs in business operations

Question 46

Overdraft

Answer 46

facility where banks allow a business to overdraw account by a certain limit. It is essentially giving a business access to more cash than it would usually have.

Question 47

Long Term Debt Borrowing

Answer 47

Are appropriate for the acquisition of long term assets like land and buildings, motor vehicles, plant and equipment etc.

Question 48

3 Examples of Long Term Debt Borrowings

Answer 48

mortgage loans, debentures (bonds), hire purchase

Question 49

Sales Forecasting

Answer 49

measures whether a business is succeeding or is problematic in the area of sales through a breakdown of sales records within the business.

Question 50

Cash Budgets

Answer 50

a tool for planning and controlling finances in order to predict cash receipts and cash payments. purpose for this is to plan times when a business may need additional funds to cover expenses and payments.

Question 51

Sources of Finance

Answer 51

overdraft facility, trade credit, leasing, hire purchase, credit cards, loans from family, bank loans, factoring sales, government loans/venture capital