Financial Management Strategies Flashcards
what are the 4 subheadings of financial management?
- Cash flow management
- working capital mangement
3.profitability management
4.global financial management
whats are the two main methods of cash flow managements
- cash flow statements
- distribution payments, discount for early payment, factoring
how are cash flow statements used used in cash flow management
Financial managers can use cash flow statements to monitor cash receipts and payments and ensure that the business is able to meet its short term obligations
how are distribution payments used in cash flow management
distribution payments are a payment plan that distributes payments over a spread out period of time
- Allows a business to budget and save money for things
- discounts for early payment: save money & positive cash flow, incentivises early payments of accounts receivable
how does factoring aid in cash flow management
The process of, getting another company to collect your accounts receivable - a service that effectively collects debts
what is working capital management?
Managing the short term (<12months) liquidity of the business
control of current assets ratio
Current assets (working capital) ratio = Current assets/Current liabilities
eg. 500000/250000 = 2 ∶ 1 or 200%
2:1 is the desired ratio
what are current assets?
Current assets may make up approximately 40 per cent of a business’s assets
management is important for managing working capital and require planning and constant monitoring.
Excess inventories and lack of control over accounts receivable = increased
level of unused assets = increased costs and liquidity problems
1. cash
2. accounts recievable
3. inventories
what is the importance control over current liabilities?
This involves being able to convert current assets into cash to ensure that the business’s
creditors (accounts payable, bank loans or overdrafts) are paid
accounts payable: A business must monitor its payables and ensure that their timing allows the business to maintain adequate cash
resources.
what are the 2 strategies of working capital management
- leasing
- sale and lease back
what are the two subcatagories of profitability management?
- cost controls
- revenue controls
what are the 2 types of cost controls?
- fixed costs : remian the same over a long period of time dispite change in outputs
- variable costs: costs that change over time with output changes
what is a cost centre?
A specific are/department/section of a business where costs can be directly used
Allows for clearer budgeting & cost controls for each function/department
what are the 3 areas for a bsuiness to reduce costs?
- financial costs
- adminastrive costs
- selling costs
what are the 5 revenue controls?
Marketing objective (4P’s)
1. Sales objectives – consider level of sales needed to cover costs and the break-even point a cost-volume-profit analysis to be used
**2. Sales mix **– focus on target market and key customer base before diversifying product range. Adjust product width and depth to meet needs.
3. Promotion –heavily market your product in a variety of ways – TV, radio, social media etc
**4. Place **– adjust product’s channel choice (exclusive, selective or intensive)
5. Pricing policy – overpricing may detract buyers whilst under-pricing may result in cash shortfalls. Prices MUST attract buyers, be competitive and maximise profit.
