Financial Management strategies Flashcards
(32 cards)
What is Cash flow?
The management of cash in and out of a business over a period of time.
How do you know if there is a cash flow problem?
If more money goes out then comes in, or if money must be paid before cash have been there.
Distribution of payments
is an important strategy, that involves distributing payments throughout the month, year or other periods so that large expenses do not occur at the same time and cash shortfalls of not occur.
Discounts for early payments
offering debtors a discount for early payments.
What is factoring
The selling of accounts receivable for a discounted price to a finance or specialist factoring company.
What is working capital
The current assets used to fund the day- to- day running of a business.
What is the working capital ratio?
current assets divided by current liabilities
Control of current assets
ensuring that there are enough liquid assets to pay current liabilities when they fall due.
Current assets (Cash)
The most liquid asset and needs to available for unexpected expenses. Businesses can increase cash through sale and leaseback.
Current Assets ( Accounts receivable)
Money owed to company through its debtors. The quicker the debtors pay, the firm’s cash position.
Curren Assets (Accounts receivable) Ratio
total sales divided by accounts receivable.
Current Assets (Inventories)
The goods and materials a company holds. They make up a significant amount of current assets, and their level must be carefully monitored so that excess or insufficient levels of stock do not occur.
Control of current liabilities
Controlling of the expenses that must be paid in the short term.
Control of current liabilities ( Payables)
Money the business owes to its suppliers. A business must monitor payables and ensure that their timing allows the business to maintain cash resources.
Control of current liabilities (Loans)
The business should use the most appropriate form of finance for short- term needs.
Control of current liabilities (Overdraft)
Used to fund short- term cash shortages
Strategies for managing working capital.
Leasing and sale- lease back.
Managing working capital ( Leasing)
the hiring of an asset from another person or company who has purchased the assets and retains ownership of it.
Managing working capital ( Sale and lease back)
The selling of an owned asset, then leasing the assets back through fixed payments for a specified number of years.
Profitability management
The control of both the business costa and revenue.
Profitability management ( Fixed and variable costs)
The outsourcing of non- core functions.
Profitability management (Fixed costs)
costs that do not change within the business.
Profitability management ( Variable costs)
Costs that change with production and sales volume.
Profitability management ( Cost Centres)
Cost centres account for costs involved in the function they perform. They do not increase direct profit and they add to the cost of running a business.
