introduction to financial management

Question 1

financial management

Answer 1

• process of planning, organising, controlling, and monitoring financial resources to achieve company goals and objectives
• process/strategies companies implement to manage and control profitability, solvency, liquidity etc

Question 2

primary objective of FM

Answer 2

ensure ongoing operation and maximise shareholder value through appropriate resource utilisation and decision making

Question 3

accounting

Answer 3

• how you understand and run a successful business
• language of business
• process of discovering, calculating, and expressing economic information

Question 4

financial performance

Answer 4

generation of revenue from day to day operations over time

Question 5

financial position

Answer 5

resources and liabilities at a given time

Question 6

signs of business health

Answer 6

profitability, cash flow, assets, liabilities, return on investment etc

Question 7

short-term decisions

Answer 7

these are operational; involves assessing business activities to manage and improve day to day operations

Question 8

long-term decisions

Answer 8

these are strategic; this appraises the big picture to decide how to achieve long-term goals of growth and expansion

Question 9

commercial decisions

Answer 9

decisions to increase returns and business value eg by improving customer satisfaction to encourage repeat sales, mergers, acquisitions, pricing etc

Question 10

financial accounting

Answer 10

• provision of information to external users
• expressed in financial statements, to evaluates profitability, liquidity, solvency, enabling decisions on investments, expansion, and resource allocation
• overview of financial health for external decision-making

Question 11

management accounting

Answer 11

• provision of information to internal users
• aids strategic planning, budgeting, performance evaluation

Question 12

audit and internal controls

Answer 12

• audit ensures financial statement accuracy
• internal control involves proactive policies for safeguarding assets and ensuring reliable financial information
• investors trust audited financial statements and internal controls, allowing them to make decisions based on credible data

Question 13

social/environmental accounting

Answer 13

• provision of non-financial information to external users
• assesses company’s impact on environment and society
• informs socially-conscious investors, customers, and regulatory bodies about the company’s commitment to CSR

Question 14

cash accounting

Answer 14

recording revenues and expenses at the time cash is received or paid

Question 15

accrual accounting

Answer 15

recording revenues and expenses when they are earned/incurred, not when cash is received/paid

Question 16

finance

Answer 16

• helps value a business and make good investment decisions using accounting information
• examines how companies source funding and informs how money is invested

Question 17

two areas of finance

Answer 17

• investment/asset pricing
• corporate finance

Question 18

investment/asset pricing

Answer 18

• focus on investor (what are assets/securities worth, how risky)
• multiple valuation calculates company’s stock price used by investors to determine if stock price is undervalued or overvalued

Question 19

corporate finance

Answer 19

• focuses on entity and its management (what to invest in, how to finance operations)
• corporation first determines the assets in which it will invest funds according to organisation objectives

Question 20

tax

Answer 20

• regulatory guidebook ensuring financial responsibility and compliance for a successful business
• regulations on how much a business must contribute to government
• ensures compliance, minimise tax liabilities, take advantage of available deductions