Flashcards in Role Deck (10):
What is the strategic role of Finance?
to provide financial resources to allow the implementation of the business strategic plan
- Allows implementation of strategies to achieve financial objectives and goals
List the Financial Objectives
Describe profitabilty. What strategies can businesses implement to achieve this objective?
The Ability of a bus. to maximise its profits.
Achieved through Cost Controls and Revenue Controls
- Identifying cost centres to determine areas of excessive costs.
- using marketing department to differentiate product therefore leading to increase sales revenue.
Descrive Growth, how can this objective be achieved?
The ability of a bus. to increase its size (market share or physical size) in the longer term.
Growth achieved through increased sales / revenue which can be used to fund expansion globally or domestically.
Describe Efficiency, what strategies are used to to achieve this objective?
Minimising costs / wastage to maximise profits
--> Reviewing and cutting expenses to improve bus.'s expense ratio
--> Implementing technology and inventory managment to minimise defect rates / mistakes which lowers wastage / expenses and makes the bus. more efficient in the long term.
Reviewing Credit Policy:
--> Reviewing who the bus. extends credit to will minimise risk of debtors not paying their accounts recievable - increasing ART Ratio.
Describe liquidity, what strategies can businesses employ to achieve this objective?
The extent to which a bus. can meet its short term financial commitments. I.e. having enough cash to pay expenses by turning stock into cash.
For Cash Flow businesses may use:
- Discounts for early payment
-Distribution of payments
For Working Capital business may use:
- Sale and lease back
Describe solvency, what strategies are used to achieve this objective.
The extent to which a bus. can meet long term financial obligations - Refers to the long term stability of the business.
To Increase solvency, businesses may use:
--> renegotiating terms of loan with financial institutions., using cash to reduce the value of liabilities
--> Inviting new shareholders or partners to increase equity and improve Debt to Equity Ratio
Explain the interdependence between Finance and Operations
--> Must produce goods to be sold for a return and deliver the best use of resources, especially labour which reduces waste and minimise costs while also gaining maximum profits.
--> Finance must allocate finances to operations to be able to purchase required materials and implement features to suit needs and wants of the consumer in order to increase revenue.
Explain the interdependence between Finance and Marketing
--> Generate sales by promoting the product and conducting market research, which increases cash flow (liquidity) of the business and increases market share through promotion that results in more sales revenue.
--> Raise funds for expansion by selling equity and provide finance to marketing to be able to implment promotion strategies which inturn increases market share in revenue.