role of finance

Question 1

what is the strategic role of financial management ?

Answer 1

to ensure that a business achieves its goals and objectives, which can only be accomplished if finances are managed correctly

Question 2

financial management definition

Answer 2

the planning and monitoring of a business’s financial resources in order to allow the business to achieve its financial objectives

Question 3

what are the objectives of financial management ?

Answer 3

PLEGS :
profitability
liquidity
efficiency
growth
solvency

Question 4

profitability

Answer 4

the ability of a business to maximise profits
requires monitoring of revenue, pricing, costs and expenses, inventory levels, and levels of assets

Question 5

growth

Answer 5

the ability of a business to increase size
can be achieved through increasing value of assets, increasing market share, taking over a competitor

Question 6

efficiency

Answer 6

the ability to minimise costs whilst managing assets ( maximum returns for minimum costs)
levels of inventory and cash, and the collection of receivables must be monitored

Question 7

liquidity

Answer 7

the extent to which a business can meet its financial commitments in the short term
a business must have sufficient cash flow and be able to convert current assets into cash quickly

Question 8

solvency

Answer 8

the extent to which a business can meet its financial commitments in the longer term –> paying short and long term liabilities as they fall due
measured using gearing ratios

Question 9

what objective uses gearing? gearing definition

Answer 9

solvency is measured using gearing
gearing is the proportion of debt (external finance) and equity (internal finance) that is used to finance the activities of a business –> ratios determine solvency

Question 10

short term financial objectives

Answer 10

tactical : 1-2 years
operational : day to day
reviewed regularly to determine whether or not goals are being met

Question 11

long term financial objectives

Answer 11

the strategic plans of the business that are determined for a set period of time (generally >5 years), and are usually more broad goals such as increasing profit
require short term goals

Question 12

Interdependence

Answer 12

operations : requires funds to purchase inputs
marketing : requires funds to undertake promotional strategies
HR : requires funds to pay staff

finance relies on key business functions to produce sales and provide incomr