Steatwgies And Processes

Question 1

What is cash flow management?

Answer 1

Cash flow management ensures money flows in and out of the business smoothly to pay bills on time and avoid running out of cash.

Question 2

What are the main cash flow strategies?

Answer 2

1. Developing cash flow budgets to predict cash movement.
2. Spreading out major payments.
3. Offering discounts for early payments.
4. Using factoring to sell accounts receivable for immediate cash.

Question 3

Why is effective cash flow management important?

Answer 3

It keeps the business running day-to-day and avoids crises.

Question 4

What is working capital management?

Answer 4

Working capital management involves keeping enough short-term assets to cover daily expenses and short-term debts.

Question 5

What are strategies for working capital management?

Answer 5

1. Controlling current assets to avoid excess cash tied up.
2. Controlling current liabilities to manage payables effectively.
3. Sale and lease back to free up cash.

Question 6

What is the goal of working capital management?

Answer 6

To improve liquidity for financial stability and flexibility.

Question 7

What does profitability management focus on?

Answer 7

Increasing profit by controlling costs and boosting revenue.

Question 8

What are key strategies for profitability management?

Answer 8

1. Cost controls to monitor and reduce expenses.
2. Expense minimization to cut unnecessary costs.
3. Revenue controls to increase sales and manage inventory.

Question 9

What is the main aim of profitability management?

Answer 9

To maximize profits for owners and ensure long-term success.

Question 10

What is financial planning?

Answer 10

Financial planning is about figuring out where the business is headed with its money, how it will get there, and what controls are needed along the way.

Question 11

What are the steps involved in financial planning?

Answer 11

The process involves determining financial needs, developing budgets, maintaining record systems, identifying financial risks, and establishing financial controls.

Question 12

What is the purpose of financial planning?

Answer 12

Planning guides decisions and helps businesses avoid nasty financial surprises.

Question 13

What are the two main ways businesses can obtain money?

Answer 13

Businesses can obtain money through debt (loans, overdrafts) or equity (owner’s funds, shares).

Question 14

What factors must be considered in debt and equity financing?

Answer 14

Deciding how much debt vs. equity to use, understanding that debt must be repaid with interest while equity does not need to be paid back.

Question 15

What is the role of finance managers in financing?

Answer 15

Finance managers weigh how to best raise funds and what suits the business’s situation and goals.

Question 16

Why is monitoring and controlling important in finance?

Answer 16

Businesses must watch their progress and take corrective action as needed.

Question 17

What are key financial controls and reports?

Answer 17

Key financial controls and reports include cash flow statements, income statements, and balance sheets.

Question 18

What do financial statements help managers do?

Answer 18

They help managers spot problems, ensure goals are achieved, and allow quick decisions if something goes off track.

Question 19

What are financial ratios?

Answer 19

Financial ratios use figures from the main reports to give clear, relative measures of business health and performance.

Question 20

What are the main types of financial ratios?

Answer 20

Main types of ratios include liquidity, solvency/gearing, profitability, and efficiency.

Question 21

How is financial ratio analysis conducted?

Answer 21

Analysis involves comparing these ratios to industry benchmarks, previous periods, or plans.

Question 22

What are financial controls?

Answer 22

Financial controls are policies, procedures, and systems to protect the business’s money and assets.

Question 23

What measures are included in financial controls?

Answer 23

Measures can include regular audits, clear record-keeping, separation of duties, approval checks for spending, and security measures.

Question 24

What is the benefit of good financial controls?

Answer 24

Good controls reduce theft, fraud, error, and help with accurate reporting.

Question 25

What is a pro of debt finance regarding availability?

Answer 25

Funds are usually readily available and can be accessed quickly, helping a business take advantage of opportunities or cover urgent expenses. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 302)

Question 26

How do interest payments on debt finance benefit businesses?

Answer 26

Interest payments on debt are tax deductible, reducing the real cost of borrowing. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 301)

Question 27

What is a key advantage of debt finance regarding ownership?

Answer 27

Debt does not dilute the ownership control of the business, so current owners remain in charge. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 302)

Question 28

What flexibility does debt finance offer?

Answer 28

Flexible payment periods and types of debt are available to suit different business needs. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 302)

Question 29

What is a con of debt finance related to repayments?

Answer 29

Regular repayments must be made whether or not the business is making a profit, which increases risk. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 302)

Question 30

What risk do lenders impose on businesses seeking debt finance?

Answer 30

Lenders often require security (collateral) to approve loans, which puts business assets at risk if things go wrong. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 302)

Question 31

What financial burden can arise from debt finance?

Answer 31

Interest and other borrowing costs can be expensive, especially if interest rates rise. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 302)

Question 32

What happens to lenders if a business fails?

Answer 32

Lenders have first claim on the money if the business fails, which increases financial pressure. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 302)

Question 33

What is a pro of equity finance regarding repayment?

Answer 33

Equity finance does not have to be repaid unless the owner leaves the business. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 303)

Question 34

How does equity finance compare to debt in terms of costs?

Answer 34

There are no interest payments, making it a cheaper source of funds compared to debt. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 303)

Question 35

What control do owners retain with equity finance?

Answer 35

Control remains with owners who contributed the capital, unless a big portion of new shares are sold. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 303)

Question 36

What is a risk reduction benefit of equity finance?

Answer 36

Lower risk for the business because money doesn’t have to be paid back regardless of profits. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 303)

Question 37

What is a con of equity finance regarding profits?

Answer 37

Profits are shared with new shareholders, meaning lower returns per owner. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 303)

Question 38

How does equity finance affect ownership?

Answer 38

Ownership is diluted, so existing owners may lose some control over the business. ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 303)

Question 39

What is a drawback of the equity finance process?

Answer 39

The process can be long and expensive (e.g., issuing shares has a lot of paperwork and legal fees). ## Footnote Business_Studies_HSC_Textbook_5th_Editio... (p. 303)

Question 40

What is the expected return on investment for equity finance?

Answer 40

The expected return on investment from shareholders may be higher than interest on debt.

Question 41

What is the matching principle in business finance?

Answer 41

The matching principle means that the term of finance used should match the economic life of the asset it funds. ## Footnote For example, short-term loans are used to buy short-term assets (like inventory), and long-term loans are used for long-term assets (like buildings or equipment). 2._Processes.pdf (p. 14)

Question 42

What is a consequence of mismatching finance and asset life?

Answer 42

If a business uses short-term finance to buy long-term assets, it may run out of money before the asset has paid for itself—causing cash flow issues and possible forced asset sales.

Question 43

What inefficiency arises from using long-term finance for short-term needs?

Answer 43

If a business uses long-term finance for short-term needs, it will still be making repayments long after the need has passed, which is inefficient and reduces profits.

Question 44

How does matching finance terms to asset life benefit businesses?

Answer 44

By matching finance terms to asset life, businesses optimise cash flow, lower the risk of default, and keep their finances sustainable. ## Footnote 2._Processes.pdf (p. 14)

Question 45

What are Normalised Earnings?

Answer 45

Adjusts profits to remove unusual or one-off items for a clearer view of business performance. ## Footnote Can hide true volatility in earnings, making the business appear more stable than it is.

Question 46

What does Capitalising Expenses mean?

Answer 46

When costs are recorded as assets (not expenses), profits look higher in the short term. ## Footnote Can mislead users about true profitability and overstate asset values.

Question 47

What is Valuing Assets?

Answer 47

Some assets (especially intangibles like goodwill) are hard to measure, so reported values are often just estimates. ## Footnote May lead to either understating or overstating what the business is really worth.

Question 48

What are Timing Issues in financial reporting?

Answer 48

When revenues and expenses are recorded in different periods than when they actually occur, it distorts financial results. ## Footnote Hides the real financial performance of the business.

Question 49

What are Debt Repayments in financial statements?

Answer 49

Reports don’t show details like when debts are due or if repayments have been delayed. ## Footnote Users can’t fully see the business’s debt risk or repayment schedule.

Question 50

What are Notes to the Financial Statement?

Answer 50

Not all important details fit into the main statements—explanations and calculation methods go in the notes. ## Footnote If ignored or incomplete, users miss key info for understanding the real financial situation.