Business Studies: Finance
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Distinguish between goals and objectives.
Goals are targets that the business plan to achieve, whereas objectives provide greater detail about the business's mission.
State the objectives of financial management.
Outline the influences of financial management.
- internal sources of finance
- global market
- external sources of finance
- influences of government
- financial institutions
Identify the main sources of external finance.
Debt and equity.
Main financial institutions.
- investment banks
- finance and life insurance companies
- superannuation funds
- unit trusts
- Australian Securities Exchange (ASX)
Identify 3 global market influences.
- Economic outlook
- Availability of funds
- Interest rates
Outline the financial elements of planning cycle.
- Financial needs
- record systems
- financial risks
- financial controls
- financial position
Identify the factors that determine business's financial needs.
- size of the business
- current phase of the business cycle
- future plans for growth and development
- capacity to source finance
- management skills for assessing financial needs and planning
Summarise the different types of budgets and their importance in financial planning.
- operating budgets: sales production, expense, raw materials, labour hours
- project budgets: capital expenditure, research and development
- financial budgets: income statement, balance sheet, cash flow statement
Most common causes of financial problems and losses.
- damage or loss of assets
- errors in records systems
Advantages & disadvantages for debt finance.
- advantages - tax deduction fro interest payments & increased funds should lead to increased earnings and profits
- disadvantages - security is required by the business & regular repayments have to be made
Advantages & disadvantages for equity finance.
- advantages - cheaper than other sources of finance as there are no interest payments & less risk for the business and the owner
- disadvantages - lower profits and lower returns for the owner & the expectation that the owner will have about the return on investment
Identify the 3 main financial controls.
- 1. cash flow statements
- 2. income statements
- 3. balance sheets
Outline the difference between an asset and a liability.
Assets represent what is owned by a business, whereas liabilities represent what is owed by the business.
Name the types of financial ratios.
- current ratio = liquidity
- debt to equity ratio = solvency
- gross profit ratio = profitability
- net profit ratio = profitability
- return on equity ratio = profitability
- expense ratio = efficiency
- accounts receivable turnover ratio = efficiency
Identify the limitations of financial reports.
- normalised earnings
- capitalising expenses
- valuing assets
- timing issues
- debt repayments
- notes to the financial statement
Outline the 3 main types of audits.
- internal : conducted by the business's employees
- management : conducted to review the business's strategic plan
- external : conducted by independent and specialised audit accountants
Outline the management strategies for a cash
- identifying when the distribution of payments can be and are made
- using discounts for early payments
Procedures for managing accounts receivable.
- checking the credit rating of prospective customers
- sending customers' statements monthly
- following up on accounts that are not paid by the due date
- instructing a reasonable period for the payment of accounts
- putting policies in place for collecting bad debts
Main strategies for working capital management.
- leasing - the hiring of an asset from another person or company who has purchased the asset and retains ownership of it
- sale and lease-back - the selling of an owned asset to a lesser and leasing the asset back through fixed payments for a specified number of years
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