Cash Flow Management
What is cash flow?
The movement of cash into and out of a business.
What is working capital?
The short-term financial health and liquidity of a business.
What is leasing?
Obtaining the use of an asset through regular payments over time.
What is the difference between fixed and variable costs?
F: Costs that do not change regardless of the level of production.
V: Costs that change according to the level of output.
What is an exchange rate?
The value of one currency compared to another.
What is liquidity?
Being able to meet your short term financial obligations as they fall due
What are 3 current assets?
Cash, receivables, and inventories
What is sale-and-lease-back and 2 reasons why is this a beneficial financial management strategy?
Selling an asset and then leasing it back from the new owner.
- Access to capital without borrowing
- Sale = Cash inflow
- Continued use of the asset so that it does not disrupt operations
Dividing a business into departments with separate budgets is known as:
Cost Centres
What is appreciation? (P.O.V as an Australian Business)
When the Australian dollar increases in value against another currency.
What are 3 examples cash inflows?
Accounts Receivable
Sales
Selling Assets
What are current liabilities?
Payables, loans, and overdrafts
What two factors are monitored in profitability management?
Costs and Sales revenue
What is expense minimisation?
The strategy of reducing unnecessary expenses to increase profit.
A method of international payment where goods are paid for before they are supplied is known as:
payment in advance
Why is distribution of payments a good cash flow management strategy?
Spreading expenses throughout the year to create more even cash outflows, rather than have all your outflows in the same month
Distinguish between Accounts Receivable and Accounts Payable.
AP: money owed BY the business
Variable Costs
1 advantage & 1 disadvantage
2 examples
+ can be negotiable
- unpredictable
ex: supplier costs, wages for casual staff
Fixed Costs
1 advantage & 1 disadvantage
2 examples
+Predictable and do not change
- Even if revenue/sales is low, the cost does not change
Ex: Rent, Insurance
bank-issued document guaranteeing payment to an exporter once conditions are met is known as:
letter of credit
- Selling your accounts receivable at a discounted price to a factoring company
+ Quicker inflow of cash to be able to pay short term obligations
- If used constantly, you're losing a % of your potential income
Inventory on Consignment and Writing off bad Debts are 2 Working Capital Management Stratgies. Explain both.
Inventory on Consignment: Stock is only paid for it is sold. Avoid overstocking and controls your costs
Writing off bad Debts: Money owed to the business unlikely to be collected is written off so it doesnt impact financial statements. This is regarded as a tax deductible expense.
What are the 3 marketing objectives facilitate revenue controls? HINT {P.S.S}
1. pricing policies
2. sales mix
3. sales forecast
Describe the relationship between Revenue Controls and Marketing Strategies
Marketing objectives like
- increasing market share, expanding the product mix and overall expansion
All lead to improved financial management through increase sales and profitabilty
When the importer locks in the exchange rate with the exporter.
-Reduces uncertainty and risk in international transactions