Role
Define what a financial resource is.
Cash or an item of monetary value that a business holds.
Short-term objectives are not as important as long-term objectives. True or False
It's false. Short-term and long-term objectives are essential to a business! However, they often conflict, so a business must plan their objectives carefully and effectively.
What are the two sources of internal finance?
The two internal sources of finance are owners' equity and retained profits.
List one type of government influence on financial management
ASIC (Australian Securities and Investment Commission) or Company taxation
Why is leasing considered a preferable form of borrowing?
Leasing allows businesses to maintain their working capital, because they don't need to buy any equipment outright. Repayments are also fixed and usually include maintenance and insurance costs.
What is the strategic role of finance?
The process of managing the finances of a company to meet the organisation's goals.
Liquidity is the ability of a business to meet its long-term or short-term financial commitments.
Liquidity is the ability of a business to meet its short-term financial commitments.
Short-term borrowing options improve liquidity and cash flow. True of False
True
Define economic outlook
Refers to the projected changes in the future on global economic growth
What is factoring?
Factoring is the selling of accounts receivable to a third party business at a discounted price. Remember, accounts receivable is money that is owing to the business!
How does finance interdepend with operations
They provide operations with a budget to undertake tasks and operations report on the costs involved in the production of goods and services.
A fast food chain is struggling with ongoing complaints about customer service.
How can the finance department contribute to improving employee performance?
Finance is not responsible for managing or training staff, so they can help this situation by providing funding to human resources. This way, HR can create incentives and performance rewards, to encourage better customer service.
Which form of long-term borrowing is defined as 'a loan secured against the asset being purchased'?
A loan that is secured against the asset being purchased is called a mortgage. Taking out a mortgage means that the financial institution owns the asset until the debt owing has been repaid.
List the three types of short-term borrowing
Overdraft, commercial bills and factoring
What is NOT a global market influence listed in the syllabus?
a - Economic outlook
b - Availability of funds
c - Consumer confidence
d - Interest rates
Consumer confidence is not one of the global market influences listed in the syllabus, although it is closely related to economic outlook!
A business is planning to increase its market share by merging with a competitor.
What is the financial objective?
Growth
What is efficiency?
Efficiency refers to the ability of a business to maximise the use of its assets in the most cost effective way.
List 4 types of Long-term borrowing options
Debentures, mortgages, unsecured notes and leasing.
What is the type of long-term loan from investors with a fixed interest and time period?
Debentures
Why are interest rates higher when borrowing funds from a finance company?
Unlike banks and investment banks, finance companies lend pretty freely. For this reason, they're at a greater risk of not receiving the borrowed amount back again in full and on time. So, they increase their interest rates.
List all objectives of financial management
Profit, Efficiency, Growth, Solvency, Liquidity
Short term objectives relate to the operational and tactical plans of a business.
What are operational plans?
a - Day to day plans
b - 1-2 year plans
c - 5+ year plans
d - 10+ year plans
What is the difference between debentures and unsecured notes?
Debentures are secured against an asset, while unsecured notes are not. This means unsecured notes are more risky for investors, so interest rates are higher.
List 4 of the seven financial institutions
Banks, investment banks, finance companies, superannuation funds, life insurance companies, unit trusts and ASX
What is global economic outlook?
Global economic outlook refers to the projected changes to the level of economic growth throughout the world. It's about how well will the global economy is expected perform in the future!