Business & Financial Profit – Finance & Accounting

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Business & Financial Profit – Finance & Accounting

This quiz is about business and financial profit of finance and accounting.


ability of a business to maximise its profits


ability of a business to increase its size in the longer term


ability of a business to use its resources effectively in ensuring financial stability and profitability


extent to which a business can meet its financial commitments in the short term


extent to which the business can meet its financial commitments in the longer term

Short term objectives

1-2 years tactical plans

Long term objectives

strategic plans 5+ years

Internal finance

funds provided by the owners of the business or from the outcomes of business activities (retained earnings)

Owners’ equity

funds contributed by owners or partners to establish and build the business

External finance

funds provided by sources outside of the business, including banks, other financial institutions, government, suppliers or financial intermediaries

Bank overdraft (ST) `

bank allows a business or individual to overdraw their account up to an agreed limit and for a specified time, to help overcome a temporary cash shortfall

Commercial bills (ST)

type of bill of exchange (loan) issued by institutions other than banks

Bill of exchange

document ordering the payment of a certain amount of money at some fixed future date

Factoring (ST)

selling of accounts receivable for a discounted price to a finance or factoring company

mortgage (LT)

loan secured by the property of the borrower

Debentures (LT)

issued by a company for a fixed rate of interest and for a fixed period of time

Unsecured note (LT)

loan for set period of time but is not backed by any collateral or assets

Leasing (LT)

payment of money for the use of equipment that is owned by another party


finance (cash) raised by a company by issuing shares


distribution of a company’s profits to shareholders and is calculated as a number of cents per share

Australian securities exchange (ASX)

primary stock exchange group in Australia

Primary markets

deal with the new issue of debt instruments by the borrower of funds

Secondary markets

deal with the purchase and sale of existing securities

Global economic outlook

projected changes to the level of economic growth throughout the world

Availability of funds

ease with which a business can access funds on the international financial markets

Interest rates

cost of borrowing money

Capital expenditure

what is spent on business’s non current or fixed assets


provide information in quantitative terms about requirements to achieve a particular purpose

Operating budgets

main activities of a business – sales, production, raw materials, expenses

Project budgets

capital expenditure and R&D

Financial budgets

financial data of a business – income statement, balance sheet and cash flows

Record systems

mechanisms employed by a business to ensure that data are recorded and the information provided by record systems is accurate, reliable, efficient and accessible

Financial risk

risk to a business of being unable to cover its financial obligations

Financial controls

policies and procedures that ensure that the plans of a business will be achieved in the most efficient way

Debt finance

Short and long term borrowing from external sources by a business

Equity finance

internal sources of finance in the business

Cash flow statement

financial statement that indicates the movement of cash receipts and cash payments resulting from transactions over period of time

Cash Flows. Business & Financial Profit - Finance & Accounting

Income statements

shows the operating results for a period. It shows revenue earned and expenses incurred over the accounting period with the resultant profit or loss

Income Statements

Balance sheet

business’s assets and liabilities at a particular point in time, and represents net worth of the business

Balance Sheet. Business & Financial Profit - Finance & Accounting


items of value owned by the business.

Current assets

turned into cash within 12 months

Financial resources

resources in a business that have a monetary or money value

Financial management

planning and monitoring of a business’s financial resources to enable the business to achieve its financial goals


property and other items such as machinery, vehicles and cash (tangible assets) and patents, trademarks and goodwill (intangible assets)

Objectives of Financial management (5)

1. Profitability
2. efficiency
3. growth
4. liquidity
5. solvency

Non-current assets

not expected to be turned into cash within 12 months


claims by people other than owners of against assets, and represent what is owed by the business.

Current liabilities

must be repaid within 12 months

Non-current liabilities

met some time after the next 12 months

Accounting equation

Assets = Liabilities + OE


Assets = liabilities + capital + revenue – expenses


working the financial information into significant and acceptable forms that make it more meaningful, and highlighting relationships between different aspects of a business


making judgements and decisions using the data gathered from analysis

Liquidity: current ratio

current assets/current liabilities


proportion of debt and the proportion of equity that is used to finance the activities of a business.

Gearing: Debt to Equity Ratio

total liabilities / OE

Profitability: Gross profit ratio

gross profit/ sales

Profitability: Net profit ratio

net profit/ sales

Profitability: Return on equity ratio

net profit/total equity

efficiency: expense ratio

total expenses/sales

efficiency: Accounts receivable turnover ratio

sales/accounts receivable

Debt repayments

either money owed to the business or by the business


independent check of the accuracy of financial records and accounting procedures

Cash flow

movement of cash in and out of a business over a period of time

Working capital

funds available for the short-term financial commitments of a business

Net working capital

current assets – current liabilities

Working capital management

determining the best mix of current assets and current liabilities needed to achieve the objectives of the business


sums of money due to a business from customers to whom it has supplied goods or services


sums of money owed by the business to other businesses from whom it has purchased goods and services

Sale and lease-back

selling of an owned asset to a lessor and leasing the asset back through fixed payments for a specified number of years

forward exchange contract

contract to exchange one currency for another currency at an agreed exchange rate on a future date

currency swap

agreement to exchange currency in the spot market with an agreement to reverse the transaction in the future

Profitability management

control of both the business’s costs and its revenue

cost centres

particular areas, departments or sections of a business to which costs can be directly attributed

direct costs

those that can be allocated to a particular product

indirect costs

those that are shared by more than one product

foreign exchange market

determines the price of one currency relative to another

foreign exchange rate

ratio of one currency to another


upward movement of the AUD against another currency

payment in advance

allows the exporter to receive payment and then arrange for the goods to be sent

letter of credit

commitment by the importer’s bank, which promises to pay the exporter a specified amount when the documents proving shipment of the goods are presented

clean payment/remittance

occurs when payment is sent to, but not received by, the exporter before the goods are transported

spot exchange rate

value of one currency in another currency on a particular day


process of minimising the risk of currency fluctuations


financial instruments that may be used to lessen the exporting risks associated with currency fluctuations